Many popular investment books offer good information for people over fifty, but some of it is simplistic. One popular book by a well-meaning financial planner comes to mind. The chapter entitled “Keep Your Retirement Bucket Full While Drawing the Income You Need” includes a table showing how a sixty-five-year-old can remove 5.75 percent per year and still make 4.25 percent growth each year. The book does not explain the volatility of annual returns, but simply assumes the account will earn 10 percent year in and year out. The author seriously confuses the average return and the actual return when she makes her case for the continued growth of the retirement funds. Such books can greatly misinform readers about how money is made and can generate foolish expectations.

To be a little easier on my colleagues, I do believe some planners are often misled by the past performances of their own recommendations. The warning label “Past returns are no guarantee of future results” is as well heeded today as the ominous label on packs of cigarettes. I have heard that planners are saying, “Well, you can live off 10 percent per year, can’t you?” They neglect to add that there may be months or even years when 10 per-cent will be absurdly optimistic, and that the client may need to take noth-ing to save his account from a disaster. Using data from Ibbotson’s 2001 Yearbook, I calculated that from the beginning of 1968 to the end of 1977, $100,000 invested in the S&P 500 Index would have grown to $142,252. With a mere 3.6 percent average annual return, can you imagine what retirees got from their stock investments during that period? Very slim pick-ins. During that same period inflation averaged 6.24 percent, so subtracting that from the stock returns would have disheartened most investors as they saw their buying power shrink for ten years.