NEW YORK (TheStreet) - Over the years and varying by advisor, most of us have heard of a magic number we need to hit for retirement. That is, the distribution rate from our nest egg that will be withdrawn annually to live comfortably in our golden years.
The number ranges between 2% and 5%.
Noonan, the managing director of Capital Markets Insights for Russell Investments, says investors should instead focus on their "funded ratio," or working with an advisor to determine their expected future expenses.
"Setting and forgetting could be very, very dire," when it comes to retirement, he said. Too many investors simply decide they'll take a certain percentage each year from their nest egg, completely unaware of how much they'll actually need once they do finally leave the workforce.
Investors have been left in a difficult predicament, especially those closer to retirement. The Federal Reserve and other global central banks have made it so that bond yields and interest rates are incredibly low - even negative in some instances.
This has left little place to invest in, other than stocks. Equities have enjoyed a huge run over the past five years, while bond yields continue to fall. For those looking for income, that's not the best news.
However, investors should refrain from chasing high-yielding assets, Noonan warned. He explained that by chasing too much yield, investors could be signing up for more risk than they bargained for and could ultimately sacrifice longer term returns as a result.