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Lifetime Income:
Retirement Pitfalls And How To Plan For A Recession

Many retirement planners often follow the standard advice in the industry based on historical returns and planned draw downs rates, but the fact is, when you retire can make all the difference.

This time on the Financial Sense's Lifetime Income Series, Jim Puplava discussed some of the pitfalls of model assumptions and how investors can protect their nest eggs when downturns inevitably occur.

Timing Is Everything 

Historical models and drawdown rate projections are based on assumptions that may not hold out for every person in every retirement situation, Puplava noted.

Imagine if you retired in the year 2000. The stock market lost basically 49 percent, and then in 2002 the stock market went back up, until the fall of 2007, at which time it lost another 57 percent. It wasn't until April of 2013 that the S&P finally exceeded the old highs that were reached in March of 2000, Puplava stated.

"If you were invested in stocks between January 2000 and April 2013, your stock portfolio went essentially nowhere," Puplava noted.

Pitfalls of Ignoring the Short Term

If somebody says you can expect a certain amount of return over a historical period, it's crucial to consider that not all time periods are the same in the short term.

"Let's say you lose the average in a bear market … (around) 50 percent of your portfolio," Puplava said. "You need 100 percent return to break even again."

For those who panicked and sold in 2009, that loss became real. It's unlikely they got back in at March of 2009 at the bottom, or even the first couple of years of the bull market, Puplava stated.

One danger in this scenario becomes drawing down principle to maintain income levels. If you're selling assets in a declining market, you'll likely end up having to sell even more assets to maintain your.....

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Posted 2:55 PM

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