They Can Afford To Retire, But…

Tuesday, October 29th, 2013

Good Morning Relaxing Retirement Member,

Over the last 24 years of coaching individuals and couples to a make a seamless transition to retirement, I’ve witnessed many similarities among those I’ve worked with.

Some of those were good such as the tremendous discipline employed by so many to diligently save and accumulate the necessary resources to be able to stop working and retire if they chose to.

On the flip side, however, I’ve also witnessed far too many who have no system in place for their decision making, and it costs them dearly.

I’ve recently had the pleasure to work with a terrific couple who was referred to us by one of our Relaxing Retirement members.

Their ‘story’ is one I’ve witnessed far too many times, but there’s a great lesson for everyone, so I’d like to share it with you.

In order to protect their privacy, I’m going to refer to this couple as Ron and Rita.

Ron and Rita are both 65 years old and they now find themselves in the same place as many of our Relaxing Retirement members today.

They’ve hit threshold! While they’ve enjoyed working up until now, they’re now emotionally ready to retire.

Can We?

What Ron and Rita want to know from me is if they can afford to retire.

And, if they can, how do they generate lifestyle sustaining income because they’ve never done this before.

This is a key commonality that I see so much. They’ve never done this before and they’re just not confident.

One of the big reasons why they lacked 100% confidence is their investment performance over the last few years.

During their Retirement Confidence Preparation System™ meeting that we had, in addition to having an extensive conversation about their experiences and their priorities, I also had the opportunity to review their investment holdings going back a few years as Ron was a “spreadsheet guy”.

While reviewing their spreadsheets during our meeting, I noticed that there was a lot of activity (buying and selling) at random times, so I asked what triggered all of that movement.

Ron’s answer was one that I hear far too often: “I evaluate what’s doing well and what’s not and I reallocate.”

My response was, “how do you determine what to sell and then what to buy?”

Ron’s answer: “I sell what wasn’t performing well and buy what was performing better.” (His answer was so matter of fact suggesting he thought that’s obviously what everyone should be doing.)

  • Yes They Can

    Before I comment on Ron’s answer, let me share with you what our analysis showed them.

    When we designed their Retirement Blueprint™ and ran their Retirement Resource Forecasters™, taking into account all of their priorities and all their resources, we discovered that they had enough money to make it all work!

    Enough money and income to continue living the way they wanted without running out of money over their expected lifetime.

    Now, as you can imagine, this was huge relief for them. And, something they did not realize before we met and designed their Retirement Blueprint™.

    As you can imagine, they were on a real high at this point. However, that soon simmered as I alerted them that there was a gigantic “BUT”.


    After carefully evaluating Ron’s spreadsheet of their investment activity, the gigantic “BUT” I had to report to them was if they continued doing what they had been doing, there was a high likelihood that they’d run out of money within 8 or 9 years!

    I know…ouch!

    Now, why did I have to tell Ron and Rita this when I just told them that they had enough money to support their lifestyle for the duration of their life expectancy?

    The reason I had to tell them this was their Retirement Resource Forecasters™ had some assumptions built into them.

    First, we have to account for the fact that they’ll need more and more income each year just to remain in the same position due to inflation.

    And, second, we have to assume that they can earn the investment rate of return that they need to earn in order to keep pace with inflation, which, for them, is not a very high return.

    However, given Ron and Rita’s “system” of investing, they had little or no chance of accomplishing that.

    What they actually employed was not a system, but random selection and timing.

    Their allocation actually wasn’t that bad three years ago. It was actually fairly well diversified.

    However, they continuously killed that diversification by trying to shift out of what just performed poorly over to what had performed better.

    What Ron and Rita Were Missing

    Unfortunately, Ron and Rita’s investment “system”, or better stated: “behavior” is not unusual.

    Statistics tell us that it’s the norm.

    As you’ve heard me report before, there’s a financial research firm located here in Boston by the name of DALBAR. And, every year, DALBAR performs a Quantitative Analysis of Investor Behavior.

    Here’s what the 2013 DALBAR report reveals about the 20 year period from 1993 through 2012:

    • The Average annual return of the S&P 500 Stock Market Index from 1993 – 2012 was 8.21% (including dividends reinvested)
    • However, over the same 20 year period, the average annual return of the “average” equity mutual fund investor (not investment, but an investor, i.e. a person) was 4.25%

    Take a moment to stop and re-read those two numbers for a moment and let them sink in.

    What these numbers tell us is that, while the S&P 500 Market Index delivered a strong average annual return over those 20 years of 8.21%, the average stock mutual fund investor (a person, not an investment) only achieved 4.25%!

    That means that the average stock mutual fund investor’s return was 48.3% less than the market barometer of “average” returns, not above average, each and every year!

    Stop and think about that for a moment. That means, over the last 20 years, the actual returns received by investors was HALF of what markets provided!

    How incredible is that!

    It’s mind boggling, but it doesn’t surprise me after what I’ve witnessed over the last 24 years in this business.

    Just think about Ron and Rita’s story that I just shared with you!

    The Wrong Battle

    What you can’t help but take away from those statistics is that, while it makes all the news, markets (or bad investments) are not our biggest problem.

    The BIG problem is investor behavior, which is driven by their “strategy” or lack thereof.

    Forget for a moment about trying to “beat the market” which is what everybody loves to talk about and talk shows are built on.

    The average stock mutual fund investor earned 48% less each and every year than the S&P 500 market index. Again, the market barometer of “average” returns, not above average!

    Think about that for a moment. Something that we all can control is what our biggest problem is.

    It’s uncomfortable, but it’s the only logical and rational conclusion we can reach given the results of this research report. What else could possibly explain the massive difference in real life returns that people receive?

    The obvious question is why, and what can we do to close this performance gap?

    Well, there are several easily correctable “strategic mistakes” that I’ve personally witnessed over the last 24 years that I’d like to share with you.

    Stay tuned. I’m not sure there’s anything more important about investing during your retirement years than what I’m going to reveal to you in the coming weeks.

    Committed To Your Relaxing Retirement,

    Jack Phelps
    The Retirement Coach

    P.S.WHO do you know who could benefit from receiving my Retirement Coach “Strategy of the Week”? Please simply provide their name and email address to us at Or they can subscribe at appreciate the trust you place in me. Thank you!