Planning
is an important aspect of retirement. If you are close to retirement or into this
phase of life, having a well-constructed plan that analyses your assets, incomes, and
expeses will be essential. But this is just a start.
When assumptions are made regarding growth rates
over a certain time frame, we must account for volatility and market fluctuations.
For example, an account might earn an average of 7.5% per year over a three-year period of
time. However, the account might actually experience a loss of 10% the first year,
gain of 20% the second year and a gain of 15% the final year to generate this 7.5% annual
return. Stretching these wide performance swings over twenty years, you would see
that actual market fluctuations can significantly alter the performance of a
portfolio. To address the issue of how actual volatility affects a portfolio when
the client is withdrawing assets during retirement, we have developed a Risk Analysis
model.
The Risk Analysis model customizes personal
information to determine if a client's portfolio and withdrawal needs would have allowed
them to survive in years when markets were at their worst: namely the late 1920's
and the mid 1960's. Based on this information, we determine a minimum and maximum
stock exposure strategy that will allow that client to enjoy their desired lifestyle.
If you plan on spending more than 5% of your nest
egg annually when you retire, we suggest you contact
us to determine if you are properly allocated to survive the most troubling of market
conditions. If you do not have a retirement
plan prepared for you yet, it may help answer some important questions for you.
