Rough road ahead for retirees?

When planning for retirement, it’s important to make several assumptions concerning expected investment returns, life expectancy and inflation. If you utilize conservative assumptions regarding these factors, your chances of not running out of money will improve. However, according to David Blanchett, the head of retirement research for Morningstar, stocks are likely to return in the 4 percent range and bonds in the 2 percent range over the next decade.


High stock and bond valuations following a protracted bull market and potential rising interest rates bode poorly for both stocks and bonds. A bad decade such as the one predicted by Morningstar could be disastrous for retirees, especially if they are relying on returns in line with historical norms. If you are inclined to think that Mr. Blanchett’s prediction is logical, what would be some of the appropriate strategies to counteract an under-performing decade?


Assuming stocks do only average 4 percent per year for the next 10 years, that annualized return won’t be linear, it will likely consist of some down years (substantially down, potentially) and some up years. One way to seek to improve your portfolio returns is to avoid investing in the down years and only invest in the up years. This is easier said than done. If you don’t have a reliable strategy to accomplish this, an uncapped index annuity with periodic resets may be a suitable alternative.

If you can capture a big percentage of the index gains in the up years yet not lose any money in the down years, you could potentially achieve very attractive returns that beat the market over the next decade — especially if equities endure one or more significant down years.


Additionally, other alternative investments such as real estate or certain preferred stocks that are not closely correlated with the stock and bond markets may provide compelling distributions and total returns even if stocks and bonds do not.


Keith Singer

Keith Singer, a well-known financial advisor in Florida, is both a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a licensed Florida attorney.

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