Americans have a short memory, especially when the market is on fire like it has been for the last eight years. Records are being broken with the Dow hitting all-time highs, and this run is the second longest run in U.S. history. But we all know it can’t last, and unfortunately, no one knows when the market will go down or how hard it will crash. There is good and bad news for those near retirement or in retirement who have most of their retirement portfolio in the market. Let’s start with the good news; over the last eight years, your portfolio has grown nicely, giving you even more, to use for retirement. Here is the bad news, and I am sure many of you have heard this all before, but maybe not from the same perspective I will share with you. When the market crashes, and you no longer have the ability and desire to go back to work to “recoup” your losses, your retirement plan must change. Here it is in dollars and “sense”; let's say you have $500,000.00 in your retirement fund. Your Social Security will not cover all your expenses, so you have planned to take out about $40,000.00 per year to cover the costs. But wait, you need to take out an additional $10,000.00 to cover the taxes because your portfolio is in an IRA. Assume you are removing 10% from your account, but you figure with the market averaging 8%. Does that mean you are only removing 2%? According to all the experts, your portfolio “should” last a lifetime if inflation stays in check and the market keeps humming along like it has been for the last eight years. What happens to your account if we have another market downturn as we witnessed in 2007 and 2008? That year investors saw a drop in asset value of 30% or more. Here is the math:Starting balance: $500,000 Market loss 30% <$150,000>New Balance: $350,000 Assume you continue to remove $50,000.00 to maintain your lifestyle and pay your taxes; unless the market recovers 43% in one year, you are at risk of running out of money in 10 – 12 years. But here is some more good news; we are at the height of the market, and you can take your hard-earned retirement asset and turn it into a lifetime of guaranteed income and have 100% protection against market loss (meaning you never put your principal and gains at risk).
Why gamble with your retirement dreams when you can protect them so quickly?