Alas, Japan’s economic dominance did not last. And when the crash arrived, the depth of its impact was so incredible as to be almost unimaginable. For instance, by 2007, the vaunted, world-leading personal savings rate of 14.5% had plummeted to 1.7%. Those signature American assets were liquidated at an average loss of 70%. Stocks in Japan? In 2012, 23 years after reaching its all-time high of 39,300, the NIKKEI 225 crashed all the way down to 8,596. Even today, 32 years later, the NIKKEI is still 10,000 points off its 1989 high.
Compared to those lofty valuations in 1989, by 2004, the top tier of Japanese real estate— “Prime A”—had lost 99% of its value. And Sony? That once most-admired company saw its stock price fall from ¥16,900 to ¥900. In 2012 alone, Sony, Panasonic and Sharp lost a combined $20 billion.
In Japan, the impossible happened.
For me, at least, there is a lesson to take from the Japanese experience: Don’t believe that anything is impossible. (That’s really why I wrote this article asserting that there is no “safe withdrawal rate.”)
Closer to home, I bet that the management of Viacom would have thought it impossible that within a few years of its $8.4 billion purchase of Blockbuster Video, Blockbuster would be auctioned off for 3% of its original purchase price.
When 17 European countries tied their economies to a single interest rate, I bet that the leaders of those nations would have told you that the 2009 Eurozone Crises was impossible.
The engineers who designed the Fukushima Nuclear Power facility certainly thought it impossible that an earthquake and a tsunami would cause flooding to such an extent that it would result in the core meltdowns of three nuclear reactors.
Even the weather shows us impossible outcomes. It is impossible (isn’t it?) for it to be 94 degrees in South Dakota two days before the beginning of winter? It wasn’t impossible in 2012.
Sports illustrate that events that appear impossible happen with some regularity. On September 9, 2011, there was a 99.6% probability that my team, the Boston Red Sox, would make the MLB playoffs. That extraordinarily high “confidence rate,” did not stop the Red Sox from failing miserably.
On February 5, 2017, my team, the New England Patriots, competed in Super Bowl LI. Do you remember? With 8 minutes left in the 3rd quarter, the Atlanta Falcons were leading the Patriots by a score of 28-3. I believe that at that point in the game, the odds that Atlanta would become Superbowl champions was 99.95%. But that didn’t stop the mighty Patriots from winning the game, 34-38.
Let me conclude with a plea to advisors who are guiding retirees on income planning. Do not put too much stock in confidence rates.
Try to build-in safeguards. Try to plan for impossible outcomes.
David Macchia is an author, public speaker and entrepreneur focused on improving the current state of retirement income planning. He is the founder of Wealth2k Inc, and the developer of the widely used retirement income solution, The Income for Life Model. Recently, David developed Women And Income, the first retirement income solution developed to address the differentiated needs and preferences of female investors. David is the author of the consumer finance book, Lucky Retiree: How to Create and Keep Your Retirement Income with The Income for Life Model.