The Decade of Portfolio Contraction May Have Already Begun.
The four horsemen of the financial apocalypse are already on their way. Each one is a danger in themselves, but combined, they could be economic Armageddon. Portfolio contraction could be triggered by four factors: excessive withdrawals, the sequence of market returns, bad investor behavior and extended longevity.
Excessive Withdrawals – The old 4-percent rule of thumb isn’t a wise reference point for income withdrawal any longer. Stock dividends and bond interest are generally below the 4% benchmark. Most financial advisors recommend 3 percent, some even lower. However, most retirees don’t meet often enough with their financial advisers to make adjustments in their distributions and continue to withdraw at levels their portfolio can’t sustain, resulting in portfolio principle loss. Small adjustments along the way can help preserve your portfolio.
Bad Investor Behavior – Some seniors raid their retirement portfolios to fund unscheduled events like home repair, a sudden trip to Europe or emergency medical costs. Few understand their retirement portfolio was most likely predicated on monthly income needs based on their retirement plan. Sudden and unscheduled spending can derail a retirement plan. To stay on tract you need an emergency fund for repairs and medical expenses as well as a discretionary account for special events. Bad investor behavior can cannibalize portfolio principle and lower it’s income capacity.
The Sequence of Market Returns – The rules that govern the accumulation phase before retirement are not the same rules during distributions in retirement. Take mountain climbing for example: Most of the deaths occur during the descent. One of the biggest retirement mistakes are not adjusting your withdrawals in a downward market cycle and readjusting the new portfolio amount for income generation.
The strategies are different for accumulation to retirement, then distributions in retirement. You need predictable income to match your guaranteed domestic spending. You may want to consider a lifetime income annuity.
Extended Longevity – If you concede the average survivor of a married couple will live to age 93, then you may need to plan for a longer retirement based on living longer than the average. Willard Scott celebrated centurions on his TV show. There’s more than 72,000 centurions in the U.S. Susanna Jones died in May of 2016 at 116. She was a tri-centurion and a super-centenarian teenager. Jean Calment lived to age 122 and is the oldest person who ever lived according to the Guinness Book of World Records. Dr. Aubre De Grey, noted gerontologist, has said that the person who will live to age 150 has already been born. Could that be you?
The four horsemen of the financial apocalypse are coming, and it will be economic Armageddon for many. For more information on how to protect against these four retirement risks just write me at [email protected]
On the Money News is a weekly five-minute online broadcast distributed over the weekend to over 280 media outlets, financial web sites and social media networks. On the Money News is hosted by syndicated financial columnist and news anchor Steve Savant.