Discuss the pros and cons of retirement funding using savings invested in the market vs. a fixed asset. Note: You must be registered with a broker/dealer to discuss investment concepts with a consumer. |
You work your entire life to grow you nest egg to a point where you can afford to retire. When you enter retirement, you are going to ask your nest egg to perform three very important, very different functions: 1.First, you are going to need it to provide you with an income. So, you took your nest egg and you invest it in the stock market to try and earn a rate of return high enough to provide an inflation adjusted retirement income. 2.Second, you need to make sure that you never run out of money, since this is all the money you will ever have and it needs to last you until your (or your spouse’s) life expectancy. 3.Finally, you will pass the remaining nest egg on to your heirs in the form of your legacy. The stock market has historically provided a long-term rate of return that has been higher than fixed income investments. However, it's important to remember that past performance is not indicative of future results. Investment return and principal value will vary so that an investor's shares may be worth more or less than their original cost when redeemed. The average rate of return may not be the most impactful measurement of success. Because the stock market has historically been volatile in its annual returns, and they are expected to remain so, the sequence (or order) of above average and below average years can have a dramatic impact on how long your nest egg will last. In addition, the sequence of returns will have an impact on your remaining nest for your heirs. |
Total Withdrawal = Initial Total Assets Assumption * Withdrawal % * (1 + Inflate @ Rate) ^ n where n=year number Values Subjected to Sequence of ReturnsForward Market Balance = ([previous year] Forward Market Balance - Total Withdrawal) * (1 + Forward Market ROR) Forward Market ROR = Market return for selected year, ascending. Inverted Market Balance = ([previous year] Inverted Market Balance - Total Withdrawal) * (1 + Inverted Market ROR) Inverted Market ROR = Market return for selected year, descending. Average Market Balance = ([previous year] Average Market Balance - Total Withdrawal) * (1 + Average Market ROR) Average Market ROR = Product of selected market return values / number of market returns selected. Cumulative WithdrawalsMarket Total (average/forward/inverted) = Sum of withdraws plus remaining balance. |