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Investing for a Lifetime: Managing Wealth for the "New Normal" by Richard C. Marston

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CHAPTER 19 The “New Normal” and Retirement

I cannot emphasize enough how important it is for investors to start planning for retirement early in their working years. Savings are the key to a successful retirement. And savings have to start very early. Then when investors retire, they have to set out a reasonable spending plan based on the resources that are available. If investors are prudent in their investments and if they adopt a reasonable spending rule, then they can begin their retirement with a solid plan in place. But what if investment returns fall short in the future? What happens to retirement plans if we have entered a “New Normal” of lower investment returns?

Since 2000, investors have had to contend with a “lost decade” of stock returns. By the end of 2012, the S&P 500 stock index was hardly above where it had been in 2000, 12 years earlier. In Chapter 3, I tried to convince the reader that the lost decade represented a payback for the absurdly high stock returns of the 1980s and 1990s, which drove price-earnings ratios to almost unprecedented levels. The abysmal returns of the lost decade have brought valuations back to more normal levels. But perhaps Bill Gross is right in warning that slower growth in the industrial world will depress stock returns in the future. Instead of earning average real returns of 6.5 percent on U.S. stocks as in the past 60 or 90 years, perhaps the returns will be significantly lower.

As I explained in Chapter 3 on the New Normal, ...

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