Will I be able to retire ever? Answers to our clients' #1 question!

Will I be able to retire ever? Answers to our clients' #1 question!

Our clients are divided between those who are at least 65 and already retired (30%) and those clients aged 35-65 for whom retirement seems like an ever receding mirage. In this commentary, we will concentrate on the mechanism that we use to implement a client's retirement income strategy, review how this strategy has performed since January 2000, and review the lessons learned:


Relative Investment Risk

You don't get return without risk. From highest to lowest (assigning extra risk to leveraged, illiquid (locked-up) or non-dollar investments,) the available asset classes are:

Risk Assets

  • Hedge Funds
  • Private Equity
  • Limited Partnerships
  • Directly held Real Estate
  • Commodities
  • International Emerging Market Stocks
  • International Developed Market Stocks
  • US Small Cap Stocks
  • US Mid Cap Stocks
  • US Large Cap Stocks
  • International Bonds

Fixed Iome

  • US Corporate Bonds
  • US Municipal Bonds
  • US Long Dated Government Bonds
  • US Intermediate Term Bonds

Near Cash

  • US Money Markets (Bank CD's, Commercial Paper)
  • US Treasury Bills
  • Cash

Based on historic (since 1945) averages, we'd expect Risk Assets to return about 8%, Fixed Income assets about 3.5%, Near Cash assets about 0.2%/year. A retiree could hold 100% of assets in Near Cash, but the portfolio would eventually run down to zero, possibly while the retiree was still alive. Alternatively, a retiree could choose 100% of the fixed income allocation, but if inflation picks up, then the purchasing power of the portfolio might not hold up. Or a client could choose 100% of the Risk Assets portfolio, but might lose much sleep as those assets classes have become increasingly volatile - nothing about the last decade has been "average."

Read the rest of the commentary here.