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Outliving Your Money

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Just over thirty years ago, the 3-Month Treasury-bill yielded 16.3% in the secondary market. At the beginning of this month, as you can see in the chart above, it yielded only 0.01%. That’s 1 basis point, or a difference of 16.29%. It can’t possibly go below zero. Though the yield is already negative when accounting for inflation, as investors line up to pay to lend the government money.

Investors are in a real predicament, especially those living on a fixed income. How many investors built their retirement savings plans using such low rates as inputs in their models? Not many to be sure. After all, when you use such low rates of expected return like those on the T-Bill, your computer model might spit out: “Keep on working” or “You better save a lot more.” Or you might be saying “Welcome to Wal-Mart,” during your “retirement.”

Retirees tend to spend way too much in the early years of retirement. This is anecdotal evidence, but I’ve seen it done over and over again. It’s party-time once the lock to the treasure chest is finally pried open. And, it’s a lot of money to have available at your fingertips. But it has to last you a long, long time.

With rates so low, and investors using expected returns that are far too optimistic, it’s crucial to be realistic. This is certainly not the time to be expecting anything great from the market. At the end of the day, the market doesn’t care if your retirement goals are met or not. And if you’re not prudent, you may outlive your money.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.