Facing the Age-Facts

by David Holmes Registered Investment Advisor June 8, 2015A.D. Money

The included Editors Note should be read by all over 40 and especially those near 60. His
conclusion, most retirement plans will not work, especially as life expectancies increase to 100
and beyond thats those living today! He mentions the need for a good set of knees as well as
a full set of teeth. Still listening?
Todays usual Savings/Investing assumptions are well
known though not so clearly stated:
1. Average 5% annual gains,
2. Save 15 to 20% annually for 40 years,
3. Realize Social Security is very inadequate,
4. Can withdraw no more than 4 to 5% annually.
The arithmetic is straightforward. Estimating a $50,000 annual
income and needing $50,000 in retirement, withdrawing 5%
requires a beginning estate of $1,000,000. Withdrawing more
than the 5% assures that the fund will go bust!
The facts are stubborn: If the estate is to be built in 20 years
earning 5%, annual savings must be $28,802, a little over of
income! If saved for 40 years, then only $7,884 yearly for 40
years, about 16% of annual income. Facts are facts.
Some relevant old news: according to a GAO Report and the
Federal Reserves 2013 Survey of Consumer FinancesMost Older
Americans , CNBC.com, by Tom Anderson, June 2015

one third to two

thirds of workers (now age 55 and older) are at risk of
falling short of their retirement savings targets .
In English, they are going to be running out of private funds.
Arithmetic is arithmetic. Arithmetic is not a cure but it gives us light.
Lets talk frankly and soberly. The 55 and older are up against
arithmetic and time. They do not have 40 years to save over
half of their income before taxes and FICA. 5% gains
obviously and clearly are not going to work.
Major issue: largely unaddressed by these professionals is the
accepted 5% Average Annual Gains.
Consider that saving the maximum $6,500 allowed for IRAs in
10 years with 20% gains grows to $202,477, but with 5%
gains, grows to only $85,844.
In 20 years, the $6,500 with 20% gains is expected to grow to
$1,456,166. With 5% gains, it will only grow to $225,675.
Present savings of $100,000 with 20% gains are expected to
grow in 10 years to $619,173 vs. $248,832 with 5% gains.
Further, $500,000 with 20% Average Annual Gains would allow $85,000 indefinite annual
withdrawals (17% of funds) but with 5%, only a $25,000 annual withdrawal.
Finally, the editor mentions entirely new financial planning models will have to be created.
However, the Berkshire fund has averaged annual gains of over 20% for several decades!
Others do well from time to time. So, how about looking at management that cant promise but
learns, adapts and expects Average Annual Gains of 20% or more?
David Holmes

Assessing the L-T Effects of Lo Returns or Not Investing

By David Holmes

Registered Investment Advisor

800327-8963

5/19/15

The 5 year chart shows the actual changes in the included funds market values including the
bellwether SP500 ($175,000),
the largest bond fund in the world: PMTPX ($98,000),
the former mutual fund rock star Magellan: FMAGX ($138,000),
Warren Buffetts struggling long-term winner: BRKA ($178,000),
Precious metals index: XAU ($40,000) and
the Psalm 23 Programs base fund: RYVYX ($380,000). Each starting with $100,000.

The compound differences over time are clear, stark and instructive.
No savings is an island. Each and all are affected by the vast and innumerable multitude of real and
perceived changing daily events, demands, taxation, decisions, and needs. However, in evaluating these
actual changes of 5 year market gains and declines, it continues to appear that the compound gains of
the high yielding funds far outweigh the declines and low gains.
It further appears that the attempt to attain financial safety by CD or bond stability ignoring returns as
with the PMTPX or the XAU fund is at best, misguided, misunderstood and maybe delusional particularly
in light of the above data. Such chasing of stability would be crushing, particularly to those
withdrawing funds for living expenses as they would periodically
have to consume and consume more and more of their declining I note that the RYVYX could
experience a 50% decline
stable principal Note: two minus two equals zero.
I note that the RYVYX could experience a 50% decline (todays (todays $380,000 to a
$380,000 to $190,000) and still remain well ahead of all the tomorrows $190,000) and still
others! However, as stated earlier, no fund is an island. Further, remain well ahead of all the
these other assets would not retain their maximum attained others!
value though their market value decline would be less. Hence, the issue: who can afford or justify the
emotionally motivated safety or chasing of stability?
The Market and Market value are complex daily issues increasingly compounded by the
Congressionally-allowed huge Federal debt, Federal spendings, Fed-set low interest rates, povertyguaranteeing Social Security and the persisting practice of both politicians and money advisors to
effectively ignore the growing elderly poverty issue while pushing usual low returns and silence to the
on-going FICA scandal. The two last as much a personal lack of personal rationality as they are industry
and political corruptness.
In conclusion, an article in a recent FORBES GRANTs LAW: 1920s RECORD, 1/19/2015, says, I summarize: the accepted
unconstitutional government intervention practices since the 1930s of stimuli, inflation, etc. are

proven destructive and counterproductive as demonstrated by the 1920s two year correction vs.
the 1930s 10 year Depression and the present on-going 7 year malaise! Thus, make hay while

the sun shines!