Personal Finance Blog for Retirement and Investment Advice

How Sequence of Return Risk Can Devastate Your Retirement Lifestyle

There are three words that could have the biggest impact on whether you enjoy a comfortable retirement… or you have to struggle and forego life’s luxuries – and even life’s necessities.

But almost no one is talking about these three words. And there’s a good chance you’ve never even heard of them.

These three words could have more impact on your retirement lifestyle than living longer than you expected… or than being forced to retire sooner than you planned (which happens to nearly 50% of Americans, according to the Employee Benefit Research Institute).

The three words may sound a little technical, but I’m going to make them brain-dead simple to understand.

The three words are: sequence of returns. Specifically, the “unfavorable” kind

Sequence of returns risk is a fancy way of saying that retirees who have a big portion of their assets in equities and mutual funds face the very real risk that the market will fall as they are withdrawing money from their accounts.

Many people plan to use the widely recommended “4% rule,” which advises retirees to take out no more than 4% of the value of their retirement accounts (adjusted for inflation) each year. Studies show that rate of withdrawal has a good chance of making your money last as long as you do. (It should be noted that more recent studies show that a 3% annual withdrawal is the maximum needed to make your money last.)

That means that if you have $100,000 in your retirement accounts, you can safely pull out $4,000 a year using the 4% rule. If you have $500,000, you can withdraw $20,000 a year, and if you have $1 million in your account, you can take out $40,000 a year.

If you haven’t thought much about what kind of lifestyle withdrawing 4% a year from your accounts would give you, I’m guessing you might be feeling a little queasy right about now. (Oh! And don’t forget to take whatever you’ll have to pay in taxes that you deferred in your 401(k) or IRA off the top of that number!)

It’s easy to see that if we experience another market crash of 50% or more – as has happened twice since 2000 – as you’re nearing or already in retirement, it could have a devastating impact on how much you can withdraw each year.

If your million-dollar 401(k) suddenly becomes a 201(k) worth $500,000, withdrawing 4% will provide you only $20,000 a year, instead of the $40,000 you had planned on.

But here’s where it gets really sticky… timing is everything

When you run the calculations, you discover that the impact of a market decline in the first few years of retirement is even worse than in later years. It turns out that when you begin to take withdrawals, market volatility has a far greater impact than rate of return.

An unfavorable sequence of returns may make you have to cut back significantly on your retirement lifestyle, or force you to work longer than you had planned.

The BIG problem, of course, is that there is no way to accurately predict when the next market crash will happen, or where the markets will be when you’re ready to retire.

One way to protect yourself from this very real threat to your retirement lifestyle is to diversify your assets.

What if a portion of your savings were in an asset that is guaranteed to grow by a larger dollar amount every year? That would be a favorable sequence of returns that translates into financial peace of mind for life.

Such an asset exists, and it’s called Bank On Yourself. It’s never had a losing year in more than 160 years!

It also lets you fire your banker and become your own financing source for your cars, vacations, a college education, business expenses and more.

And the best part is that it’s easy to find out UP-FRONT what your bottom-line guaranteed numbers and results could be if you added Bank On Yourself to your financial plan!

Enjoy Financial Peace of Mind for Life

To find out how a custom-tailored plan could help you reach your financial goals and dreams – without taking any unnecessary risk – just request your free Analysis right here.Request a FREE Bank on Yourself AnalysisThere is no cost or obligation, so you have nothing to lose, and a lifetime of financial peace of mind to gain.

Slacker’s Guide to Goal Setting

Many of us spend half our time wishing for things we could have if we didn’t spend half our time wishing.”
– Alexander Woollcott

It’s still early in the year and time to set our bright and shiny new goals for the next twelve months, often with the grand title of “New Year’s Resolutions.”

Give me a break!

Aren’t we busy and stressed enough just trying to keep up with where and what we are without the added effort of trying to make our lives better? Why waste our time going after goals when we can put our feet up and watch new episodes of The Good Wife?

Besides, if we set goals, our lives might actually change – and who likes change? We’re all comfy cozy with our current problems and headaches. Why rock the boat?

However, you might be surrounded by obnoxiously chipper goal setters and goal getters harassing you to join them. Ugh!

To keep them off your back so you can join that happy 40% of people who set New Year’s Resolutions and fail within the first month, I’ve come up with some sure-fire tips:

The Slacker’s Guide to Goal Setting

Follow these pointers and you’ll never, ever have to worry about goals mucking up your perfect life! [Read more…]

Expert Interview: Cultivating an Attitude of Gratitude

Did you know there is scientific evidence that gratitude can lower your blood pressure, improve your digestion, reduce your stress and boost your immune system?

And it can have an amazing impact on how you respond to events, people and situations… and how they in turn respond to you.

The wonderful thing is that it can be cultivated and nurtured.  Result:  You bring out the very best in yourself and your life and the best in those whom you love, work and play with.

Buy Catherine Price's book, Gratitude: A NovelIn my 30-minute interview with best-selling author Catherine Price, you’ll discover some practical tips for cultivating an attitude of gratitude – and multiplying your blessings.

Catherine is the author of Gratitude: A Journal (available here on our Amazon store).  It’s a perennial best-seller that gives you a great way to keep a daily record of life’s little blessings, and it’s filled with a year’s worth of insights, prompts and inspiring quotes. [Read more…]

How to Raise Financially Savvy Kids, Teens and Grandkids

Welcome to part three of our Your Money Revolution video training series.

I hope you enjoyed the first two installments on how to spend less without feeling deprived, and “the silent enemy” in your retirement account that could be costing you hundreds of thousands of dollars in stealth fees.

And thank you for all your notes and emails on how much you enjoyed them!

Today, we’re going to talk about one of the biggest money drains on the planet… our children.

Do your kids think money grows on trees? Are you tired of saying “no” to the constant requests for the latest “must have” electronics, gadgets, sneakers, and more? I’ve been hearing for years from readers who say this is a big challenge they face.

If you can relate, you’re going to love this 5-minute video clip that reveals two of eight key money lessons we cover in the Your Money Revolution course that will empower your kids (and grandkids) to be financially responsible for life. [Read more…]

The Secret to Living a Richer Lifestyle while Spending Less [Video]

We had such a great response to the video clip from my new Your Money Revolution financial transformation program I posted a few days ago that I just couldn’t resist giving you another one.

The first clip showed you how the fees charged even by supposedly low-cost mutual funds and ETF’s can devour up to 37% of your account value – and what to look out for.

Today’s video clip will give you an idea of the wide range of strategies and tools we provide you in the Your Money Revolution coaching program for taking back control of your money and finances.

This video clip is less than 5 minutes and shows you one of a dozen ways we cover for spending less – without feeling deprived. In fact, you’ll experience a much deeper level of happiness and contentment. [Read more…]

Your Money Revolution Video Clip: How Mutual Fund Fees are Devouring Your Savings

For the past year, I’ve been working full-time on creating a comprehensive go-at-your-own-pace coaching program designed to eliminate your biggest money worries – and let you take back control of your financial destiny.

I call it “Your Money Revolution,” and initial response to the program has been terrific.

Today I’m excited to share a 5-minute excerpt from this new program with my loyal subscribers.

I want you to be able to see for yourself how truly life changing the information, tools and strategies that I’ve packed into this program can be.

This 5-minute video excerpt deals with how the fees you’re paying in the mutual funds or ETF’s you own in a retirement or investment account may be draining far more of your account value than you realize. [Read more…]

End Your Biggest Money Worries in 90 Days

The top-secret project I’ve been working on for a year is now live!

As I mentioned in my previous emails, it has the potential to completely transform your finances and end your biggest money worries in short order. It’s a culmination of ten years of research… and the result of listening to the concerns of more than 92,000 subscribers to this ezine.

I can honestly say that watching this video I’ve put together for you could end up being the single most important thing you do for your finances – bar none. And as one of my loyal subscribers and supporters, I wanted you to know about it first.

Click here to watch it now.

Here’s a few of the things you’ll discover in this video presentation: [Read more…]

Why Your Retirement Account is Missing $186,000

An eye-opening Report released last month by the Center for Retirement Research at Boston College reveals that the fees charged by mutual funds and 401(k) and IRA plans will slash the value of the typical person’s account by almost 37%!

That means if your account should have been worth $500,000, you end up with only $314,000 – all because of stealth fees that are draining your hard-earned savings! That’s $186,000(!) of your money that will end up in other people’s pockets, not yours.

These money-sucking fees often apply even to funds that track stock market indexes such as the S&P 500… as well as to the “Target Date” Funds that most employers now automatically put employees’ 401(k) money into.

Listen to John Bogle, the founder and former CEO of Vanguard, who many consider to be the father of the indexed mutual fund, quoted in MarketWatch, in February 2014:

Question: “If you pay a hefty fee to an active manager, what happens to your potential return?” [Read more…]

Fed says most Americans “extraordinarily vulnerable” to financial setbacks

A comment last week by Federal Reserve Chair Janet Yellen (read Is Pamela Yellen Related to Janet Yellen?) sent my inquiring mind down an investigative rabbit hole.Janet Yellen and Pamela Yellen

Janet stated that the Great Recession showed that a large number of American families are “extraordinarily vulnerable” to financial setbacks because they have few financial assets to fall back on when the you-know-what hits the fan.

She cited a new study showing that an unexpected expense of just $400 would force the majority of American families to borrow money or to have to sell something to cover it.

Just $400! Yikes! What is that? A minor car or appliance repair or a small medical or dental expense?

That stat came from a survey released by the Federal Reserve this summer that was so ignored by the media that it even escaped my notice.

When I finally tracked down that Federal Reserve survey (Report on the Economic Well-Being of U.S. Households in 2013), I could see why the media wanted to keep it under wraps.

Here are a few startling revelations from this Report…

[Read more…]