The Worst of Times to Retire

If you have a portion of your portfolio invested in the stock market, and will be withdrawing income and eventually principal from the portfolio during your retirement, you have a big problem right now. This is because the sequence of the equity investment returns is critical to your portfolio successfully delivering the income you need.

Maybe you have a retirement plan already - one that is based on a reasonable 'average rate of return', and says you can withdraw a certain percentage adjusted upwards for inflation each year, and that your savings will last beyond your expected lifespan. However, nobody ever receives the 'average' rate of return each and every year. When the return they do receive is lower than average in the early years, the plan crumbles and fails.

RIght now is one of those times. Not only do we have a market cycle that is based on a business cycle already in recession, but also we may well have a megatrend downwards, which means extended bear market conditions. The bull market megatrend from 1982 to 2000 left us with conditions of low inflation, low interest rates and a high price-earnings ratio. We went through a downturn from 2001 to early 2003, another bullish period up until the end of last year, and now the market is sharply down again. However, conditions are still not right for a return to a bull market. Basically, this bear market that began in 2001 will not be over until the price-earnings ratio is much lower, and both inflation and interest rates are much higher.

In bear markets, the value of equities rises and falls, but basically goes nowhere over an extended period. Your equities are most likely not going to give you the returns your retirement plan assumes over the next 5 to 10 years. Your plan is in trouble.

Take action now to safeguard your principal and make sure you are withdrawing a sustainable amount of income. Market conditions have changed, and your retirement planning should also.

For a retirement plan that you can trust in this environment , call (408) 725-7135 or click here.

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