“Invest for the long-run” can ring hollow for a recent retiree looking to carefully manage his or her nest egg. Via an article in the New York Times by Paul Sullivan comes the following example:
How should people do the math to avoid dying broke? The answer depends as much on timing as spending.
Mark A. Cortazzo, senior partner at Macro Consulting Group, tells clients who ask this question about three fictional brothers. Each one retired with $1 million on Jan. 1 but three years apart — in 1997, 2000 and 2003. They all invested that $1 million in the Vanguard 500 Index Investor Fund.
Between when they retired and Aug. 31, 2012, each brother withdrew $5,000 a month. The brother who had been retired the longest had $1.14 million on Aug. 31. The one who retired most recently had $1.15 million left.
But the one in the middle, who began taking his monthly withdrawals in 2000, had only $160,568. The reason? The stock market went down for the first three years he was retired, and then plummeted again in 2008. He had to sell more shares to get $5,000 each month.
“Most clients say, ‘I don’t mind dying broke if I’m bouncing my last check to the undertaker,” Mr. Cortazzo said. “But I don’t want to run out at 80 if I’m going to live to 95.”
I can’t think of a better argument for employing our Global Macro strategy as part of the solution than this. Global tactical asset allocation seeks to be adaptive enough to respond to these types of adverse market conditions. The reality is that most recent retirees are in danger of running out of money in one of two ways: losing a substantial amount of money in a bear market or failing to earn enough of a return on their money to keep up with inflation. I think Global Macro does an effective job of balancing those two risks.
To view a video on our Global Macro strategy, click here.
Click here and here for disclosures. Past performance is no guarantee of future returns.
