The nest egg you can’t outlive

In the 21st Century you are more likely to run out of money than die. Living the lifestyle you desire is the focus of most people who are looking forward not backward. As a former life insurance sales executive, I became sad at the number of lower or middle-income families who had been paying for a life insurance policy for many years. Despite the fact that many had not started to save for retirement by the age of 40 years, these folks continued to pay their premiums. Most have limited means to pay for their 20 to 30 year retirement but their funerals are taken care of, presumably.

Owning life insurance is not as important as having a nest egg that grows in retirement. This sounds wrong because the financial services industry repeats the same bad advice. Why? Because most insurance sellers don’t sell securities. Instead of providing what YOU need, the industry sells what they have to sell—life insurance and annuities.

Portfolio growth is the only way you can have a good chance of having enough cash to live on. Retirees wonder if they can guarantee a lifetime income by buying one “magic bullet.” An honest advisor would say THERE IS NO GUARANTEE. However, you can learn to oversee your own retirement spending strategy. One of our members with IRA accounts and no pension started withdrawing $7,000 a month from his $850,000 nest egg. His ‘eggs’ consist of 8 different Vanguard funds that have earned over 12% during the past 20 years. Two are international. For details, see our Retirement Spending Guide: http://www.theinsidersguides.com/retspe31.html

There is no guarantee but diversification improves your odds. His Vanguard choices are:

Name Return Since
500 Index 12.26 1976
International Growth 13.39 1981
Energy 15.31 1984
International Value 12.31 1983
Extended Market 12.50 1987
Windsor 12.61 1958
Health 19.03 1984
Windsor II 13.21 1985

This member believes that if he can earn at least 11% over time, he will have enough funds to last to age 100. His plan increases his income to $101,000 at age 80 to offset inflation. He receives social security and considers it his bond portfolio income. To see his plan, request “John’s retire spreadsheet”: retire@theinsidersguides.com.

This member believes that the global markets will fuel growth in the 21st Century. He thinks that India, China, Latin America will resemble the growth of America in the 19th Century and early 20th Century. Just as early Americans got some of their capital from the “old” world, so American investors will provide it to the “new” world. Therefore, he plans to own “emerging market” equities and control the impact of changes in the value of a dollar by changing his allocations. He thinks this will secure his family a favorable return long term. He also believes that the crucial sectors in the next 100 years will be Energy and Health. Finally, he thinks the trend to owning index mutual funds and ETFs will eventually reduce his costs to under 0.3%.

This member has maintained his ownership of Windsor and Windsor II because he believes active managers may still be able to succeed in maintaining above average returns. Active managers may be able to help him diversify his portfolio into areas he doesn’t know about in the future. He plans to maintain an active involvement in his asset allocation. He suspects there are patterns to the shifts of asset class leaders over time.

His plan calls for maintaining a year’s worth of income outside his equity portfolio of $850,000. If he finds his returns have surpassed his 11% annual target, he will transfer any excess out of the funds that accounted for the gains to his check-writing bond fund protected by a Roth IRA wrapper. He pays tax on the amount he converts if required. He pays no tax on the fixed income earnings.

Our member John has performed numerous tests on his portfolio’s probable future. He has used our Retirement Spending Guide to practice living in retirement. He begins in a year. His wife continues to work part-time which provides a generous health insurance plan. John will continue to keep us up to date on his progress.

Nothing is guaranteed but John believes his financial future lies in equities not fixed income as his old advisor used to say. Traditional advice of 60/40 stock/bond portfolios or annuities in retirement assumed that retirements would be short and low volatility was good. John has ridden out 3 market downdrafts in his later years and thinks there will be more in the next 30 years of retirement. (See Chart in FREE Guide @ http://www.2insider.com/). However, he does not think fixed income portfolios allow him to keep growing his nest egg. Growth is the only cure for longevity.