Search

Avoid the Sea-Monsters:Educate Yourself



In ancient times, little was known about navigating the oceans. When confronted with an unknown area, mapmakers would often draw in sea-monsters to represent potential dangers. Eventually, explorers learned to navigate these areas and educated the mapmakers. At some point, the sea-monsters all but disappeared from maps. As much, let’s run with this concept. Do you have sea-monsters on your retirement map? Just for fun, let’s identify a retirement sea-beast and a she-beast that may be on your retirement map.




Sequence-of-Returnosaur

The fabulous beast above was created by Olaus Magnus in 1539. Although Magnus called it a sea pig, let us call it “Sequence-of-Returnosaur.” Sequence-of-Returnosaur represents the unpredictable danger of sequence-of-return risk. This risk, especially early in retirement, can do great damage to your retirement portfolio and possibly to your retirement lifestyle. This is the risk that you suffer terrible investment returns early in retirement while funding your lifestyle from your retirement portfolio. For example, let’s say Sequence-of-Returnosaur inflicts a 30% drop in your portfolio just as you start to spend a reasonable 4% per year. Even if the market recovers 30% the following year, you are not even close to even. In fact, it would take almost a 49% return just to get back to even. But don’t let the Sequence-of-Returnosaur scare you. There are methods to tame this sea-pig such as reducing portfolio risk early in retirement, utilizing variable rate spending strategies, and bond ladders. You should educate yourself on how to handle an encounter with this beast.




The Siren Overspendrous

The gentleman tied to the mast above is Odysseus from Homer’s The Odyssey. In Greek mythology, winged lady creatures called sirens would bewitch sailors causing them to wreck their ships. Curious to hear the siren song, Odysseus tied himself to the mast and put beeswax in his crew’s ears to avoid this fate. Just for fun, let us create a siren and name her Overspendrous. Overspendrous loves to bewitch retirees into spending lavishly early in retirement and thus wrecking their retirement ship. To avoid this fate you can try tying yourself to a mast or putting beeswax in your ears, but it might be simpler to identify how much you can safely spend in retirement and then exercise some discipline. Don’t let Overspendrous convince you to wreck your retirement portfolio. Talk to other retirees or your financial advisor to determine how much you can reasonably spend from your retirement portfolio.

Educate Yourself

Sequence-of-Returnosaur and Overspendrous represent just two of the potential dangers you may encounter on your retirement voyage. Educate yourself on other topics such as:

· Inflation

· Stock concentration

· Healthcare costs

· Typical retiree spending patterns

· Social security optimization

So, as you contemplate your retirement, educate yourself by talking to other retirees, reading topical books and speaking with a financial advisor. By educating yourself, you can enjoy a pleasant retirement voyage and avoid those nasty sea-monsters!

As usual, if you have questions, please feel free to email me at Don.Clements@raymondjames.com. I would love to hear from you.




Boxer, Alexander. “Monstrous Sea-Pig.” Idols of the Cave, idolsofthecave.com/latest-wonder/4-the-monstrous-sea-pig-featuring-allis-markham-part-1-nov-2014/.

“James Ford Bell Library.” University Libraries, bell.lib.umn.edu/index.html.

62 views

One Lakeshore Drive, Suite 1100 // Lake Charles, LA 70629 // Phone: 337.419.1855 // Fax: 337.419.1854 // Toll Free: 1.877.781.0088 // Houston 713.300.1608

Check the background of this firm on FINRS's Brokercheck

Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC

Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability. © 2015 Raymond James Financial Services, Inc., member FINRA/SIPC

www.finra.org // www.sipc.org // RJ privacy policy: http//www.raymondjames.com/privacy_security/privacy_notice.htm

 

Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Global Asset Management Group is not a registered broker/dealer, and is independent of Raymond James Financial Services.

 

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members

  • LinkedIn
  • Facebook
  • Twitter