Financial Advisor meeting #4 – Sad Trombone….

I’ve included several posts about our recent meetings with a financial advisor

Financial Advisor Meeting #1

Financial Advisor Meeting #2

Financial Advisor Meeting #3

As I noted previously, Mrs. 39 Months doesn’t trust my numbers, and wants to get a second opinion. By involving a third party, I’ve been able to get Mrs. 39 Months to provide more information on how she sees our FI journey going, her spending expectations, etc. Its been well worth it in that respect. We finished our 4th meeting with the financial advisor late last week, and the results, to say the least, were very disappointing to me.

The “basic” plan we asked him to work up for us had me working for an additional 4 years (instead of “retiring” at 56, assume we continue to work till I’m 60 and Mrs. 39 Months was 62). He came back with the analysis, and it showed us running out of our liquid assets around age 95/97. We’d still have the fully paid off house to use as a reverse mortgage, but his analysis showed us just barely scraping by. Sad Trombone (wah, wha!)

Well, I didn’t really take this sitting down, as I knew the assumptions put into the analysis drove a lot of this. I’d tried to get advance copies of his analysis (at least the base one) in advance, but I wasn’t able to. So I started picking it apart there in the middle of the meeting. Some of his assumptions:

  • Spending of $90K in the first year – even though we gave him a budget of $72K (plus taxes), he had some assumptions in there that pushed the first year’s spending to $90K
  • Inflation of 3.25%. Seems a little high compared to the last ten years, but I won’t argue
  • Medical inflation of 6.5%. I think this actually is good, based on the past

Yet the big assumption that pushed this out was the return on investment of various investment classes. They got their data from Morningstar, which is reporting the following returns, by class, to be used for planning purposes. Note that these are total returns, including inflation:

  1. Large Cap Growth Equity (top 1,000 of Russel for growth): +5.02%
  2. Large Cap Value Equity (top 1,000 of Russel for value): +6.08%
  3. Mid Cap Equity (smallest 800 of Russel 1,000): +6.06%
  4. Small Cap Equity (Russel 2,000): 7.24%
  5. US REITs: 7,59%
  6. International Equity: 7.59%
  7. Emerging Markets Equity: 7.26%
  8. Long-Term Bonds: 3.4%
  9. Intermediate Term Bonds: 3.69%
  10. Short-Term Bonds: 3.48%
  11. High Yield Bonds: 6.07%
  12. International Bonds: 2.73%
  13. Cash: 2.68%

Holy cow! The S&P500 has returned roughly 10% for the last century, but I’m supposed to base my retirement on it only returning half that for the next 40 years? International Equity is going to be US equity, even though its been getting its but kicked for years now? Cash at 2.68%, even though its been trading at crap levels for over a decade? I just don’t see the sense in these numbers. Apparently the thought is that we’re about to head into a period of serious investment non-performance, like the decade long period after 1929, 1965 and 2000. I’m just not sure this is correct.

I’ve asked them to re-run the analysis based on the $72K a year in expenses. I think we are going to go round & around on the returns assumptions in the analysis. Not sure how I’ll handle this.

We are going to have some further discussions. I’ll let everyone know how that goes.

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