Risky Income vs. Income for Life
When you meet with clients, they may have heard of the Monte Carlo method of determining retirement withdrawals, customarily 4%.
By using this method, a new CBSMoneywatch.com article (link below) says, “the odds are very low that you’ll outlive your retirement savings for periods of retirement that are up to 30 years long.”
Notice, in true casino fashion, they are using the word odds. Because, unlike with insurance products that offer guarantees, on the securities side of the fence nothing is guaranteed.
But now a report suggests that a 4% withdrawal rate may be too high.
That’s right. Retirees could be told to reduce their withdrawals even further or risk outliving their retirement savings.
Why? Because market volatility is reducing their principal, so staying at today’s rates could see them burn through their safety nets even faster.
I do not have a crystal ball, but it doesn’t look to me like market volatility is going anywhere but up, then down, then up. See what I mean?
Do your clients want a “reliable” return or a “guaranteed” return in their retirement years? This article may help you in your client conversations on probable returns (possibly outliving income) vs. guaranteed returns (never outliving income).
