Posted on 03/28/2011 12:14:28 PM PDT by SeekAndFind
In recent years, it has become a rule of thumb that many retirees can safely withdraw 4% or 5% a year from their investments and feel confident about their chances of having their savings last the rest of their lives.
Lending credibility to these withdrawal rates are complex computer models that assess the odds of success based on thousands of possible market scenarios.
But as powerful as those computers may be, retirees may be overlooking some basic variables -- such as current interest rates and stock valuations -- that will have a direct impact on how long their money lasts.
The inexact science of withdrawal rates was featured in an analysis published by Vanguard Group in November. While a withdrawal strategy "is important, the key ingredient in a long-term spending plan is flexibility," the report said.
If investors are relying on either gains in the stock market or bond-market yields to make their money last, "then investors must either accept continuous, relatively smaller changes in spending or else run the risk of having to make abrupt and significantly larger adjustments later," the report said. (The complete report can be found at: vanguard.com/pdf/icrmda.pdf)
Rather than take out a steady 4% or 5%, the Vanguard report suggests many investors would generally stand a better chance of not running out of money were they to adopt a strategy where the percentage of withdrawals was designed to rise and fall between 2.5% and 5% of the prior year-end portfolio, depending on the market's ups and downs. In short: After a good year, take out more, and following a bad year, less.
However, one challenge this approach presents is that a 2.5% to 5% band represents a huge amount of variability in income for a retiree relying on savings to help pay the bills.
(Excerpt) Read more at online.wsj.com ...
I suppose it all depends on how long you intend to live...
no way..retired last year. with the losses I encountered I am looking at starting a business or in some way getting back in the job market.
I am getting 4% dividends on my stock portfolio right now.
While it is possible that some companies may cut dividends for various reasons, in general they are more likely to increase. So it is fairly safe to spend your income, provided you keep your principal untouched.
Within one foreseeable future (probably not mine BTW), a $100,000 retirement account will be closed out with a check mailed in an envelope with a $1000 stamp.
What nest egg?
... or how long the government thinks you should live. After the government taxes income, sales, and inheritance to the max that the populace will take, look for them to come after accumulated wealth, especially pensions.
Screwing up healthcare is the "soft" way of accomplishing this.
My Grandfather will not touch the principle of his retirement accounts...he is waiting until he is really old and needs it. He turns 91 in 6 weeks.
Proper asset allocation should allow such a rate of withdrawal. As one ages, the percentage of one’s portfolio should be put into fixed income, or bonds.
The 30 year treasury is presently yielding about 4 1/2%. If that bond doesn’t pay, then nothing else will either, and the only thing of value will be productive land and the ability to defend it with deadly force.
The principal has to grow to keep up with inflation. They are not saying return of 4 or 5% it is pulling 4 to 5% of what is in the account.
Obama and private banking cartel known as The Fed are wiping out the dollar and Americans savings.
Not long if Obama and Soros have anything to say about it.
Well, if we go by what I originally paid for the stock, I am getting 6.38%. Some of these stocks are perpetual fountains of money. You get good companies like that in your portfolio, and keep them.
He turns 91 in 6 weeks.
God bless him; I’m afraid that if I live that long, I’ll be picking discarded cans out of the trash and living on the street.
Because Obama sucks, that’s why.
Not with this government.
I lost mine trying to keep my house. Ran down the IRA
to almost nothing. Now its wish for good health and
keep job skills current.
As I get older and older, I become increasingly conscious of how much the government has taken and how little it offers in exchange.
Most folks would be better off arranging their own finances while the government keeps its hands off; but, no, the obsessive/compulsive socialists have to arrange everything for everybody.
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