Asked anonymously

I am 10 years into a 20-year written financial plan that requires an 8% return, but I'm only getting a 4% return. What can I do about that?

Report Question Report

  Leave Answer

Sign in to MoneyTips
By submitting you agree to our Terms of Service

  Answers  |  3

March 18, 2016

Certainly, I can answer this one.

In a nutshell, there are 4 solutions.
These are the 3 Financial Planning solutions:
1) Increase your time, i.e wait another 20 years to retire
2) Increase the amount you put in, i.e. double your contributions
3) Decrease your living expenses, i.e. cut your expenses in half

Now, the other solution is the Investment Management solution.
4). The mathematical solution is to double your return to 16% compound annual growth rate (CAGR)
This is our preferred answer and we have both the integrity and experience to do this.

It's your decision to make. Keep in mind that when the firm that created the plan charges you a fee to "modify" your plan, that is not a solution. We do not charge a fee to correct our mistakes.

$commenter.renderDisplayableName() | 09.20.20 @ 23:26


March 26, 2016

I guess the question I have to ask is: Is there any way to make changes to your plan? Are you locked into financial products that aren't giving you the return, or is this simply a plan outline that you're following? If it's products, find out if there would be a surrender charge if you wanted to move things. Are these investments qualified or non-qualified? When you set up this plan was there any consideration for a variable return or was it determined to be a steady 8% return?

What you may have to do is consider taking more risk in your investment choices to bring your plan into that 8% range, but understand that RISK does not mean it will always pay off. You can gain a greater return or lose more when you take on more risk.

With ten years on your time horizon, you may need to save more money and keep a conservative approach. You may want to review what you're doing to make sure you don't drop below 4% for the rest of the ten years.

$commenter.renderDisplayableName() | 09.20.20 @ 23:26


March 31, 2016

I agree with Dave below with increase time horizon and amount you contribute. But, you can also re-evaluate your risk tolerance to achieve said return goal, with taking higher risk for a few years, but you will need to start reduce again as you get closer to retirement. As for living expenses, yes that is an option for reduction, but you can also delay social security. This involves matching increasing longevity with increased savings, which is among the biggest challenges facing retirement savers. For example, the Social Security benefit paid at the full retirement age of 66 is 100 percent of what's called the primary insurance amount (PIA). Social Security at 70, one will get four years of what's called deferral credits. At 8 percent a year, those credits add up to a 32 percent increase, thus 132 percent of a retirees PIA. These considerations need to be evaluated based on your other income and assets, among other factors such as ones spouse's social security (delaying Social Security for the higher earner).

$commenter.renderDisplayableName() | 09.20.20 @ 23:26