How Much Time Does Money Buy?
Well it depends… but please read on because rather than evade the tough questions of investment management, we believe our job at C.J. Lawrence is to empower investors with the information they need to help guide their financial decisions for the future.
But first the hard truths. On our website (www.cjlawrence.com) one of our tag lines states “At the core of every successful plan is a targeted and disciplined investment strategy”. Translated, no matter how good your financial plan, it is worthless without the assets to support it. So take your planning back to step 1 and ask the fundamental question: how much money do I need and when? There are unlimited variables but the key ones include life: time to retirement, life expectancy, spending plans, cost of living, capital market assumptions…
We would welcome the opportunity to meet with you to better pinpoint the answers but in the meantime let us offer you the following reference points. The U.S. Treasury 10 year yield remains in a choke hold between 2-2.5%. That’s an annual income of $20-25,000 on $1m with no pay rise for a decade. You may be a millionaire but long-term subsistence is barely realistic based on these numbers. To increase your income your need to do one or a combination of the following: 1. Increase your return 2. Eat up your capital. Both require greater exposure to risk, the former in market volatility the latter outliving your assets. The realty of today’s zero interest rate world is that you need to carefully balance the risk you are willing to take with your spending assumptions.
Historical stock market returns have ranged between 8-12%, depending on the period under review. Many years have presented significantly better returns but, more critically, many significantly worse. Investors cannot count on a consistent high single digit returns but history guides us that you need exposure to risk assets such as stocks if you have any hope of getting near the total return necessary for a comfortable retirement. The longer your time horizon the higher the odds of hitting reasonable return targets, in the short-term you are relying on luck over rationale.
Say you want $100,000 of income and assume a reasonable total return of 5%, inflation aside, $1m dollars will last you approximately 14 years. If you want to increase either the time or the income you need to grow your assets. $150,000 annual income to last you 20 years with similar return assumptions will require net assets of at least $1.9m. Throw in some world travel, lingering college expenses for your kids and, god forbid, significant long-term care costs and your asset requirement ramps. Ballpark assumptions for a healthy couple in their early sixties wishing to live an active life in an affluent location will need approximately $3m-$5m to fulfill their retirement aspirations and leave a legacy for their children. If these numbers don’t make you blink congratulations you are officially wealthy and should inquire about our wealth management services immediately. On the other hand if you, like the majority, feel unprepared financially fear not, it is never late to get serious about investing and establish a target. At C.J. Lawrence we are here to help you reach your goals, call us and grab the reigns of your financial future.
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