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More Bedsheet, Less Spreadsheet

Almost four years ago, I wrote an article that was published in a LIMRA's Secure Retirement Institute Review titled "Evaluating Retirement Income Methods: Incorporating More Bedsheet, Less Spreadsheet."


The title is something of a spoiler alert, as my thesis was simple: too many high quality, logical, sophisticated retirement income plans are laid out with no lifetime guarantees, but with all the benefits of reams of capital markets historical data and 20/20 hindsight, and then pitched through the lens of a coldly analytical execution, as if robots and not humans were at the helm. And humans, when the going gets rough, can at times want to crawl under the proverbial bedsheets and throw in the towel on otherwise well-laid plans. Don't underestimate the ability of a perfectly intelligent human being to mess up a good plan while under duress.


As I read the Barron's article that came out this weekend, I am left disappointed that annuities were again given short shrift, a casual mention at best.


"Forget the 4% Rule. Why Retirees Need to Rethink Their Withdrawal Strategy."


https://www.barrons.com/articles/retirement-withdrawal-strategy-4-percent-rule-51639177201?st=uwfhbwjt3y4779z


Investing is a human endeavor and as such will always be subject to human frailty. The lack of any lifetime guarantees in one's retirement income plan, particularly for those with portfolios big enough to matter but small enough to be of lifestyle if not nondiscretionary income reduction if hit hard and long, is a big deal. Those who fancy themselves steely eyed long-term investors should revisit what happened on March 10, 2000, the day the NASDAQ peaked. It took 14 years to revisit its highs after the March 10, 2000 closing value of 5,048. That kind of gap in peak to trough to peak is probably longer than most people could ever imagine riding out losses for during retirement. The S&P 500 suffered a "lost decade" in this same time period. That's a long, long time to be underwater during a retirement - could be 1/3 or more of one's entire time in retirement.


Markets today, with omicron daily news and revived Fed hawkishness taking some froth off the top, are still within shouting distance of all-time highs. Now is a good time to remember what happened twenty years ago. Yes, the market eventually recovered, as it always has done in the past. Regardless, now is a good time to recall the mental stress that markets, can place upon those who will one day soon need to live off of the fruits of their labors for three or maybe even four decades.


Having a guaranteed stream of lifetime income in place may help not just improve the quantity of income that one enjoys in retirement, but as important, the quality of life that an assurance of lifetime income can bring to a world where uncertainty is too often the only constant.



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