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A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
byby
Gregor McDonald, CFPGregor McDonald, CFP®®
Vision Financial PlanningVision Financial Planning
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
• Recent market events compel us to review your Recent market events compel us to review your retirement plan in a more realistic wayretirement plan in a more realistic way
• After every market correction, we see that plans After every market correction, we see that plans that were prepared using conventional retirement that were prepared using conventional retirement calculators, become irrelevantcalculators, become irrelevant
• Retirement dreams seem to be pushed further Retirement dreams seem to be pushed further and further away, especially after each market and further away, especially after each market correctioncorrection
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
• Before your retirement dreams turn into Before your retirement dreams turn into retirement nightmares, let’s review your retirement nightmares, let’s review your retirement planretirement plan
• This time, I propose using a new tool that is This time, I propose using a new tool that is significantly more innovative than other significantly more innovative than other retirement calculators that we have been usingretirement calculators that we have been using
• This new retirement calculator uses an entirely This new retirement calculator uses an entirely different philosophy. It may change the way we different philosophy. It may change the way we look at retirement planninglook at retirement planning
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
All conventional retirement calculators make a All conventional retirement calculators make a FORECASTFORECAST using certain assumptions: using certain assumptions:
• average assumed portfolio growth rateaverage assumed portfolio growth rate
• average assumed inflationaverage assumed inflation
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
The following example shows the reality for three The following example shows the reality for three generation of retirees:generation of retirees:
• The grandfather retires at the beginning of 1929The grandfather retires at the beginning of 1929
• His son retires at the beginning of 1966His son retires at the beginning of 1966
• His grandson retires at the beginning of 2000His grandson retires at the beginning of 2000
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
• Each one starts with $1 million of retirement Each one starts with $1 million of retirement savingssavings
• Each one needs $60,000 to take out annuallyEach one needs $60,000 to take out annually
• Each one start his retirement at age 65Each one start his retirement at age 65
• We assume an annual portfolio growth rate of 8%We assume an annual portfolio growth rate of 8%
• We assume an inflation rate of 3% per yearWe assume an inflation rate of 3% per year
Let’s see what happens to their retirement dreams:Let’s see what happens to their retirement dreams:
Copyright ©2009 Retirementoptimizer.com Inc.
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
65 70 75 80 85 90 95
Age
Por
tfolio
Val
ue
Standard Retirement PlanStandard Retirement Plan
GREAT!I will have sufficient
money for retirement
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
• The forecast looks fantastic!The forecast looks fantastic!
• Let’s do a Reality CheckLet’s do a Reality Check
Copyright ©2009 Retirementoptimizer.com Inc.
Data Source: Dow Jones & Company
10
100
1,000
10,000
100,000
1900 1920 1940 1960 1980 2000 2020
DJIA
1929
Wow!Nice Bull Market!Time to Retire!
Grandfather retires in 1929
Copyright ©2009 Retirementoptimizer.com Inc.
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
65 70 75 80 85 90 95
Age
Por
tfolio
Val
ue
1/1/1938
1/1/1929
Grandfather is broke 9 years later!
Copyright ©2009 Retirementoptimizer.com Inc.
Data Source: Dow Jones & Company
10
100
1,000
10,000
100,000
1900 1920 1940 1960 1980 2000 2020
DJIA
Wow!Nice Bull Market!Time to Retire!
1966
His son retires in 1966
Copyright ©2009 Retirementoptimizer.com Inc.
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
65 70 75 80 85 90 95
Age
Por
tfolio
Val
ue
1/1/1966
1/1/1979
The son is broke 13 years later!
Copyright ©2009 Retirementoptimizer.com Inc.
Data Source: Dow Jones & Company
10
100
1,000
10,000
100,000
1900 1920 1940 1960 1980 2000 2020
DJIA
Wow!Nice Bull Market!Time to Retire?
1/1/2000
The grandson retires in year 2000
Copyright ©2009 Retirementoptimizer.com Inc.
The grandson will be likely broke
only 12 years later!
Age: 65
Age: 77
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
• In the real world, it does not matter how accurate In the real world, it does not matter how accurate your assumptions are for your forecast. your assumptions are for your forecast.
• What matters is the What matters is the SEQUENCE OF RETURNS SEQUENCE OF RETURNS that that youyou experience during the early years of experience during the early years of youryour retirement. retirement.
Copyright ©2009 Retirementoptimizer.com Inc.
Portfolio Life Depends on Portfolio Life Depends on How Lucky How Lucky YouYou Are Are
10
100
1,000
10,000
100,000
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
20
00
DJIA
10.0
20.0
30.0
40.0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000P
ort
folio
Life,
yrs
Sometimes, you might catch a bullish
trend:You can have
income for 40+ years
More often than not, you don’t catch a
bullish trend:Portfolio lasts about
15 years
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
• The retirement planning tool that I use, does not The retirement planning tool that I use, does not forecast anything. forecast anything.
• It does not require any assumptions or averagesIt does not require any assumptions or averages
• This new tool only uses the actual market history. This new tool only uses the actual market history.
• This method of planning is called This method of planning is called AFTCASTINGAFTCASTING
• Aftcasting shows you all possible outcomes based Aftcasting shows you all possible outcomes based on actual market history since 1900on actual market history since 1900
Copyright ©2009 Retirementoptimizer.com Inc.
Your Retirement Plan based on Your Retirement Plan based on Actual Market HistoryActual Market History
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
Now, you can decide in a much more informed way: Now, you can decide in a much more informed way:
• When can you retire? When can you retire?
• How much do you need to save until retirement?How much do you need to save until retirement?
• How much you can spend after retirement?How much you can spend after retirement?
• What strategies can you to use for lifelong income?What strategies can you to use for lifelong income?
• How can you export the longevity, market and How can you export the longevity, market and inflation risks to others? inflation risks to others?
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
OUR GOAL:OUR GOAL:
• To determine your essential and discretionary To determine your essential and discretionary expenses during your retirementexpenses during your retirement
• To figure out when you can retire To figure out when you can retire
• To create a personal pension for your To create a personal pension for your essential expensesessential expenses
• To minimize the luck factor for your To minimize the luck factor for your retirement ageretirement age
• To optimize your current portfolio to maximize To optimize your current portfolio to maximize return and minimize riskreturn and minimize risk
Copyright ©2009 Retirementoptimizer.com Inc.
A Fresh Look at A Fresh Look at Your Retirement PlanYour Retirement Plan
Let’s try this new tool and see how we can plan Let’s try this new tool and see how we can plan your retirement more realistically.your retirement more realistically.
Do you want to go ahead?Do you want to go ahead?
Copyright ©2009 Retirementoptimizer.com Inc.
DisclaimerDisclaimer
• Otar Retirement Calculator (ORC), illustrates how a mix of Otar Retirement Calculator (ORC), illustrates how a mix of asset classes (stocks, bonds, cash or inflation indexed asset classes (stocks, bonds, cash or inflation indexed bonds), or income classes (investment portfolio, immediate bonds), or income classes (investment portfolio, immediate life annuity, variable annuity with or without guaranteed life annuity, variable annuity with or without guaranteed income), would have fared under historical market income), would have fared under historical market conditions, given your stated financial goals and your cash conditions, given your stated financial goals and your cash flow. It does not provide a prediction of your ability to meet flow. It does not provide a prediction of your ability to meet your goals; rather, it merely reports the hypothetical your goals; rather, it merely reports the hypothetical outcomes that would have occurred in the past.outcomes that would have occurred in the past.
• ORC should not be used as the primary basis for any ORC should not be used as the primary basis for any investment or tax-planning decisions. Results will vary in the investment or tax-planning decisions. Results will vary in the future. ORC is not intended to predict the future value of future. ORC is not intended to predict the future value of actual investments or actual holdings in your portfolio. It is actual investments or actual holdings in your portfolio. It is also not intended to predict the current and future value of also not intended to predict the current and future value of actual lifetime income.actual lifetime income.
Copyright ©2009 Retirementoptimizer.com Inc.