'Unless retirees make the proper adjustments to their investments management, they risk becoming dependent on their children and/or the government to meet their basic needs,' says Jeff Voudrie, a financial planner in Johnson City, TN.
Johnson City, TN (PRWEB) October 01, 2013
People who have retired in the last 5-10 years are facing daunting challenges. They have seen the value of their homes and the value of their retirement income portfolio plummet while the cost of insurance and daily living continues to rise. Then the Federal Reserve announces that it intended to taper bond purchases which caused the value of bonds to plunge. Adding to their frustration is that the financial planning (upon which they based their decision to retire) indicated that they should be able to live comfortably the rest of their lives.
“Traditional financial planning is based on the assumption that the future will bear some resemblance to the past,” explains Jeff Voudrie. The rates of return used in the plans are based on the historical returns associated with each class and category of investments. For example, the return and expected volatility (risk) of large cap value investments is based on what has occurred the past 30 years. Supposedly, that is a large enough sample to cover the majority of likely outcomes. So the overall return of your expected portfolio is based on historic performance.
This approach worked well for many years—until it didn’t. Investments management specialist Jeff Voudrie continues, “The traditional assumptions no longer hold true and that financial planning needs to include situations and market conditions that previously had a very low probability of occurring.” Why should they be used? “Because these ‘tail events’ are what pose the greatest risk to the overall success of the financial plan. It’s these ‘tail events’ that are going to result in those that retired in the last decade running out of money years, even decades earlier than what they thought.”
For example, traditional financial planning still estimates an average annual return for equities of 10% or greater and average annual returns for bonds at over 5%. Even if they assume variable rates of return, the results are going to be skewed because of the underlying assumption that long-term results will equal historic results. Jeff Voudrie explains, “Recently, a retirement income stress test (an innovative process Common Sense Advisors developed) on the retirement income plan of someone with a $1.3 million portfolio. The traditional planning software gave his plan a 99% probability of success! Of course, it assumed an average annual rate of return that far exceeds anything he has earned the last 5 years. That means that he will need to earn far in excess of 10% a year to make up for the last five years and get back on track.”
“Using more realistic rates of return, the probability of success dropped from 99% to only 8%.” There was a 91% decline in the probability of success just by assuming an annual return in of 5% instead of 10%. Fortunately, this person found out this sobering news while he still has time to do something about it. “By adjusting the way he is invested and how it is managed, we have been able to significantly increase his probability of success even if returns remain as they have been the last 5 years. He doesn’t have to make drastic changes to his lifestyle.”
Jeff Voudrie suggests that all retirees need to know the probability of their retirement income plan’s success--especially in light of the lack of clarity in interest rates. Do you know the probability of your retirement income plan running out of money before your life expectancy? “If you are basing your expectations on a traditional financial plan and its lofty assumptions, you may want to see the impact of more realistic return assumptions while you still have time to adjust.” Realistic, and flexible, financial planning is key to success.
A financial services industry veteran with more than 20 years’ experience, Jeff Voudrie is a new breed of private money manager. Using sophisticated electronic monitoring and software, combined with his 20 years’ experience as a money manager, Jeff works with you to create a personal investments management portfolio that reflects your lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying a robust, patented risk management processes. When you work with Jeff, you have the security of knowing that your life savings is getting the attention it deserves.
Jeff Voudrie, a financial planner in Johnson City, TN has been interviewed by The Wall Street Journal, CBS MarketWatch, The London Financial Times and the Christian Science Monitor. He is a former syndicated newspaper columnist and the author of two ground-breaking books: How Successful Investors Tripled the Return of the S&P 500 and Why Variable Annuities Don’t Work the Way You Think They Work. He accepts a limited number of new clients in his personal investments management practice. He and his wife Julie live with their seven children in Johnson City, TN. He is heavily involved in his local church and has done missionary work in Hungary and Cambodia.
Common Sense Advisors
105 Keeview Court
Johnson City, TN 37615