There are a lot of
retirees in serious trouble as they bailed
entirely in late 2008 or early 2009 because
they couldn’t get comfortable with the volatility
of a traditional portfolio, and invested in
finance companies instead, or simply left
their hard earned money in the bank slowly
losing value as tax and inflation takes their
toll.
Even though it usually
pays to do nothing at all when the stock market
dives, it is hard to blame retirees who cannot
withstand that sort of gut-wrenching volatility.
My approach is essentially
the opposite of the traditional advice, which
suggests keeping a steady mix of stock and
bond funds throughout retirement or slowly
lowering the percentage for share market exposure.
A recent study endorses
that. The study looked at how different mixes
of stocks and bonds would affect how long
a retiree’s money would last if that person
initially withdrew 4 percent of total assets
each year (and adjusted that amount each year
thereafter for inflation).
So, for a person with
$500,000 in retirement assets, that would
translate to a $20,000 withdrawal the first
year; for someone with $250,000 in savings,
the withdrawal would be $10,000, and so forth.
The different stock
and bond allocations were tested. The hardest
part of this strategy however may be sticking
with it.
It does provide a
seemingly promising alternative for people
who are trying to retire with less anxiety.
But behavioural challenges obviously remain
— they may just be pushed down the road. Read
more in Money, Money, Money Ain't it Funny.
Alternatively, some
retirees draw down on capital. This can be
a great option if leaving money to beneficiaries
or dependents is not a priority.
Review your retirement investment structure
or commence retirement savings by calling
(03) 379-7035 or email sheryl@strategies.co.nz.