As a retiree, are you at risk for outliving your income? A serious question for serious times. Recently, several key assumptions traditionally used in retirement income planning are being challenged by leading financial industry experts. Are retirees who made those traditional assumptions still okay?
For example, lately several famous market observers, including John Bogle, the founder of the Vanguard Group, have warned that investors should reduce their expectations for their stock market investment returns to 4% a year. Ray Dalio, founder of one of the largest and most successful hedge funds in the world, also recently warned that “investment returns will be very low going forward.”
In addition, several leading studies have challenged the validity of the traditional “4% rule.” Developed back in the 1990’s when interest rates were higher for CDs and bonds, the rule stated that if a retiree kept their withdrawals limited to 4% of their initial retirement portfolio balance, that it should provide a sustained income for thirty years of retirement. However, Wade Pfau, a professor of retirement income at the American College of Financial Services and Michael Finke of Texas Tech University, found that given the sustained current level of low interest rates that the level of acceptable initial withdrawals needed to be limited to 2.85% to provide an income for thirty years of retirement.
The Stanford Center on Longevity recently published a study that recommended that retirees should focus on sources that were not exposed to stock market risk to cover essential expenses, i.e., Social Security or an annuity of one type or another. It found that if income to cover essential expenses was exposed to stock market risk that the emotional cost of worrying about meeting expenses during a stock market downturn would prompt many investors to make ill-advised investment decisions.
On Wednesday, September 24th, Susan Moore of Moore Wealth Management, Inc. will be conducting a complimentary webinar on methods of how to not outlive your retirement income. The workshop covers a number of issues including factoring in the above-mentioned changes to traditional assumptions, key risks (i.e., sequence rate of return and inflation), and various approaches to mitigating the risks of outliving your income.
Susan Clayton Moore, J.D., is a financial advisor and wealth manager of Moore Wealth Management, Inc., with offices Montgomery and Alexander City, AL. Susan has under advisement over $150 million (as of 9.1.24) in brokerage and advisory assets through Kestra Financial and has been a financial planner for over 40 years. Contact Susan at 334.270.1672. Email contact is susan@moorewealthmanagement.com.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax advisor regarding your individual situation. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kestra IS or Kestra AS are not affiliated with Moore Wealth Management, Inc. https://www.kestrafinancial.com/disclosures