Due to a combination of corporate down-sizing, an aging baby boomer population, natural attrition and recent appreciation in the assets held in retirement accounts, many workers in their 50s find themselves looking at the possibility of taking early retirement. Whether the retirement is voluntary or forced, the question facing those in this position is, “do I have enough saved to live off of for the rest of my life?” The great majority of people facing this decision do not have the investment experience or acumen to answer that question, so they seek the advice of so- called investment professionals.

In many cases they are told, “Yes”; however, in many cases this answer is based upon a faulty premise. Many investment professionals base their affirmative answer to the question, “do I have enough to retire on?” on models and projections that use historical rates of returns of the stock market. They use these projections of ‘total return’ as a substitute for the ‘income’ the retiree now needs to live on. These projections invariably show a steady, constant rate of return that the retiree should be able to draw on to replace the income he has left or is leaving behind. But in fact, the stock market is anything but steady and constant on a year-in, year-out basis, and should never be counted upon to provide current income.

To compound this grievous error in planning, many investment advisors recommend that the retiree avail himself of the tax break offered by the IRS for those taking early retirement and wishing to draw on their retirement savings prematurely by locking them into distributions under section 72(t) of the IRS Code.

The NASD n/k/a FINRA has even published an “Investor Alert” to warn potential retirees about the risks involved with early retirement and the misleading statements often made by financial advisors titled “Look Before You Leave: Don’t Be Misled By Early Retirement Investment Pitches That Promise Too Much“.

At Loya & Associates we can help. We represent victims of securities fraud. We’ll evaluate your claim. Please call or email us today.