Has your retirement savings account been a victim of the most recent economic recession? Many people have experienced losses of 30-50% during 2008 & the first part of 2009. Despite a recovery of nearly 20% beginning in March, many accounts will take years to recover under the best economic conditions... and there is no guarantee that our economy will enjoy a full recovery in the near future.
When you talked with your financial advisor, what was his advice? “Just hang in there, the Market will eventually recover...it's only a paper loss”...? If you are in your 30 or 40s, that may be true. However, if you are in your 50s to 70s, the stakes have changed for you. As a matter of fact, recent losses may impact recent retirees or those preparing to retire within the next few year to a degree that may make it impossible to recover.
Why? Because, just as the power of compounding works for you during your accumulation stage when your assets are growing, it can work against you when you are taking income while experiencing losses. As a result, the value of your retirement account is depleted much more rapidly. We may be able to cut back on that planned cruise, but few of us have the luxury of being able to reduce our daily expenses in order to preserve our retirement savings, because many of these expenses for the necessities of life are either fixed or increasing over time... mortgage payments, food, utilities, transportation, insurance & taxes to name just a few. As a result, many people must continue taking distributions from their retirement savings, further depleting an already fractured nest egg.
Like a small crack in your boat, damage to your retirement savings may not be readily apparent today. However, in a few years it will become painfully evident that your ship is slowly sinking, & you may run out of money before you die. Take the following illustrations…
First, notice what happens when you take income while your account value is experiencing growth:
Now watch what happens when you take money from your account while experiencing losses:
Assumes gain/loss equals 100% of S&P 500® Index (which is unlikely), an unmanaged index representing “large cap” companies. S&P 500® results based upon closing value on last trading day of each month January through December. “Standard & Poor’s®,” “S&P®,” “S&P 500®,” “Standard & Poor’s 500,” and “500” are trademarks of The McGraw-Hill Companies, Inc.
This hypothetical example is for illustrative purposes only. Past performance does not guarantee future results. The S&P 500 is an unmanaged group of securities considered to be representative of the stock market in general. An investment may not be made directly in an index.
Notice what happened to the retirement account value in year 5, despite healthy gains in years 4 & 5 after 3 years of losses. As a matter of fact, these numbers are taken from actual values to the S&P 500 index during the period beginning in the year 2000 through 2004. If you were in the accumulation phase & not taking income during this period, you would have recovered your losses by 2007 (just in time to lose money again in 2008). However, if you were taking income during this period, your account will likely never recover.
If you are currently retired, or planning on retiring within the next few years, what will you do? What can you do to protect your savings from these kinds of losses in the future? Is there a way to recover from recent losses to your savings? How can you insure a lifetime retirement income – your very own personal pension plan that you cannot outlive? If recovery is not possible, how can you maintain your spending for necessities using 25-50% less savings than you had last year? For answers to these questions & more, call for a complimentary interview to assess your situation.