When you retire, how long do you want your retirement income to last?
That’s a heavy question. Ignore it at your own peril. The new 2012 Mortality Table projects the life expectancy for a 65-year-old male to be 88.5 and for a female to be 90.3, so let’s start with that.
Social Security, for a working couple retiring at 66, should be in the $3,000 per month range. For purposes of this article, let’s assume the Trust Fund is stable and not subject to further invasions by our Congress. There will be occasional Cost of Living increases and will be payable (hopefully) as long as you live.
Once you move beyond Social Security and your cash accounts of banking instruments, money markets and Treasury funds, the spend-down of your retirement accounts comes into play.
Historically, a yearly withdrawal of 4 percent has been deemed an acceptable rate to avoid running out of money. In my opinion, that’s a bit risky. You have to anticipate market corrections, inflation, taxes and your health to name a few.
In the past 15 years, there have been significant market corrections in 2001-02, 2008 and 2015. There will be more. It’s important for your equities to match your investment temperament. If you are withdrawing 4% consistently in a declining market, you may term that Reverse Dollar Cost Averaging, and it can damage your piggy bank.
Inflation has been very modest during the past several years and that, by and large, has been beneficial. When this kicks up again, a portfolio heavy in bonds will be adversely affected.
An important consideration is whether you want part of your retirement income guaranteed. This is a personal decision and is not a “one size fits all” decision. If you want no risk, guaranteed income will be an attractive option; if your investment temperament is geared to maximum growth, not so much.
Taxes can really damage a qualified plan. In this election year, Bernie Sanders, promises sky-high taxes to fund his platform. It’s highly improbable Congress would approve his proposals even if he was elected. Many people, however, don’t know that the top marginal income tax bracket in the Truman-Eisenhower era approached 92 percent.
Our health will get worse as we age, and on a very cold day, my knees don’t feel a day over 92! This is a risk you can insure against however, so make sure your insurance advisor reviews your options.
Obviously, there are lots of components in designing a retirement income program that will go the distance. Here’s where a fee only financial advisor can be a big help by balancing all of these considerations for a reasonable fee. Make sure a potential advisor has the necessary degree to write a personalized plan for you.
Mike Lassiter is a Chartered Life Underwriter and Chartered Financial Consultant. He is a Licensed Insurance Counselor and a Registered Investment Advisor. He can be reached locally at 770-786-2781.