A cross-check on your Retirement Income Challenge plan

I recently attended the Retirement Income Challenge offered by Retirement Researcher the education/research arm of McLean Asset Management. These sessions helped investigate your Retirement Income Style Awareness (RISA®) and use a proprietary tool to determine your Funded Ratio which estimates your chances of meeting your goals using a very conservative approach (100% bonds). This conservative perspective is not ‘wrong’ but does tend to push a participant to believe that they need HELP. I may be jaded but it does appear to be a sales pitch for McLean and while you may desire help, I offer here a way to balance the overly conservative view.

My funded ratio shows “Under Funded” by $6,260,642.
What is the necessary return to reach funded? This would allow us to determine if there is a realistic solution.
Run a future value calculator like: (https://www.calculator.net/future-value-calculator.html)
with the current value in your diversified portfolio: say $1,000,000 and use the number of periods as the number of years until you are 95 with Periodic deposits set to $0. Change the Interest rate until the result matches or exceeds the future shortfall.
For the example: Current Portfolio = $1,000,000, so a 6.75% yearly return will make up the difference. Does historical data support a 6.75% return – YES. Should I worry? Depends on the RISA quadrant I’m in.

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Portfolio Suffering vs. Elation

I just started reading Transparent Investing: How to Play the Stock Market without Getting Played by Patrick Geddes, and found reference to the “losses hurt worse than gains feel good” argument along with the implied suggestion that this is irrational. I believe it is true, but also mathematically correct. A 20% loss ($100 => $80) takes a $80 => $100 or 25% ($20/$80 ) return to recover or a 40% ($40/$100) gain to get to where you’d be with a 20% gain on the original amount. An initial 20% gain is just $20 but it would take $40 to get to the same place after the initial loss – OUCH.

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