• Outliving Your Money

  • Financial Mistake: Relying on projected growth for future or current income needs.

    Outliving Your Money

    One of the most common responses to what retirees fear the most during retirement is outliving their money. Most retirees will receive a Social Security check and possibly a pension check. However, many will depend upon their retirement nest egg to generate an additional income source for monthly expenses. The challenge for those needing to supplement income using their nest egg is how much can be withdrawn and for how long before running out of money. Whether or not you are saving for a future check or currently withdrawing from your nest egg, variables such as market risk and withdrawal percentages will determine the likelihood of running out of money. Should your future income needs hinge solely upon hypothetical growth, or would guarantees be a better alternative for you?

    If you are pre-retirement, the question might be "what happens when retirement savings future projections fall short"? The amount of your asset base at retirement is a major factor in determining how much in-come you should expect to be able to receive without running out of money. Planning* without guarantees means that you can only project how much you will have.

    If you are post-retirement, the question may be "how much can you reasonably withdraw annually from your nest egg savings to supplement your income during retirement without risking that you might run out of money?".

    For years many financial professionals have relied upon recommending a 4% withdrawal rule at retirement inception. So a person with $300,000 could start to withdraw $12,000 per year and then draw a little more each year. However, the sustained low interest rate environment, market volatility, and longer life expectancies have forced many to question the effectiveness strategy. New evidence shows that this rule may cause risk for retirees.

    According to the Wall street Journal Article On March 13, 2013 entitled Say Goodbye to the 4% Rule:

    "If you had retired on Jan. 1, 2000, with an initial 4% withdrawal rate and a portfolio of 55% in Stocks and 45% in bonds rebalanced each month, with the first year's withdrawal amount increased by 3% a year for inflation, your portfolio would have fallen by a third through 2010, according to investment form T. Rowe Price Group. And you would be left with only a 29% chance of making it through three decades, the firm estimated". This is particularly concerning given that interest rates are much lower now than in 2000.

    With guaranteed income account value growth and an option for increasing withdrawals available in some fixed indexed annuities (see Guaranteed Growth & Lifetime Withdrawal Basics), why would you leave something as important as your retirement income to chance? 



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    * We are not stock brokers or financial advisors and do not give investment advice. We are not tax advisors and do not give tax advice.

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