Is a half-truth still a lie?

Jeff Gaudette / June 23 2026

Is a Half Truth Still a Lie? Retirees Want to Know.

I remember sitting with a prospective client early in my career. They were confident in their retirement plan. They had reviewed the

prospectuses for the mutual funds in their 401(k), and they had been told those investments were averaging 6% to 8% returns. They considered that conservative, and it made them feel comfortable.

What surprised me wasn't their confidence. It was their assumption that average rate of return and actual growth were the same thing.

As we walked through the numbers, the husband suddenly understood why his account balance never seemed to match the returns he was being shown. He was in his forties, and I'll admit I assumed this was something most people already understood by that age.

I was wrong.

The reality is that millions of Americans are making retirement decisions based on a concept that tells only half the story.

And when it comes to retirement planning, a half truth can be especially dangerous.

The Problem With Average Rate of Return

Let's keep the math simple.

Suppose you start with $100.

In Year One, the market drops 40%.

Your $100 becomes $60.

In Year Two, the market gains 40%.

According to average rate of return, your return over those two years was zero. After all, negative 40 plus positive 40 equals zero.

But your account doesn't have $100.

It has $84.

Why?

Because the 40% gain wasn't applied to your original $100. It was applied to the $60 that remained after the loss.

When I explain this to clients, I often say:

"In order to believe average rate of return, we'd have to agree that 60 plus 40 equals 84."

That's usually when the light bulb comes on.

Average return isn't a lie. It is mathematically accurate.

It's simply not the same thing as compound growth.

More importantly, it isn't the same thing as spendable growth.

You cannot spend average rate of return.

You can spend compound growth.

Why This Matters More As Retirement Approaches

For someone in their thirties or forties, this misunderstanding may not be devastating.

They're still contributing to their retirement accounts. They're still receiving employer matches. They're still buying shares when the market falls.

In fact, the common advice is correct.

When markets decline, long-term investors often benefit because they can buy more shares at lower prices.

The problem is that retirement changes the rules.

I call the period ten years before retirement and the years immediately following it the Retirement Red Zone.

During this stage, you're no longer focused solely on growing assets.

You're preparing to live on them.

That's where average returns become much less important than actual outcomes.

The Danger Nobody Talks About

When the market drops, advisors often reassure clients by saying it's only a paper loss.

In many situations, that's true.

But retirees face a different challenge.

Their bills don't decline when the market declines.

Mortgage payments still arrive.

Property taxes still arrive.

Utility bills still arrive.

Groceries still need to be purchased.

If the market falls and you're withdrawing income from your portfolio, you're often forced to sell shares while they're down.

Those shares are gone forever.

You don't participate in the recovery on assets you've already sold.

That's what makes sequence-of-returns risk so dangerous.

A market decline during retirement can have a dramatically different impact than the exact same decline during your working years.

The strategies that got you to retirement are not necessarily the same strategies that will get you through retirement.

"But the Market Always Recovers"

Whenever I discuss this topic, someone inevitably says:

"But the market has always recovered."

They're right.

Historically, it has.

The issue isn't whether the market recovers.

The issue is timing.

Retirement doesn't happen when the market says it's okay.

Retirement happens when your employer stops paying you.

If someone retires during a major downturn, their need for income doesn't disappear while they wait for the recovery.

The market may recover.

The question is whether their retirement plan can afford to wait for it.

The Other Half of the Story

I believe average rate of return remains popular because it's an excellent marketing concept.

It's true.

It's easy to understand.

And it sounds impressive.

What often gets left out is the discussion around compound growth, recovery periods, fees, and retirement income planning.

Americans deserve to understand all of it.

They deserve to know how long major market losses historically took to recover.

They deserve to understand the fees embedded inside many retirement plans.

They deserve to understand the difference between accumulating wealth and distributing wealth.

And they deserve to know that even the creator of the 401(k) spent much of the later part of his career warning people about the unintended consequences of the system he helped create.

The Retirement Stool Nobody Talks About

My parents' generation and my grandparents' generation often retired with what was known as the three-legged retirement stool.

The first leg was Social Security.

The second leg was a pension.

The third leg was personal savings.

Many Americans didn't need enormous retirement accounts because they had two guaranteed sources of lifetime income supporting them.

Today, pensions have largely disappeared.

The responsibility for retirement planning has shifted almost entirely to the individual.

At the same time, many people question whether Social Security will exist in its current form when they retire.

Nobody really explained how dramatic this shift would be.

But people are starting to feel it.

For many Americans, the three-legged retirement stool has become a one-legged stool.

And I don't know if you've ever tried sitting on a one-legged stool before, but it doesn't go very well.

One Question Worth Asking

If you're within ten years of retirement, there is one question I would encourage you to ask your advisor:

Why am I still so heavily invested in the stock market?

Not because market investing is wrong.

Not because growth is bad.

But because every dollar in your portfolio should have a purpose.

If your advisor can explain exactly how your income needs are protected and why certain assets remain exposed to market risk, that's a strategy.

If the answer is simply that you've always invested that way, it may be time for a deeper conversation.

Remember, retirement isn't about achieving the highest average return.

It's about creating an income plan that allows you to live with dignity for the rest of your life.

There is nothing radical or profound about wanting that.