Reality Check

A common, but incorrect, assumption is that since equities have historically delivered approximately a 10% annualized average return over the long term* it must be safe to withdraw 10% a year without drawing down the principal. Nothing could be further from the truth.  

Though markets may annualize 10% over time (without withdrawals), returns vary greatly from year to year. During retirement, miscalculating withdrawals during market downturns can substantially decrease the probability of maintaining your principal. For example, taking a 10% distribution in a year when your portfolio is down 20% means you’ll need a gain of roughly 39% the following year just to get back to even, and that’s only if you don’t take further distributions in the second year. If you continue the same withdrawal rate in year two, you’ll need a return of nearly 50% to get back to even.
 
We understand these complexities and help you understand them too.
 
*Source:  Global Financial Data, Inc. Based on 9.8% annualized S&P 500 Index total returns from 1926-2012.

Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary.  Therefore, the information should be relied upon when coordinated with individual professional advice.
 
Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results. Investing involves risk including the potential loss of principal.