July 17, 2015

When you retire and how you invest can mean the difference between a comfortable retirement and a disastrous one. How do we go the distance in retirement without running out of money? Award winning personal finance experts, Macro Consulting Group’s Mark Cortazzo and InvestmentNews’ Mary Beth Franklin share their strategies for retirement success.

CONSUELO MACK: This week on WEALTHTRACK, two personal finance champions show us how to train for the big retirement race, keep our portfolios in shape and able to go the distance. Macro consulting’s award winning Financial Planner Mark Cortazzo and InvestmentNews’ Social Security maven Mary Beth Franklin share their retirement workouts next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. As WEALTHTRACK celebrates its tenth anniversary year we have invited some of our regulars back to discuss how much has changed and how much remains the same since 2005.

One thing that has changed for everyone is that we are all ten years older, no exceptions, ten years closer to retirement and in some cases our viewers are now in retirement.

Another big change over the past decade is that interest rates have plummeted. Short term interest rates have been at or near record lows ever since December of 2008 when the Federal Reserve lowered its key short term interest rate, the Federal funds rate to zero. Much of the rest of the world has followed by lowering their official lending rates. That has set off a worldwide search for income.

Another major shift has occurred in stock prices. The S&P 500 which began WEALTHTRACK’s launch at the 1,222 level in July of 2005 peaked in October 9th of 2007, only to suffer its biggest decline since the 1930s, a 57% drop to its March 2009 low during the financial crisis. It took years for the S&P to surpass its old high.

According to one of this week’s guest’s award winning Financial Planner Mark Cortazzo when you retire and how you invest can mean the difference between a comfortable retirement and a disastrous one.

He cites three hypothetical examples. He calls them the “Three Brothers”. They each retire with a million dollars, they each withdraw 60,000 a year, or 5,000 a month, but retire three years apart. Brother 1 retires in 1997, as the tech bubble was gaining steam.

Brother 2 retires in 2000 at the top of the market, just before the tech bubble bursts and Brother 3 retires in 2003 as the credit bubble that imploded in 2009 was in its infancy.

But here’s the scary part. By 2015 there was a wide discrepancy in their investment results and under one scenario the middle brother had almost run out of money.

Scenario one has them all investing only in the S&P 500, by 2015 Brother 1 had $1.64 million in his portfolio… Brother 2 had only $63,945 left in his retirement account! And Brother 3 had $1.65 million.

Scenario two has them all investing the million dollars in a diversified stock portfolio, evenly divided among five asset classes, international developed country stocks, U.S. small cap, large and midcap and emerging market stocks. The results were quite different and much improved. Brother 1 would have doubled his money to nearly $2 million, Brother 2 would have one million, what he started his retirement with and Brother 3 would have $2.4 million.

What are the lessons to be learned from these outcomes?

Joining us is Mark Cortazzo, a Certified Financial Planner, Founder and senior partner of Macro Consulting Group, an independent financial planning firm established in 1992. Cortazzo was recently named to the Barron’s Top Advisor List for the seventh consecutive year, among many other recognitions.

Mary Beth Franklin is contributing editor at InvestmentNews, a leading trade publication for financial advisors. She is an award winning personal finance journalist, a recognized expert on Social Security and the author of a recently published book, “Maximizing Your Social Security Retirement Benefits.”

I began the interview by asking them why there was such a huge and frightening discrepancy among the “Three Brothers” portfolio results, especially under scenario one when they each invested their million dollars in the S&P 500.

MARK CORTAZZO: Really the only difference between the three brothers was the day they turned 65 and what happened the following three years. The first brother, the first three years the market went up, and they were taking withdraws from profits. The second brother, the market started going down, and those withdraws were eating into the principal, and the percentage of the remaining account value that that withdraw represented got bigger and bigger, and you get to a point where even if you have very strong performance and it’s on a small dollar amount, it’s still not enough to overcome that withdraw, and this cascading effect continues to erode your principal even in a bull market.

CONSUELO MACK: Right, and then the third brother …

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