15-Minute Retirement Plan

15-Minute Retirement Plan

How to Avoid Running Out of

?Money When You Need It Most

One of the biggest risks an investor faces is running out of money in retirement.

This can be a personal tragedy. People may work their whole lives to accumulate enough wealth for a comfortable

retirement only to find they’ve come up short. To help minimize this risk, Fisher Investments recommends keeping

the following key questions in mind when planning your retirement:

1. How Long Will Your Portfolio Need to Provide for You?

2. How Can Cash Distributions and Inflation Impact Your Portfolio?

3. How Do You Establish a Primary Investment Objective?

4. What Are Important Trade-Offs You May Need to Make?

1. How Long Will Your Portfolio Need to Provide for You?

The table below shows total life expectancies for Americans, based on current age. We believe these projections

likely underestimate how long people will actually live given ongoing medical advancements. And don’t forget these

are projections of average life expectancy—planning for the average is not sufficient since about half of people in

each bracket are expected to live even longer. Factors such as current health and heredity can also cause individual

life expectancies to vary widely.

The bottom line? Your time horizon may be much longer than you realize. Prepare to live a long time and make sure

you have enough money to maintain your lifestyle.

*Source: 2007 US Total Population Life Table (revised as of 06/28/2010), National Vital Statistics Reports, Volume 58, Number 21.

Life expectancy rounded to nearest year.

2. How Can Cash Distributions and Infl ation Impact Your Portfolio?

As you anticipate your investment time horizon,

it’s also critical to understand how withdrawals will

impact your portfolio. Like many investors, you may

have unrealistic expectations of how much money

you’ll be able to safely withdraw each year during

retirement.

A common—but incorrect—assumption is that

since equities have historically delivered about

10% annualized average return over the long term,*

it must be safe to withdraw 10% a year without

drawing down the principal.

Nothing could be further from the truth. Th ough

markets may annualize about 10% over time, returns

vary greatly from year to year. Miscalculating

withdrawals during market downturns can

substantially decrease the probability of maintaining

your principal. For example, if your portfolio is down

20% and you take a 10% distribution, you will need

about a 39% gain just to get back to the initial value.

Another important portfolio factor to consider

is infl ation. Infl ation is insidious. It decreases

purchasing power over time and erodes real savings

and investment returns. Many investors fail to

realize how much impact infl ation can have.

Since 1925, infl ation has averaged 3% a year.** If that

average infl ation rate continues in the future, a person

who currently requires $50,000 to cover annual living

expenses would need approximately $90,000 in 20

years and $120,000 in 30 years just to maintain the

same purchasing power.

Similarly, if you placed $1,000,000 under your

mattress today, in 30 years that money would only be

worth around $400,000 in today’s dollars

*Source: Global Financial Data, Inc.; as of 01/18/2013. Based on 9.72% annualized S&P 500 Index total returns fr om 1926-

2012. Th e S&P 500 Total Return Index is based upon GFD calculations of total returns before 1971. Th ese are estimates by GFD to

calculate the values of the S&P Composite before 1971 and are not offi cial values. GFD used data fr om the Cowles Commission and

fr om S&P itself to calculate total returns for the S&P Composite using the S&P Composite Price Index and dividend yields through

1970, offi cial monthly numbers fr om 1971 to 1987 and offi cial daily data fr om 1988 on.

**Source: Global Financial Data, Inc.; as of 01/18/2013. Based on US BLS Consumer Price Index fr om 1925-2012.

***Estimate based on a 2.98% rate of infl ation.

3. How Do You Establish a Primary Investment Objective?

Time horizon, cash fl ow needs and infl ation are all

key factors to consider in your retirement planning.

Another cornerstone is establishing a primary

objective for your portfolio.

A precise way to determine your portfolio’s objective

is to defi ne your “terminal value objective”—the

amount of money you plan to have at the end of your

portfolio’s time horizon. Possible terminal value

objectives include:

• Maximizing terminal value: You want to increase

the purchasing power of your assets as much as

possible across your time horizon.

• Maintaining the value of the portfolio in real

terms: You aim to maintain your present purchasing

power at the end of your time horizon.

• Depleting assets: You have no desire to leave any

assets behind.

• Targeting a specifi c ending value: You desire a

specifi c ending value, perhaps for making a donation

to charity.

4. What Are Important Trade-Off s You May Need to Make?

Like many investors, you may plan to draw from your

portfolio during retirement. Th e level of cash fl ow

you require, combined with your terminal value

objective, may require some trade-off s to minimize

the risk of running out of money. For example, you

may need to increase your exposure to investments

with higher returns—and be willing to tolerate the

greater volatility associated with them.

Understanding the trade-off s of diff erent strategies

is crucial. Th e following scenarios show the impact

of four diff erent rates of withdrawal on a $1,000,000

portfolio under diff erent asset allocations, plus one

showing no withdrawals. Th e four withdrawal rates

are: 10%, or $100,000 per year; 7%, or $70,000 per

year; 5%, or $50,000 per year; and 3%, or $30,000

per year. Th ese simulations were run using a Monte

Carlo Bootstrap simulator; all withdrawal amounts

are adjusted for infl ation to maintain original

purchasing power.*

Th ere is no one right answer—only the answer that’s right for you. If maximizing terminal value is your

primary objective, a portfolio with 100% equity might make the most sense.

However, if you want to maintain purchasing power with less volatility, then a 70% equities and 30% bonds

allocation may be more appropriate. Determining your primary objective can help you decide which asset allocation

is best for your needs.

Which scenario and asset allocation make you most comfortable?

Planning Your Retirement With Fisher Investments

Still have questions? Not sure what’s best for you? Need help getting started? We’ve

helped thousands of investors—each with unique goals and objectives—plan for

retirement. Call Fisher Investments at 800-568-5082 to find out how we can help

you achieve the comfortable retirement you’ve been working and saving for.

Fisher Investments

☑ Your portfolio is constructed according to your specific ?

needs, taking into account your investment objectives,

time horizon for the assets, cash flow needs and other

factors specific to you.

☑ You get proactive service from your own Investment ?

Counselor, who will keep you up-to-date on your portfolio.

☑ You have the opportunity to meet the actual people ?

making investment decisions, either through in-person

events or client conference calls.

☑ Your portfolio is managed by a team with over 100 years ?

of combined industry experience.

☑ Your firm’s CEO has written for Forbes magazine ?

for over 28 years and has written ten books on investing

and wealth creation, including four New York Times

bestsellers.

☑ You get a disciplined approach to your investment ?

strategy that goes beyond just stock picking.

☑ You can take advantage of global investing opportunities ?

with our significant experience investing domestically

and overseas.

☑ You won’t be limited to a single style of investing ?

(like “growth” or “value”) as we can shift our strategy

based on our forward-looking view of market conditions.

If we forecast an upcoming bear market, we might adjust

your portfolio allocation to be more market neutral with

fewer stocks and more bonds, cash or other securities.

☑ You’ll have competitive, transparent fees that align our ?

interests with yours. If your portfolio does better, we both

do better.

Your Investment Adviser