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ROR is not the same as SORR.

I have been teaching these truths for the past 8 years but even for those who actively refer clients to me, the ability to explain why “rate of return” is not the same as “sequence of return risk” is still somewhat too academic. As such, my clients will simply tell a referral, “Just talk to Kasandra and keep listening to her until you get it!”

Specifically, I help people design and implement a dynamic and sustainable wealth system that combines investments and insurance such that one has more income in retirement with less risk and more guarantees.

The two arguments that I hear most often against the strategic combination of investments and insurance are: (1) the market has an average ROR of double digits so all I need are my investments and (2) the insurance company can crash - basically, people have uber-faith in the market/their investments and zero to negative faith in actuarial science. Interestingly enough, neither of these arguments addresses one of the most critical and fundamental issues when it comes to creating an income in retirement.

A critical and fundamental REALITY is that no one has a crystal ball on the future. Therefore, no one can tell you what the market will do or when it will do it. Future market and environmental risks add profound and unrealistic pressure to an “investments only” strategy. Along these lines, where might you be when you seek to withdraw an income from your mountain of investments? What might your lifestyle “really” look like? What will your real “needs” be, really? And how might those needs change over the 20 to 30 year retirement most of us would like to enjoy?

Bottom line, ensuring the highest level of income from your mountain of investment assets is all about risk mitigation and you can not prevent risk with the same tools which have “risk” as their base definition.

Fortunately, what I have been teaching folks and what academicians are now getting worldwide attention for via coverage in Forbes and MarketWatch is: if you want to get the most out of your investment strategy, guaranteed, combine it with an actuarial strategy.

If you will not read the 27-page white paper posted on the Epiphany Financial website, http://financialepiphany.com/wealth-tools/then at least read the excerpt below.

After reading, reach out and let’s map out what your current wealth strategy will yield when you reach the coveted age of retirement and then let’s compare how my team of personal economic strategists and advisors might improve and increase what you currently have in place with more guarantees and less risk.

The financial market returns experienced near one’s retirement date matter a great deal more than most people realize. Even with the same average returns over a long period of time, retiring at the start of a bear market is very dangerous because wealth can be depleted quite rapidly as withdrawals are made from a diminishing portfolio and little may be left to benefit from any subsequent market recovery. We do not have the luxury of forecasting whether there will be a bear or bull market at the onset of our retirement.

Sequence of returns risk relates to the heightened vulnerability individuals face regarding the realized investment portfolio returns in the years around their retirement date. Though this risk is related to general investment risk and market volatility, sequence of returns risk differs from general investment risk. The average market return over a 30-year period could be quite generous, but if negative returns are experienced in the early stages when someone has started to spend from their portfolio, sequence of returns risk manifests through the fact that the early portfolio decline creates a subsequent hurdle that cannot be overcome even if the market is offering higher returns later in retirement. The dynamics of sequence risk suggest that the retirement prospects for a particular cohort of retirees could be jeopardized by a prolonged recessionary environment early in retirement without there necessarily being an accompanying economic catastrophe. This is a subtle but important point worth repeating. Particular retiree cohorts could experience very poor retirement outcomes relative to those retiring a few years earlier or later, and devastation for one cohort does not necessarily imply devastation for an insurance company which is pooling financial market risk across different cohorts. (“Optimizing Retirement Income by Combining Actuarial Science and Investments,” Wade D. Pfau, Ph.D., CFA, p.9)

At Epiphany Financial we teach people how to make the RIGHT decisions about your money. We help you design and implement a dynamic and sustainable wealth system that combines investments and insurance such that one has more income in retirement with less risk and more guarantees. Thus, reach out so we can ensure you have what you WANT and not just what you need.