Broker Check


February 08, 2017

Are you aware of the different risks and various strategies to consider during Accumulation vs. Distribution?

Let’s say you have $100,000 invested…This year you incur a 50% loss and next year you incur a 50% gain. How much money do you have? The answer is $75,000. Most people would have answered $100,000. Why is that? It’s because, it takes a higher gain than your original loss to offset that loss.

In this example, it would have taken a 100% gain in order to offset that 50% loss, getting back to your original investment amount. The calculation would look like this: With the $100,000 original investment, a 50% loss on that investment would drop it to $50,000. If you then have a 50% gain on that $50,000… That will only bring your investment to $75,000. Understanding this relationship becomes even more important if you’re drawing income from an account such as this.

If you use a football analogy when thinking about your retirement, it puts everything into perspective. In retirement, like football, there are 2 halves. In football they have a saying… “The score at half-time is irrelevant. Give me the score at the end of the game then I’ll tell you who wore’ It’s much the same with retirement; how much money you have at the end of the game determines a win or a loss. The First Half the Game is building and accumulating; the Accumulation Phase. The Second Half is the Distribution Phase; when you either, spend your money, enjoy it at retirement, or after death pass it on to loved ones. Too many people think that just having a lot of money or building a lot of money is the name of the game…then they go in at half-time and think “Well, the job’s done. I’ve saved all the money I’ll ever need for retirement?’ Therefore, they quit. Big Mistake!

Don’t forget there are 2 more quarters, which is when the game gets tricky.

This retirement game is won or lost in The Second Half of the Game.

Let’s review a case study of two investors, over two different time frames in their lives. We will first explore the Accumulation phase of their investments then move to the Distribution phase. For the following example, we have two investors (Investor A and Investor B), both who recently turned 37 and are making a one-time investment of $100,000 into a mixture of diversified stocks, bonds, and mutual funds. Both investors continue to work and let the money grow without any additional deposits or withdrawals until age 66. Upon turning 66, both investors will then begin withdrawing an equal amount of money from their accounts to supplement their retirement income.

(Below is a chart that you will want to reference at this point. It shows the annual returns experienced by both Investor A and Investor B, illustrating them in the exact opposite order of each other You’ll notice that the end result, in terms of accumulation, is identical in both cases, even though the annual returns have been reversed. Again, even though both investors experienced yearly investment returns in exactly the opposite order; after 29 years they both have equal account balances and equal average annual rates of return)*

Now, both investors are going to begin withdrawing $50,000 in year one with an annual increase of 3%. Again, referencing the chart below, let’s compare and see what happens to both investors over time (assuming they experienced the exact same investment returns as they did during the Accumulation phase). During the Distribution phase, you’ll see that even though the average return for both investors is the same during this time, one of the investors runs out of money significantly earlier, while the other investor continues to maintain a healthy portfolio balance.

Summarizing the experience of these two investors… Both started investing at the same age, 37. The same amount was invested by both, $100,000. They had the same average annual return during the Accumulation phase of 9.10%. Both investors had the same account balance when beginning withdrawals at age 66, $836,760. They then took the same annual withdrawals starting at $50,000 and increasing by 3% annually. They also had the same average annual return during the Distribution withdrawal phase of 9.10%. This leads us to an interesting question.

How is it that Investor B runs out of money 11 years into taking withdrawals, while Investor A continues to take increasing annual withdrawals and has an account balance remaining of over $2.3 million, 29 years later?

It’s simply because Investor B suffered a large loss in the first year of taking withdrawals, while Investor A did not suffer the same percentage of losses until years later.

In conclusion…We’ve learned that it requires a higher gain than the original loss to offset that loss. The other thing we learned is, when investing, one should certainly investigate the risks associated in taking income from non-guaranteed accounts, and to always explore and consider proper strategies for generating income. Ultimately, when investing for retirement, your goal should be to maintain a healthy portfolio balance and provide you a steady income stream for the rest of your life. Allocating some of your assets to fixed income accounts and allowing other assets to be invested into more growth-oriented accounts, may allow you to eventually replace those fixed income accounts once they’ve been exhausted.**

Please take a moment to reflect and evaluate your own current financial situation as it relates to the topics in this discussion.

So what’s the next step?

Your receipt of this report entitles you to a no cost or obligation one hour session to ecplore risks and strategies that you may not be aware of during the Accumulation and Distribution phases of your retirement planning. Any customary hourly planning fees will be waived for this one hour session.

What should you expect at this one hour session? Below are some frequently asked questions about what we call the “59 Minute Personal Asset Management” consultation.


Q: What will this meeting consist of?
A: This meeting is simply an opportunity for you to ask any questions that you may have related to the accumulation and distribution of your retirement accounts and your personal finances. Throughout the course of the meeting, we will ask questions about you and your situation. We’ve found that everybody’s definition of a comfortable retirement is a little different, and that everybody’s situation is unique. Our goal is to learn about your personal goals as we explore how to help you retire the way you want.

Q: Why do you offer this no cost or obligation consultation?
A: Simple. It gives us an opportunity to meet folks from around the area that may have questions about financial matters, which is our area of focus. It’s no secret that we would love new clients. Gaining new clients is the way that our business grows. However, we want to provide a comfortable environment for exploring a new, potential professional relationship — for you and for us. By offering an hour of our time for no cost or obligation, it provides a non-threatening way for us to spend some time with you to see if it makes sense for us to continue discussions into the future

Q: Will there be a sales presentation?
A: Not at all. In fact, we are very hesitant to talk about any potential solutions to any questions or concerns you may have. It is important for us to understand your goals and desires about what “retiring” or “investing for your future” means to you. We feel it would be financial malpractice to begin exploring solutions prematurely. We tend to look at the first meeting as an opportunity for you to ask some questions, and for us to get to know each other. Furthermore, we can both be more informed by the end of the meeting, which will help determine whether or not it will be beneficial for us to meet again.

Q: How long will the meeting last?
A: About 59 minutes. Most of our meetings are stacked throughout the day. Future sessions may require more time, but we’ve found that an hour, initially, provides a good basis for getting to know a little more about each other.

Q: What should I bring to the meeting?
A: We are sensitive to the fact that your personal financial information is just that — very personal. However, it is hard for us to help if we don’t, at least, have a fundamental understanding of your financial position. We ask that you bring information regard-ing your financial accounts, and your previous year’s tax return. However, we follow a pretty strict policy of not looking at any of this until you are comfortable with us doing so.

Q: What will happen after the meeting?
A: If we both decide that it would be beneficial to meet again, we’ll schedule another time to get together. That meeting we would introduce to you the various areas in which our firm may be able to provide value to your situation. Again, there would be no solutions offered at the second meeting. That would still be a discovery meeting. At that point, you should be in a better position to make an educated decision as to whether you wish to engage the services of our firm.

Q: Who should come with me?
A: We do ask that if you are married, you bring your spouse with you. If you wish to bring any children with you to the meeting, you are welcome to do so. For that matter, anybody that you may utilize in helping you with your retirement and personal finances is welcome to join.


* The investment returns and losses stated, in this article, are for illustrative purposes only and do not depict any particular investment. The annual returns experienced by Investor A are in the exact opposite order of those experienced by Investor B. Investing exposes your assets to risk and accounts can lose value. Figures shown are used only to illustrate concepts. When investing, actual returns may be more or less than illustrated.
**Fixed Income accounts may include such things as fixed annuities, bank CD’s, and money markets just to name a few. Guarantees offered through annuities are based on the claims-paying ability of the underlying insurance company. There may be fees and expenses associated with annuities. including but not limited to surrender charges. Bank CD’s are FDIC insured up to $250,000.