5 Reasons Your Retirement Account Will Come Up Short

Several years ago, you had a Retirement Plan prepared telling you exactly what to do to reach your retirement income goal. Your highly anticipated retirement date is near and you’re excited to see the results. In utter disbelief, you ask, “How did I come up so short?”

Here are 5 reasons your retirement account will come up short.

  1. Market Volatility. If the stock market dropped 50% and subsequently gained 50% for a 0% average return, I imagine the headlines might read “Shew! We dodged a bullet. Market Flat”. Now, imagine you had $100 invested in this so-called “flat” market. After day one, your $100 would be worth $50. On day two, your $50 would gain 50% or $25 bringing your account back to even. Right? Wrong! You only have $75. You are DOWN 25%!
  2. Fees. Nothing is free. Where did you find your latest investment tip? The Internet? Who do you suppose paid for the ad? The company? Try again. The investors paid for that ad. Fees are often hidden yet very real. And remember, they come out whether you make money or not. A loss of 4% can quickly become 6% or more due to fees. Yikes!
  3. Faulty Retirement Projections. Your retirement projection is not worth the paper it is written on. The future value of $1,000 compounded at 8% is:
Year Account Value 8% Interest Year-end Value
1 $1,000.00 $80.00 $1,080.00
2 $1,080.00 $86.40 $1,166.40
3 $1,166.40 $93.31 $1,259.71
4 $1,259.71 $100.78 $1,360.49
5 $1,360.49 $108.84 $1,469.33

The market value of $1,000 invested in a product that averaged 8%

Year 1 Gain 10% Year 2 Loss 32% Year 3 Gain 40% Year 4 Gain 12% Year 5 Gain 10%

10-32+40+12+10 = 40/5 = 8% average return

Year Account Value Interest Year-end Value
1 Gain 10% $1,000.00 $100.00 $1,100.00
2 Loss 32% $1,100.00 -$352.00 $748.00
3 Gain 40% $748.00 $299.20 $1,047.20
4 Gain 12% $1,047.20 $125.66 $1,172.86
5 Gain 10% $1,172.86 $117.29 $1,290.15

Fact: You cannot accurately predict the future value of a variable product.

  1. Tax-Deferral. Every time you make a contribution to a tax-deferred account you attach a blank check signed by you and payable to the IRS? It’s true! You are authorizing the IRS to charge whatever tax rate they want on that money when it is withdrawn. What’s worse is there is a blank check attached to every dollar your dollar earns inside of a tax-deferred account! If you think taxes will be lower in retirement, think again. With the deficit approaching $34 trillion, taxes are not going down!
  2. Inflation. The long-term average rate of inflation in the United States measured between 1960 and 2022 was 3.80%. Did you factor 3% inflation into your retirement projection? No? It’s hard to believe a gallon of gas was .32 in 1966 and is selling today for around $3, but it is. Inflation is real and a serious threat to your retirement income.

You only get one retirement. Go to JondaKnows.com to get back on track!

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