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# G pessotti art of managing retirement assumptions reprint

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### G pessotti art of managing retirement assumptions reprint

1. 1. ADVISOR/CLIENT EDUCATION BRIEFThe Art of Managing Retirement Assumptions!"#\$%&()#*%+",-#.*/0A retirement plan is built on a set of assumptions that can’t be validated untilit’s too late. One key to successful retirement planning is carefully settingassumptions and revising them often.Retirement calculators make it so easy. Pick a retirementdate. Estimate your living expenses in retirement and George Pessottichoose an inﬂation rate. Figure out a rate of return for Owner / Presidentyour investments. Guess how long you think you’ll live. Putthese assumptions into the calculator, and it will tell you Pessotti and Associatesjust how much you need to have at retirement in order to 508-612-8101receive the income stream you desire. george@pessotti.comThe problem is your assumptions could be oﬀ. And if www.pessotti.comthey’re oﬀ by just a little, they could skew the result by asigniﬁcant amount over your remaining life. Consider this: The diﬀerence between a 5% and a 6% return on a \$1 million portfolio over 30 years is more than \$1.5 million (\$4,467,744 vs. \$6,022,575). If your have annual living expenses of \$60,000 now, in 30 years you’ll need an annual income of \$147,410 if inﬂation averages 3%, but just \$109,272 if it averages 2% — a diﬀerence of over \$38,000 in just one year. If a portfolio withdrawal rate is set to last to age 90 and you make it to your 91st birthday, the plan failed.You can’t do retirement projections without making someassumptions. But most of the self-help tools out theremake assumption-setting seem too easy. Some even havedefault settings, which imply that the metric in question —a 3% inﬂation rate, for example — is what any reasonableperson would choose. To change it would be to go againstthe conventional wisdom, a scary proposition for anyonewho isn’t even sure what the inﬂation rate is based on.According to a research report by LIMRA and theSociety of Actuaries, major gaps exist in the public’s!"#\$%&()*+*,-..*/00123456"%4147"3)(8*99!:**/;;*<&()4*<141%=1>:9&?1041*@A*6B/CD,-../ |1