inside: Carolyn Lamour ... - Floridawise Magazine

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