I am an Investment Adviser Representative at Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser (RIA) based in Fairfield, IA. I am also registered with Cambridge Investment Research, Inc., an independent broker-dealer with over 3,000 registered representatives nationwide.
Most clients pay fee-only or an hourly rate. The size and complexity of the client’s wealth management and financial and retirement planning determine that fee.
What Is a Reasonable Rate of Return After Retirement? | Tim Hayes
After retiring, a crucial decision is deciding how much of your retirement money to keep in stocks and bonds.
Over the long term, stocks provide a better return but more volatility. If you were the unlucky person retiring in February 1999, your 10-year future stock market return was -3% a year.[i]
I ran a hypothetical of a well-known stock mutual fund using that date, a one-million-dollar investment, and 5% yearly withdrawals. At the end of those ten years, the account was worth a little over $600,000.
That same fund and a $1 million investment and 5% annual withdrawals during the best ten-year stock market returns (Aug 1990–Aug 2000) ended with over $3.5 million.
5% of $3.5 million generates $175,000 a year in future retirement income, while 5% of $600,000 gets you only $30,000 per year.
Another well-known but more conservative fund with about 30% in bonds and the rest in dividend paying stocks with those same scenarios had around $860,000 after the worst ten-year period and $2,200,000 after the best.
The math gets simple: your portfolio will fall in value if you withdraw a higher percentage than you are earning, but on the other hand, if you are lucky and make more than you are taking out, the portfolio will rise and help cushion the impact of rising prices by generating more income.
Stocks provide the best opportunity to generate a higher return than the 5% you withdraw each year. However, because they are susceptible to significant drops like in 2000 and 2008, too many of them can put your retirement income goals at risk.
Having a percentage of retirement money in bonds will reduce the large drops. However, it will also reduce the gains someone with a larger stock share may earn.
In February of 1999, the first scenario, the stock market, much like today, was highly-priced. The same goes for 2007 before the financial crisis. In the 1999 Dotcom bubble, the NASDAQ dropped 78%, while in the 2008 financial crisis, the S&P 500 fell 46%. Big drops like these cause much of the subpar future yearly returns.
[i] Anspach, Dana. “ The Best and Worst Rolling Index Returns 1973-2016.” January 05, 2022. https://www.thebalance.com/rolling-index-returns-4061795
These are the opinions of Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted on as individualized investment advice.
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