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Retirement Income; What are my assumptions? September 7, 2012

Posted by shaferfinancial in Uncategorized.
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Everybody uses assumptions to guide problem solving, or at least they should.

Most of the time these assumptions are subconscious or not explored.  Unexplained assumptions are the leading cause of poor advice.  So I thought I would spend a few minutes explaining my assumptions that are the backbone of my advice.  

#1  Take on the least amount of risk to solve the problem

If you the ability to save large amounts of money for your retirement it makes little sense assume the risk of reaching for high rates of returns when a lower rate of return with lower risk will do the job of providing adequate retirement income. 

#2 Avoid the “one tool fits all needs” type of thinking

If the problem is how to save for retirement income, it makes little sense using a tool that has high variance/risk associated with it because variance is your enemy in producing consistent income.  It also makes little sense using tools that are great if you have a never-ending time period [mutual funds for example] but poor if you have a specific time period you need the money for.  This is the greatest problem that the CFP and RIA folks present with.  They think everyone should be investing in stocks or mutual funds.

#3  Assuming you can predict the unpredictable

The corollary of this is trying to “time any market” with buys and sells.  I assume that whatever strategy employed must not depend on either predicting peaks and valleys or finding “a greater fool” to purchase my investment.

#4  Being blind to actual historical results

I wonder how so called financial advisors can still give out the same advice that has failed so miserably over the last decade.  Using long term historical results to guide decisions is imperative.

I welcome your comments to these assumptions!




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