sky_is_falling_news_headlineLast December, I was compelled to launch this blog because I was fed up with the fear-mongering by some of America’s financial news celebrities. In just one recent example: CNBC trumpeted this rather irresponsible headline: “Stock Market Volatility Makes Retirement Planning ‘Impossible’”. They quoted a study by the National Institute of Retirement Security and stopped there, without suggesting solutions or alternatives. Anyone who heard that story might have been inspired to hide all their money under a mattress. By that sucking sound of money being vacuumed out of equities markets the past three months, obviously many did. In my opinion, today’s market volatility is largely an emotional market meltdown.

In another story that didn’t make headlines anywhere except in the back pages of one of my favorite magazines, The Economist, another study suggests that, no matter what happens in the stock markets, you can goof-proof retirement income—but most people look in the wrong place. The typical investor looks to establish his/her “number”—the magic nest egg required to retire, or to the optimal withdrawal rate to make their nest egg outlive them. By just a day!

In a new study by Wade Pfau of the National Graduate Institute for Policy Studies, he says that if everyone just hunkers down and focuses on achieving a “safe savings rate” during the earning years, retirement takes care of itself. He did a long-term study of retirement portfolios from 1871-2009. NO MATTER WHAT WAS HAPPENING IN THE MARKETS, he discovered a MAGIC NUMBER—16.6%. Everyone who put aside 16.6% or more of their earnings for a thirty-year span yielded a retirement portfolio adequate to meet their needs. This held true even through the Great Depression and the bear market starting in 1967.

These days, with market volatility reaching near-record levels, too many people are taking the Chicken Little approach to investing. “Why bother saving at all?” Yet Pfau’s magic 16.6% savings formula has worked historically in good times and bad. For more information on the mechanics of the study, see the article.

The last 5% of a project is often the most important, the most difficult, and what you will be judged on in your work and life. Take the time to take care of the last 5%. If you don’t own shoe polish go the grocery store, buy some polish, and take care of your shoes.

That’s where good financial planning comes into play. Are you ready to unplug from the fear mongers and hijack your future—seize control your financial destiny? Find out how our planning tools can help you work toward your retirement goals, despite tough times and market uncertainty.


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