Retirees who base their retirement lifestyle on an outdated 20 year old study, may come to find their income streams lacking later on in retirement.
Your retirement lifestyle is 100% based on the income streams you have coming in each and every month.
It used to be easy. Retirees used to be able to rely on a pension from a long-time employer for a monthly retirement paycheck. With pensions going away, the world of Wall Street and financial advisors has stepped in to take over solving the retirement income puzzle. But the best method to generate income during retirement, is a topic of huge debate in the financial planning world.
In the 80’s and 90’s the formula seemed simple. You would set up a balanced portfolio (about half of your money in stocks and half in bonds) and take from the balance of your accounts a 4% income stream. This method worked well as markets in the 80’s and 90’s climbed. However, the 2000′s hit, and the world changed.
On January 21, 2013, Morningstar released a study clearly illustrating that if you use the old 4% approach in today’s world, you only have a 48% chance of your money lasting for your retirement.
Truth be told, we like Forbes and believe they provide a lot of very accurate and relevant information. We do, however, have a problem with this article.
The author admittedly says in the article:
“Of course this approach is not for the faint of heart. It’s easy to do when the overall market is rising. But when the market declines, it’s tough to stick with this program.”
And later says:
“How do I know this is the best approach? You don’t. I don’t know either. We are dealing with a very long time-frame years into the future. All you can do is rely on the best information available and make the best decision possible. That’s what we’re trying to do”
Now these are some pretty serious disclaimers. Why go into a plan that you can’t rely on and that’s “not for the faint of heart”? Why would the author present this as the best option when we know there are other options out there?
We believe it’s because the “traditional investing world” is grabbing at straws. When the market is up, anything they recommend makes them look very smart. However, when the market is down, traditional investing advisors tend to hide behind the phrase, “Just ride it out, it will come back”.
Retirees relying on their portfolio can’t afford to ride it out.
For support, the author references the “Trinity Study” which was famous 20 years ago and supports the 4% rule. Unfortunately, it also needed the 20 year bull market run of the 1980′s and 1990′s to work.
We believe you shouldn’t base the “rest of your life money”, on a 20 year old study that requires a climbing market to prove true.
There are alternative income methods that most advisors simply wouldn’t recommend, but they’re worth taking a look at. It’s important to make sure your portfolio is structured to generate a lifetime of predictable and sustainable income.
We want your chance at a successful retirement to be more than 48%. If you would like real information about how to re-structure your retirement income, give our office a call at 360-828-1469. Your future self will thank you.