Page 132 - Ready Set Retire

Stephen J. Kelley

entire account balance, growth and all. You will pay fees
whether you make, or lose money on your investments.

Making a commitment like this is often very difficult to do.
However waiting too long can have dire consequences. The
forces that drive annuities are time and life expectancy. I keep
thinking about the old Orson Welles commercial for Gallo
Wines, and his famous quote: “We serve no wine before its
time.” Annuities are like that. For them to do the job, they
must sit, sometimes as long as 10 years, before beginning
income. That’s why we use them to target the later stages of
retirement. And, as illustrated in this book, doing it properly
can free up money for sooner, as well as later.

So what is the cost of waiting? It’s not hard to calculate.
Considering just the Last Things First™ illustration above, it
works out to about $9,000 for every year you delay. That may
not seem like much, but if you combine it with the possibility
of market losses, it can become disastrous.

For example, if you wanted to use a typical Monte Carlo model
for income and you needed $18,000 a year, just divide it by 3%,
which is $600,000. Now assume you have that $600,000 saved,
but the market tanks and your $600,000 turns into $400,000.
What are you going to do? To get back to $600,000 in five
years, you would have to have a steady rate of return of 8.45%,

122