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AdviceWise<br />
Less Can Be More<br />
If a retiree withdrew less money from their<br />
retirement portfolio in the early years, logic<br />
tells us that they should be able to withdraw<br />
more money in the later years.<br />
By<br />
Jerry Desiderio<br />
M A G A Z I N E<br />
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26 October 2006<br />
II know you’re thinking that I’m<br />
a master of the obvious, but many<br />
retirees may not realize that they<br />
may end up with more money in<br />
their retirement portfolios by<br />
investing in asset classes that lower<br />
long-term returns.<br />
There is a world of difference<br />
between the best ways to invest<br />
before retirement and after<br />
retirement. In most cases, investing<br />
is simply broken down into two<br />
phases: accumulation and<br />
distribution. During the<br />
accumulation period,<br />
investors are adding to assets, not<br />
withdrawing them, making growth the<br />
primary objective. Stability, though<br />
comforting for psychological reasons, takes<br />
a back seat. When a person enters the<br />
distribution stage, stability should now<br />
become the number one objective.<br />
When a person is accumulating money,<br />
what is most important is how much you<br />
end up with, not necessarily how you got<br />
there. For example, if your portfolio lost 45<br />
percent the first year then had annual gains<br />
of 14 percent (these percents aren’t actual,<br />
they’re only to make a point) in 16 years<br />
you would practically quadruple your<br />
money. Sounds wonderful, doesn’t it? Here’s<br />
something that I think may surprise you,<br />
although the returns seem exceptionally<br />
favorable, they could prove to be nothing<br />
less than disastrous for a retiree.<br />
Lets assume that a person retires with a<br />
portfolio invested in growth assets worth $1<br />
million and in year one withdraws $60,000<br />
for living expenses and increases the<br />
withdrawal by 3.5 percent annually to<br />
offset inflation those exceptional results<br />
would leave the investor broke after 16<br />
years!<br />
The point I’m trying to illustrate is that<br />
in retirement Math Rules. If you must eat<br />
Photo: Visual Field/istockphoto<br />
into your portfolio each year, your<br />
portfolio has a relatively low tolerance<br />
for losses. Remember, you can control<br />
the tone of your assets. Simple math<br />
proves that constant returns, albeit<br />
conservative ones do justice to the<br />
damage that can be caused by losing<br />
years.<br />
To summarize, in a retirement<br />
portfolio, it is absolutely crucial to find<br />
the lowest risk asset available to<br />
achieve your desired return. If you<br />
manage to keep the risk low enough,<br />
you should survive nicely with a lower<br />
return. That’s why I believe almost every<br />
retirement portfolio can benefit from a<br />
healthy dose of low paying bond funds.<br />
For a complimentary portfolio<br />
review, please contact our offices at<br />
561-393-6900.<br />
— Jerry Desiderio has been an investment<br />
professional for more than 40 years. He<br />
currently oversees the management of<br />
approximately $100 million for individual<br />
clients, small business owners, 401k Plans,<br />
etc. He can be reached by phone at P: 561-<br />
393-6900, fax 561-347-0145, or email<br />
jdesiderio@kwbrowninvestments.com. For<br />
further information, visit his Web site<br />
KWBROWNINVESTMENTS.COM. ❂