Timing is Everything (but Predictable)

“DOUBLE YOUR NEST EGG” the headline screamed. “Now’s the time to jump into cheap stocks, funds and real estate.”

Bad timing for a magazine called “Smart Money.” This headline was on the cover of the October 2008 issue—immediately before an epic financial crisis and market meltdown. 

In early October 2008, the Dow Jones Industrial Average stood at about 10,800. Over the next 18 months, it would plummet to about 6,500. 

I think of the poor souls who retired that year, relying on the market to give them income from portfolios that they assumed couldn’t possibly fail. 

Sadly, there have always been people who make that mistake.

Consider Bob & Meryl. One day in 1970, Bob announced to Meryl, “I just got a message from God that the stock market is going to average a 14% return for the rest of the 20th century!” he said. “We’ve got it made! Let’s retire now!” 

Hmmm. Investment tips from the Almighty? (This was before CNBC). Bob and Meryl did have investment assets of $1 million, which was quite a sum at the time. With 14% returns, Bob figured they could withdraw 10% or $100,000 each year from his million-dollar nest egg and live large. They’d never run out of money.

Too bad Bob didn’t listen more carefully. Instead of “stock market annual returns will average 14%,” what he (thought he) heard was, “the stock market is going earn 14% every year for the rest of the century.”

Small difference in words. Huge difference in meaning and outcome. 

The stock market did just what the Voice said. Annual returns were on average a little more than 14% for the last 30 years of the 20th century. It was an amazing ride. For the long-term, accumulation-oriented investor, it was glorious. 

But Bob and Meryl weren’t looking for long-term growth. They needed regular income. And Bob had assumed that if their investment accounts earned 14% each year, they’d be fine. And they would have been fine…if that’s what had occurred.

But that isn’t what happened. The way the market delivered that average 14% return was through a succession of up and down years. The first three years were fantastic. Bob’s investments earned 9%, 10% and 18% respectively. “This is awesome!” Bob said.

But then a bear market hit, and Bob and Meryl’s accounts took a beating. They dipped 13% one year and another 24% the next. Suddenly, their million-dollar account was worth about half its original value! Since Bob and Meryl had gotten used to their $100,000 lifestyle, they held on and hoped for the best.

Fourteen years into retirement, they were broke.

I have witnessed assorted versions of this story through the years. Each one is uniquely sad.

As Yogi Berra wryly noted, “It’s tough to make predictions, especially about the future.” 

And timing, as they say, is everything. (Everything but predictable.)

Bob’s younger brother Bill is a great example. Bill retired only five years after Bob—in 1975. He too had $1 million in investments and also planned to withdraw $100,000 a year to fund his retirement. 

Solely because of the timing of things, Bill never ran out of money. His $1 million nest egg grew to over $10 million in value during his retirement years, despite his $100,000 annual withdrawals.

The fact that predictions are impossible makes preparing for hard times necessary. 

I can’t tell you what year would be most ideal for you to begin your retirement (the batteries on my crystal ball are running low). But I can help you prepare for a variety of situations at retirement. 

I’ve created a comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free if you’d like a copy. Just email me at bmoore@argentadvisors.com, and I’ll send it to you right away.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

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