Retirement Scenario
Posted by Matt M on August 13, 2008
I received this in a monthly newsletter from a “Financial Planner”
” And the Number Is …
Although past performance cannot predict future results, fluctuations in the financial markets and inflation can be instructive when choosing an annual withdrawal rate. To provide an idea of how much might be withdrawn annually from a portfolio so that it would be likely to last 30 years or more, Standard & Poor’s looked at the actual record for stocks, bonds and inflation and analyzed all possible 30-year holding periods since 1926. It determined that the average sustainable withdrawal rate for a portfolio composed of 60% U.S. stocks and 40% long-term Treasury bonds was about 5.8% per year when adjusted for inflation.
In view of the variability of inflation and investment returns, as well as the risk of living beyond your average life expectancy, you may want to err on the side of caution and choose an annual withdrawal rate somewhat below 5.8%. The goal, after all, is to crack your nest egg in such a way that it will provide a reliable stream of income for as long as you live. That may mean taking out less in the early years of retirement with the hope of having sufficient income for your later years.”
Meaning that if you wanted to live on about $95,000 per year every year then you would have to have close to $1.7 Million in your retirement fund (IRA, 401K etc). Also that same $1.7 Million must be making at least 6% per year to keep up with your withdrawls so it will not lose money and die out. Also we must assume that the investments contained within do not lose money themselves…..I wonder if anyone has anything like this? I guess if you are in the alternative retirement system you’ll be okay, but this traditional one is on the way out and the sooner the better for retirees!
