THE ROTHROCK REPORT
All of us know that slow and steady wins the race. We were taught this truth through
many means, including the fable “The Tortoise and the Hare.” Promises made of speedy
fast investment returns seem to always give way to periods of loss and inactivity; none, of
course, more evident than the race we have all been running these past few years.
Times are tough, but you should know that historically these ups and downs are the norm
rather than the exception. The severity of the recent downs is great, and certainly greater
than anything we have ever seen since the Great Depression. But over the past 80 years,
since the depression, the financial markets tend to act just like the Hare: fast high rates of
advancement followed closely by years of loss.
S &P 500 T otal A nnual R eturn
(1950 - 2009)
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
1950 1960 1970 1980 1990 2000 R eturn
-10.00%
-20.00%
-30.00%
-40.00%
-50.00%
-60.00%
This constant up and down cycle is called volatility. For the most part, we can withstand
this volatility if we do not need our money for long periods of time. In other words, if we
can invest today and wait 20 or 30 years to withdraw, we should be able to weather the
storm. Unfortunately, there are two major problems we all face:
1. The down cycle (big losses) occurs just prior to your needing your money.
2. You actually need your money to live daily or monthly
In the case of #1 you need to look no further than this past year. If you planned to start
withdrawing money now or are in retirement, most likely the value of your money is
about half of what it once was. And if you are wondering about withdrawing just some
of your money at a time while keeping it invested, please think again:
The charts below show how many “balanced” investment portfolios lasted 30 years or
longer since 1930. They are based on withdrawing only 5% per year adjusted for
inflation and taxes.
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The charts measure the best and worst performance each decade. For all portfolios 30
years or older, only two made it 30 years or longer! That’s 50 years dating back to 1930.
Your chances of investing in the market and making it were two in 50 years, or 4%.
Why? Because of volatility. When you are withdrawing money to live on and the
market goes down, you of course lose more. And that means your account has to make
that much more in good times. And if your account loses money early, say in the first
five years, your chances of it lasting 30 years are almost certainly “0”. In fact, the
average portfolio lasts only 19 years.
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What to do? If we look at history we realize the tortoise and hare scenario will always be
with us. The absolute best way to insure a long term future for yourself or a loved one is
to buy a Guaranteed Income Annuity. These investments are fixed, guaranteed, and not
subject to any volatility. They are issued by highly rated life insurance companies which
are strictly regulated and supported by insurance laws, guarantee funds, and government
scrutiny.
Performance. Like the tortoise, the annuity policy is steady and dependable. Over the
years we have not lost one dime from a contract issued by our offices
How much money can I save with my annuity? Or, how much do I stand to lose in the
market?
That, of course, depends on the fickle nature of the market, volatility, and other world
events that can negatively impact your money. You are comparing a sure thing to the slim
possibility of doing better. However, if we compare how much you would lose by your
portfolio not lasting as long as the annuity, see what the historic results have been for a
$500,000 initial investment.
The Effect of Longevity on Payout Amounts
19 year Portfolio Payout (average) $ 308,785
25 year Portfolio Payout (average) $ 974,576
30 year Portfolio Payout (average) $1,777,047
Historic Average Payout (1930-1990) $ 695,644
30 year Annuity Payout $1,660,971
What this report tells us is that the average balanced portfolio will pay us about $1
million less than the annuity! Are you startled? Shocked? Surprised?
So, why do people opt for the much riskier investment? Mostly, it’s because we have
been conditioned to believe that the stock market is the only place to be if we want to
make money. The trouble is that it is also the place to be to lose money. When we factor
in all the variables and uncertainty, it is the most dangerous place to invest for our
lifetime money needs.
The dramatic losses in the portfolios are directly related to their longevity. The longer
they lost, the more they pay out, of course. Unfortunately, because of volatility, they
rarely lost long enough to match the annuity payout. The chart below illustrates the
actual results for all portfolios older than 30 years.
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LONGEVITY RESULTS
1930 - 1980
Stock 70% and Bond 30%
8%
22%
"Actual"
Life of Portfolio
30 Years or Better
20 to 29 years
39% 19 to 15 Years
Less than 15 years
31%
When we translate the results we see that you have an 8% chance to exceed the annuity
payout. This means, of course, that you also have a 92% chance that your investment
will fail to match the annuity. And that means you will likely lose a great deal of money
if you gamble on a portfolio.
Remember – for your portfolio to produce results equal or better than a guaranteed
annuity, it must last longer than 30 years. Since 1930, only 8% have done so. The
average payout for that 92% which did not was $695,644.
Now take a look at what has happened to recent portfolios since 1990:
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If we project the longevity of all portfolios younger than 30 years old, we see the
possibility of improvement. However, even the projected results still weigh heavily in
favor of the guaranteed annuity.
1 9 9 0 to 2 0 0 8
0%
32%
42% 40 y ears or better
30 to 39 y ears
20 to 29 y ears
19 y ears or les s
26%
Conclusion: You have worked hard to save for your retirement. Your money needs to
last you for your lifetime. A Guaranteed Income Annuity is the only product that both
protects your investment and guarantees a fixed rate of return that is always positive and
almost always does better than the market.
Peace of Mind – Always
Risk of Loss – Never
Safer and Secure – For your Life
BRANT HICKEY & ASSOCIATES, INC.
Structured Settlement Specialists
Toll Free 800.364.6488
Local 412.356.1001
Fax 412.356.1011
www.branthickey.com
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