ACTION PLAN FOR RETIREMENT INVESTORS
Even the most conscientious and organized people miss some important things when they are at or near retirement.
The investment services industry is to blame. The industry has done a poor job of educating people about all the steps that retirees need to take to ensure that they maximize their money in retirement.
Here are some of the flaws in the conventional wisdom about retirement finances.
Too much focus on THE NUMBER – People have been led to believe that a successful retirement is all about building a specific dollar amount for their retirement nest egg by age 65. Income generated from your retirement investments is the only thing that matters – not the number.
Bad financial forecasts – The typical financial plan developed by your investment advisor assumes a 6% annual return on your investments based on the traditional 60/40 stocks and bonds portfolio. Most of the time, the 6% growth assumption is used regardless of the actual investment strategy. A 6% return is not good, and you should not accept these mediocre results. A monkey can generate 6% per year. Being conservative is wise but low expectations should not be the goal.
The 4% Rule – Conventional wisdom says that people should draw 4% each year from their retirement funds – another conservative assumption. Taking out too much money early in your retirement years can get people into trouble, but being too conservative with the withdrawal plan doesn’t connect spending to reality.
More bonds – Standard industry advice says that retirees should move out of stocks and into bonds to reduce the risk of loss. Bonds are less risky than stocks, but bonds generate much lower returns than stocks. Bonds also are not risk free – they can and do lose money. Below is the price chart of one of the best intermediate term bond funds from PIMCO over the last five years. Bond prices dropped by 23% from late 2021 to 2023 and, as of now, prices are still 17% below their 2021 level. To make matters worse, the yield on these bonds was 1.5% in 2021. People investing in bonds in 2021 earning only 1.5% probably didn’t realize that they were exposed to 20% losses. The risk/reward ratio for bonds is not good.
The asset allocation strategy – Standard industry advice puts most retirees in plain vanilla asset allocation portfolios so that they are diversified and carry lower risk. Industry professionals tell people that they should own bonds and a variety of stock investments including US large cap stocks, small cap stocks, and international stocks. Average annual returns from bonds are around 2% over the last 20 years. US large cap stock funds produced 12% annual returns while small cap funds gained 9% and international stocks posted 7% annual returns. Small cap stocks and international stocks also carry more risk than the best US large cap funds. These cookie cutter portfolios don’t reduce risk, but they do reduce your gains.
Buy & Hold & Suffer – The stock market crashes every six or seven years. The industry tells you that the only option is to “hold on” and “wait it out”. The stock market will eventually recover but it can take 5 years or more to get back to even. It doesn’t make any sense to watch your $1 million account drop by 40% in a matter of months. There are better ways to deal with stock market volatility.
Risk is not understood – The industry highlights investing risks, but they do a poor job of explaining it and quantifying it. Aggressive investors who only invest in stocks, carry a risk of 40% to 50% short-term losses in a market meltdown. Asset allocation investors (stocks and bonds) are told that they have lower risk, but most don’t understand that they could lose 30% in a market downturn.
You Need an Advisor – People believe that investing is too hard and that they need to hire a financial advisor. Some people have no clue about investing and have no interest and an advisor is the only option for these people. A simple target date fund can match the 6% to 7% returns that your advisor projects for you and it costs you nothing. You will pay an advisor hundreds of thousands of dollars during your retirement. If they were great investors earning you 12% per year and protecting against big losses, those fees would be well worth it. But paying that money for cookie-cutter investment strategies that don’t protect your money in downturns is not a good deal.
YOU CAN DO MUCH BETTER
It is possible to avoid these pitfalls of retirement investing. It is not difficult. You can create much more income in retirement and reduce your risk of loss.
You also don’t have to send your life savings to some advisor you don’t even know. You can maintain control over your money.
There are three simple steps you need to take to improve your retirement finances.
A better and more comprehensive retirement plan and forecast – Most people don’t really know where they stand in retirement. It is painless and quick to develop a better retirement plan.
A better investment strategy – This is another painless and quick step to create the retirement of your dreams.
A better process – With a better plan and a better investment strategy in place, the last step is to create a process to monitor and manage the strategy going forward.
To help you get started quickly on a better path, I am offering a free retirement planning process where we will cover all three of these steps. Click the link below to get on my calendar now to begin the process. It is totally free – no obligations or commitments.
If you decide to use my training services going forward, you will not incur advisor fees of tens of thousands of dollars per year. The cost to work with me on an ongoing basis is less than the cost of a gym membership.
You will get better results by having an investing expert (fund manager, author and blogger) at your side. I have helped hundreds of people with their retirement investing and planning.
I can start helping you right away. The fixes are not that difficult. You will start to see the benefits very quickly. Click the link below to set up an appointment to get started.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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