by John McCartin | White Paper
If you’re like most people, you believe there’s a great deal of truth in the old adage that
history tends to repeat itself more often than not. That’s an important adage to keep in mind
when it comes to saving and investing for retirement because it allows you to get a glimpse into
the future by knowing something about the past. The fact is, the stock market has been repeating
itself consistently enough throughout its history to allow us to see in it predictable and repeatable
long-term patterns, or market “biorhythms,” which are important to recognize and understand
when it comes to building a smart, defensive investment strategy.
First, you need to understand something about what particular “version of the truth” Wall
Street and most brokers like to tell when talking about the stock market. Most people have
probably been told that the market averages about a 9 percent return over the very long run. The
way that actually breaks down is that 2 to 3 percent of this return comes from stock dividends,
and 6 to 7 percent comes from capital appreciation; in other words a 6 to 7 percent average
growth rate over the very long run….
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by John McCartin | White Paper
Have you ever bought a pair of pants for your child or grandchild that were too big? It’s a common occurrence, and when it happens you basically have two options: One, you can throw the pants in the wash and try to shrink them. Or two, you can just sit back knowing that child or grandchild will eventually grow into them. In essence, this same phenomenon applies when the price of stocks get overinflated in relationship to annual corporate profits, and if you can learn to recognize when it’s happening, that knowledge can go a long way toward helping you make smart, safe savings and investment decisions.
I first observed this phenomenon back in 1998. What I was seeing, and what was starting to worry me, was that the overall price of stocks in the market was becoming overinflated – like a baggy pair of pants – relative to actual corporate profits. I understood from my knowledge of market history and my grasp of the basic financial ratios that one of two things had to happen to correct this growing imbalance: that overall stock prices had to shrink by 75 percent, resulting in a Dow Jones Industrial average below 3,000, or we had to slip into a significant and prolonged period of market volatility while we waited for corporate profits to grow into these baggy price levels.
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by John McCartin | White Paper
Before you can retire, you should know what all of your sources of income are going to
be, and how much you can expect to receive from each. Social Security benefits will, obviously,
be one of those sources, but how much you can expect to receive depends on a variety of factors.
There are ways to maximize your benefits and get the very most to which you are entitled, and
there are strategies to minimize your tax burden from Social Security. The most important thing
you need to consider in working toward those goals, however, is whether your Social Security
benefits are coordinated properly with your other assets and sources of income.
Let’s start with some basic facts about social security:
- Money you can’t outlive – Social Security is one of the few sources of income you can’t
outlive. Once you start taking them, your benefits continue to your death, and the longer you live
the more you will extract from the system. If your benefit starts at $2,000 per month, and you
live 10 more years, you will receive over $300,000 in lifetime benefits. If you live 30 more
years, you’ll receive over $1 million over your lifetime, assuming annual cost-of-living
adjustments of 2.8%. That’s good news because retirees are living longer and longer. Today
there is a 50% chance that the average 65 year old will live into his late 80s. For the average couple aged 65, there is a 50% chance that at least one spouse would live to age 92…
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by John McCartin | White Paper
Nothing exists in a vacuum, meaning that even if you’ve determined the best time and
method of taking your Social Security benefits based on your age, objectives and lifelong
earnings, it won’t matter unless you properly coordinate your benefits with your overall
retirement income plan. Most people agree that Social Security is not enough to live on in
retirement, and needs to be supplemented with other sources of income. Therefore, it is essential
to make sure your other savings and investment vehicles are as reliable as Social Security and
capable of meeting the same financial objective: providing income that you can’t outlive.
As I noted in my white paper on required minimum distribution allocations, retirement
income for any purpose – whether it be living expenses, major purchases or satisfying RMDs –
should ideally come from interest and dividends on your savings and investment vehicles, not
from principal; just like your parents probably told you. The same concept applies when talking
about maximizing Social Security…..
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