Staying Invested THROUGH Your Retirement
For most of us, we manage our investments with the goal of having a nice big nest egg when it's time to retire. But we need to continue to stay invested throughout our retirement. Often, investors are more afraid of running out of money than they are actually dying! Today Alex Cabot and Ed Lambert of Birch Run Financial discuss how to lower that risk.
Ed points out that psychologically, investors experience more anxiety around market changes right before and after retirement. After all, the move from drawing income from a salary to drawing from investments is one of the biggest changes of your financial life.
If you retire at 65, your median life expectancy in retirement is 20 years. And you have a 25% chance of living until age 90. How do you make your money last? You need a growth component to your portfolio. And while we plan for long-term market growth, we need to prepare for bumps in the road -things like the tech bubble bursting, the 2008 crisis, the "COVID Crash," and more.
Moreover, inflation is built into our economy by design. We've seen a 2.4% core inflation rate over the last 20 years. If you extrapolate that forward, $10,000/month in living expenses today will be $18,000 in 25 years, or $20,000 in 30 years! You want to have enough income to live on, and in most cases, have something to pass down to your heirs.
Alex speaks to the importance of diversification. With the help of Morningstar, he looked at several different theoretical $1,000,000 portfolios over the last 25 years. Assuming a 2.4% rate of inflation, and a $40,000 annual distribution (adjusted for inflation), here's what he found. That million dollar portfolio, counting inflation and distributions, would be worth the following today, 25 years later.
- Stock only: $908k
- Bond only: $360k
- 60% stock 40% bond $1.3M
- T-bills: $0
Alex breaks down these numbers, and explains why the diversified portfolio outperformed anything else on the list.
Here's the article on diversification Alex referenced on his LinkedIn in today's episode: https://www.linkedin.com/pulse/measuring-impact-portfolio-distributions-diversified-asset-cabot/
You can always email Alex and Ed at info@birchrunfinancial.com or give them a call at 484-395-2190.
Or visit them on the web at https://www.birchrunfinancial.com/
Alex and Ed's Book: Mastering The Money Mind: https://www.amazon.com/Mastering-Money-Mind-Thinking-Personal/dp/1544530536
Any opinions are those of Ed Lambert and Alex Cabot and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The examples throughout this material are for illustrative purposes only. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Diversification and asset allocation do not ensure a profit or protect against a loss. Past performance is not indicative of future returns. CDs are insured by the FDIC and offer a fixed rate of return, whereas the return and principal value of investment securities fluctuate with changes in market conditions. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Birch Run Financial is not a registered broker/dealer and is independent of Raymond James Financial Services. Birch Run Financial is located at 595 E Swedesford Rd, Ste 360, Wayne PA 19087 and can be reached at 484-395-2190.
Any rating is not intended to be an endorsement, or any way indicative of the advisors abilities to provide investment advice or management. This podcast is intended for informational purposes only.