They Have Enough Money,
But They’re Still Likely To Run Out

Good Morning Relaxing Retirement Subscriber,

Over the last 28 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 similarities were good such as the tremendous discipline 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 have recently had the pleasure to work with a terrific couple who was referred to us by one of our Relaxing Retirement members. The wife in this couple is the sister of an existing member.

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 John and Barbara.

John and Barbara are both 64 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.

Are We Able to Afford It?

What John and Barbara want to know from me is if they’re able to afford to retire.

And, if they can, how do they do it 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.

As they stated on more than one occasion, one of the big reasons why they lacked 100% confidence is the volatility of the stock market.

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 John 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.

John’s answer was one that I hear far, 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?”

John’s answer: “I sell what wasn’t performing well and buy what was performing better.”

John’s answer was very matter of fact suggesting he thought that was obviously what everyone should be doing.

They Can Afford It

Before I comment on John’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 exactly the way they spelled out for me without running out of money over their expected lifetime.

Now, as you can imagine, this was huge relief for them. Before we met and designed their Retirement Blueprint™, they had no idea they had enough, and they certainly had to confident way to arrive at that conclusion!

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 John’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 would run out of money within 8 or 9 years!

Uggggggggh. As you can imagine, this was a buzzkill.

Now, why did I have to tell John and Barbara 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 “real” 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 John and Barbara’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 four years ago. It was actually fairly well diversified.

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

What John and Barbara Were Missing

Unfortunately, John and Barbara’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 2015 DALBAR Report reveals about the 20 year period from 1996 through December 31, 2015:

  • The Average annual return of the broad market S&P 500 Stock Index from 1996 – 2015 was 8.19% (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 4.67%

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 standard barometer for broad stock market performance, otherwise known as the S&P 500 Index delivered a very respectable average annual return over those 20 years of 8.19%, the average stock mutual fund investor (a person, not an investment) only achieved 4.67%!

That means that the average stock mutual fund investor’s return was 43% less than the market barometer of “average” returns, not above average, each and every year!

The news is even worse if we extend the numbers over the average 30 year retirement. While the S&P 500 Index earned an average annual return over the last 30 years of 10.35%, the average stock mutual fund investor (a person, not an investment) earned only 3.66%!

Stop and think about all of this for a moment. That means, over the last 20 years, the actual returns received by investors was a little better than HALF of what “the market provided!

Over the last 30 years, it’s even worse. Their returns were almost 65% less than the broad market average.

How incredible is that!

It’s mind boggling, but it doesn’t surprise me after what I’ve witnessed over the last 28 years in this business.

Just think about John and Barbara’s “strategy” 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 the average retiree’s investment behavior, which is driven by their “strategy” or lack thereof.

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

The average stock mutual fund investor earned 43% 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 retirees earn?

The obvious question is why!

The good news is there are several easily correctable “strategic mistakes” that I’ve personally witnessed over the last 28 years.

I’m going to share them with you so that we can close this performance gap and make sure your performance doesn’t fall into this dreadful statistic?

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
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(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)