1. “There are only two possible outcomes”...Money that outlives the people, or people that outlive the money. It doesn’t matter if you get better returns, or pay lower fees, or use the latest and greatest “here’s how to beat the market” strategy… if you spend too much of what you have or don’t have enough to support the lifestyle you desire to begin with, you’ll be one of the latter. Accept this and you’ll at least understand the challenge, which is half the battle. This makes the next “truth” all-important.
2. “Failing to plan is planning to fail”... You can come up with a good idea of what your income needs might be during retirement. Make some reasonable assumptions about earnings rates and you can figure out how money you’ll actually need to support your monthly needs. And with these two pieces of information, it’s not a big leap to know about how much you need to be saving to get there. BUT, it has been said that “if you don’t know where you are going, it’s going be hard to get there.” If you have not formally estimated your needs during retirement, and have not developed a formal plan to achieve them, your probability of achieving your goals is poor.
3. “Loss of purchasing power is the real enemy”... Volatile equities markets should not be your biggest concern…they are in fact normal. A bigger concern is limiting yourself to so-called “safe” investments that focus only on stability. Money invested in guaranteed accounts, earning let’s say… 1%, will not support a withdrawal rate of say…4%. Investments earning only 1-2% cannot keep pace with inflation of 3-4%. You may not experience volatility and you may not lose “dollars” in a purely numeric sense, but if you need to use 4% of your investments each year for normal expenses, you cannot withdraw at that rate and not deplete your assets unless you are invested in vehicles that have chance of exceeding that rate over time. Historically, we’ve had to accept volatility and temporary setbacks to have reasonable chance of accomplishing this. Using only “safe” investments could lead to “going broke safely.” A combination of the two might work better.
Accept these truths, and you may achieve the “freedom” to make some real plans and actually follow through on them.
*All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. Past performance does not guarantee future results. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.