Remember when every single financial guru in America touted that if you wanted your retirement money to last your entire lifetime, you had to only withdraw 4% out of your portfolio every year? Well, consider that rule gone. In its stead financial “experts” have now downgraded that percentage to 2.5%. Oh, there may be a few individuals who saved so many millions of dollars for their retirement that they may be able to get away with 3.5%…..but for the rest of us? If we want our retirement money to last the rest of our lives, we better downgrade our lifestyle expectations and learn to make due with 2.5%.
According to this Market Watch article (click here) the 4% rule is up for debate.
A new analysis from investment research firm Morningstar suggests the withdrawal rate of 4% may be off. In fact, researchers suggest the rate should be as low as 3.3% for people who want to ensure their retirement savings last their lifetimes. The 3.3% figure assumes a balanced portfolio and fixed withdrawals over the span of 30 years, an estimated length of retirement years, which leads to a 90% probability of not running out of money in retirement.
Other analysts agree the safe withdrawal rate would be around 3% — or lower. “I think it is far too aggressive today and other advisers agree,” Allan Roth, founder of Wealth Logic, wrote on Barron’s. After modeling these rates, Roth said a 3% withdrawal rate would be good for 25 years, so a couple at the age of 65 who retired should try to aim for 2-2.5% if their budget is mostly non-discretionary. This rate also depends on the age at retirement — someone younger would need to spend less whereas someone older could have a higher rate.
One of the key points many of these ‘experts’ never take into consideration is the amount of a retirees Social Security checks and whether or not they get pensions. Either way, I tend to agree with these ‘experts’. Right now, the less you take out of your savings portfolio the longer your money will last during the 25 to 30 years you may have of retirement. It’s better to be safe than sorry when you’re facing your 90s with dwindling cash reserves.
The biggest culprit in all of this is indeed our current rate of high inflation. I personally, only prepared for a 3% to 5% rate of inflation. I had no idea the percentage could rise as high as 20% to 50%. I’m finding it harder and harder to make ends meet just on my passive income. I now have to tap into my portfolio and will be withdrawing 2.5% of my reserves simply to pay my everyday bills. I need to re-prioritize my lifestyle. What do I keep? What do I eliminate? What can I substitute? How do you downgrade what you have already downgraded?
As time passes on, more and more fellow retirees will come to the same roadblock I have come to. Hopefully people such as myself will have paved a way. We all learn from each other, don’t we? Some examples might be going down to one car. Cutting back on travel and vacations (every retirees nightmare, especially if you’ve waited for retirement in order to travel). Moving to a less-expensive, more friendly tax state (but that can change drastically once you re-locate) Will I be the bag lady scrounging amongst the day old breads looking for a bargain? Or will I be the lady who saved and prepared and bakes her own bread daily? All of this will depend on how smart I am, how adept I am and how creative I can be making money appear out of thin air.
I probably will know the answers to the questions I have posed to myself up above, on my death bed. Then and only then will I finally know if I had a successful retirement. Till that time, I’ll just keep plugging along, studying retirement trends, reading about new retirement ideas, learning new methods and simply continuing to do the best that I can possibly do.
Like this post? Sign up for free emails whenever I write a new post. You can also follow this blog, for free. Sign up links are posted on the upper right hand corner. Donations are gladly accepted! When you “buy me a cup of coffee and a croissant” virtually through PayPal, your appreciation of this blog is duly noted. Donation links are posted on the right hand side wall.
TIP JAR: Want to send us a special “Thank You” for our content? Here’s our PayPal email address: PhotosByCindi@yahoo.com
Thanks for reading my blog!
For more on The Great Retirement Reset watch this recent video from Wealth Track: