When the long run becomes the present

I was reading another investment book.  This one is says that you shouldn't panic when the market drops and keep your stocks.  But sooner or later that long term investment comes due and you have to start drawing down.  I compare it to milking a running cow.  Sure it has milk, but you can't get much if it won't sit still.  Depending on the market, whether it is stocks or mutual funds, is going to leave you constantly worrying about your next check.  Pensions were supposed to eliminate that worry until they disappeared. 

The market dropped almost 1,000 points this last week.  If you moved fast enough, you might have moved your money to cash equivalents like CDs, but that means you are paying fees to a broker to sell your stocks adding to your cost.  Cost is not adding to your value.  It takes away.  The market will ultimately return to its original value which means you have a net gain of ZERO.  And when the market returns you can buy stock again. 

Wait a minute!  I thought we were supposed to buy low and sell high?  The trouble is that people panic and get out when things are going bad and get back in when it is too late.  The dream is to beat the market but statistically that just doesn't happen often enough.  You have a better chance of hitting it big in Las Vegas.  The real winners in stock market swings are the stock brokers.  They get commissions when they buy or sell.  A good business for them. 

My annuity lets me invest in the market and I get to take advantage of the growth when it happens.  It also has a rider, an extra benefit, that I paid for.  That guarantees that when the market rises, I win.  When the market drops, they hold my value at the top and start paying interest.  So I win again. 

When the time comes for me to retire, I can do one of two things.  I can either tell the insurance company to annuitize my investment and they will pay me a percentage of it for the rest of my life.  A good deal.  Also, I have it set so if I die before my wife, she also continues to collect this pension until she dies.  I think that is a great deal.  When I do this, my account value will freeze and I will get the same pension amount forever.

Another way to do this, though, is to take out a part of the annuity each year without annuitizing.  When I do this, the fund continues to grow, often right back to the value it was before I made my withdrawal.  There are a number of rules and limits regarding this, but that varies from annuity to annuity. 

Try that with your collection of mutual funds and stocks and see if you can get the same results.  When the market is going up, you can.  When the market goes down, though, you will need to cut back what you withdraw and hope the market recovers by the next year.  If you like gambling with your life savings at the age of 85, go ahead.  I prefer some protection, myself, and I don't want to have to worry about it.