Saturday, August 02, 2014 12:32am
North Adams, MA now: 66 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: How Much Is Too Much to Spend in Retirement?
By Bill Schmick On: 02:53PM / Thursday July 17, 2014
Important
1
Interesting
3
Funny
0
Awesome
0
Infuriating
1
Ridiculous
0

More and more baby boomers retire each year. One of the questions that trouble them the most is whether they have enough savings to last their lifetime. The answer largely depends on how much they plan to spend each year.

The historical guideline that most financial planners use is a 4 percent drawdown of your retirement savings after taking account of social security and other non-portfolio sources of income, such as rentals or part-time work. That number has been shown to provide most retirees with a comfortable living over the course of a 30-year retirement.

However, I advise my clients to use the 4 percent rule of thumb as a starting place and adjust along the way. Times change and so do markets, so no single number will be appropriate for every situation. Take inflation, for example. Every year inflation climbs higher. Over the last five years, inflation has been fairly well contained but that doesn't mean it will always be so.

I suggest that above and beyond the yearly 4 percent savings drawdown, enough money should be withdrawn to account for the inflation rate. This year, for example, inflation should come in slightly above 2 percent. In which case, a retiree should plan on withdrawing 6 percent of his funds next year to accommodate for these higher costs.

For the last 30 years or so, conventional financial wisdom has dictated that retirement portfolios should be predominantly invested in bonds. Advisers argued that this was the safe, conservative approach for those who can no longer afford to play the volatility of the stock market. As a result, some planners are now arguing that the 4 percent guideline should be lowered given the historical low rates of returns in the fixed income markets. They are extrapolating that since rates are low now they will therefore continue to be low in the years ahead. I think that is nonsense.

First off, as I have written before, bonds are no longer a "safe and conservative" investment. I believe that bond prices in the future will fall considerably as interest rates rise. Why keep the lion's share of your retirement savings in a losing investment that will continue to decline over the next several years?

The state of the bond and stock markets will also impact that 4 percent rule. I suggest that you adjust your spending based on how the markets perform. If the stock market is declining, the economy stalling and/or interest rates are rising; you might want to pare back your spending and your withdrawals. If the opposite occurs, you may consider withdrawing more money, but within reason.

I have one client, a single woman age 82, with health issues, who has about $1.5 million invested fairly conservatively with us. Each year we have managed to generate enough returns to satisfy her 6percent withdrawal rate and make substantially more above that for her. The problem is that every year we do, she immediately withdraws those additional profits, leaving nothing for those "rainy day" years when the markets are down. I have my hands full convincing her to leave some of those profits alone. The point is that you must remain flexible while still planning for the future.

But not everyone need abide by the 4 percent rule. Actuaries will tell you that if you follow the 4 percent rule you have a 90 percent confidence level that your retirement savings should last your lifetime. But 90 percent is a high rate of probability, maybe too high for your liking. You may opt to spend more and reduce your probabilities to a more reasonable 75 percent that your money outlives you.

That lower confidence level might actually be more appropriate for your planning purposes. By now, you may realize that if you have not discussed this with an investor adviser it is never too late to start.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


0 Comments
     
News Headlines
Locals Wrap Up Week at YMCA National Swim Meet
Berkshire Force Splits Two at World Series
Mathematics Professor Satyan Devadoss Receives Teaching Award
American Pickers Looking For Massachusetts Collectors
Community: Mary Grant Will Be Missed
Mary Grant Leaving MCLA for North Carolina Post
Cultural Pittsfield This Week: Aug. 1-7
Long Island-Based Comedy Show Comes to South County
40th Annual Adams Agricultural Fair Runs This Weekend
North Adams Auto Parts Store Sets Grand Opening Sunday
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (140)
Independent Investor (191)
Archives:
August 2014 (1)
August 2013 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
October 2013 (6)
September 2013 (6)
Tags:
Stock Market Europe Crisis Taxes Debt Ceiling Banks Stimulus Fiscal Cliff Europe Commodities Economy Congress Retirement Selloff Election Metals Currency Fed Deficit Euro Pullback Debt Jobs Rally Housing Japan Energy Interest Rates Federal Reserve Bailout Greece Markets Stocks Oil Recession
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
The Independent Investor: Why Some Corporations Are Leaving America
The Independent Investor: How Much Is Too Much to Spend in Retirement?
The Independent Investor: The Fed Turns Off the Spigot
The Independent Investor: Should You Pay Off Mortgage Before Retiring?
The Independent Investor: Retirement should be a part-time job
The Independent Investor: Unhappily Ever After
@theMarket: June Swoon
@theMarket: Europe Is a Good Bet
The Independent Investor: A Road to the Future
The Independent Investor: Holy Cow


View All
Reading of The Gettysburg...
The Adams Historical Society held a mass reading of the...
Adams Cruz Night 2014
Classic and custom cars lined Center St. Thursday night for...
Williamstown Chamber @MadMacs
Attendees at Wednesday's Williamstown Chamber Nite at Mad...
Pittsfield Ethnic Fair 2014
North Street in Pittsfield had a double-dose of block...
LaFesta Baseball 2014
The LaFesta Baseball Exchange, celebrating 24 years, pits...
Adams Polish Picnic 2014
Adams residents enjoyed traditional Polish food and music...
Mingo's Sports Bar & Grill...
Over 50 cars packed into the Mingo's Sports Bar & Grill...
BYP Networking at Naumkeag
The Berkshire Young Professionals met at the historic...
Pittsfield Shakespeare...
Pittsfield's Shakespeare in the Park free performances at...
Lanesborough Kids Fire Camp...
Lanesborough Fire Department held its annual Kids Fire Camp...
Lanesborough Fire Drill
The Lanesborough Fire Department trains on basement fires...
Pittsfield Polish Picnic
Crowds lined up for golabki and kapusta at the annual...
North Adams Kids Emergency...
The North Adams 21st Century Community Learning Center...
Gather-in Festival 2014
The 42nd annual Gather-In festival was held at Pitt Park in...
BFAIR Mini-Golf Fundraiser
Berkshire Family and Individual Resources held its annual...
Lanesborough Seeds of Harmony...
Bradly Farm in...
Reading of The Gettysburg...
The Adams Historical Society held a mass reading of the...
Adams Cruz Night 2014
Classic and custom cars lined Center St. Thursday night for...
Williamstown Chamber @MadMacs
Attendees at Wednesday's Williamstown Chamber Nite at Mad...
Pittsfield Ethnic Fair 2014
North Street in Pittsfield had a double-dose of block...
LaFesta Baseball 2014
The LaFesta Baseball Exchange, celebrating 24 years, pits...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved