Your biggest fear, if you’re like most Americans, is likely running out of money in retirement.
And if that applies to you we suggest that you avoid using two longstanding rules of thumb - the 4% rule and the 60/40 portfolio.
Why so? Well, new research commissioned by the Alliance for Lifetime Income shows that retired Americans who use both a conservative 60/40 investment mix and a moderate 4% withdrawal rate indexed for inflation risk of running out of income based on today’s average life expectancy.
The researchers further noted that the risk is compounded by stock market corrections a retiree’s first decade in retirement. In fact, in the wake of a correction, the analysis found that the risk of running out of income was:
- 11.0% during the first 19 years – that’s the average life expectancy for a male aged 65.
- 20.0% over the first 22 years – that’s the average life expectancy for a female aged 65.
- 34.6% within the first 27 years – that’s the combined average life expectancy for a male/female couple both age 65.
So, what might you do if these two longstanding rules of thumb are no longer valid?
Conservative withdrawal strategies and annuities are two things to consider. Working longer or continuing at least part-time employment, as well as saving more can also help solve the retirement income puzzle.
The analysis, Planning for Retirement Income Withing an Increasingly Volatile and Uncertain World, was completed by researchers from C. Devine & Associates and Milliman.
You can get a sense of how well prepared you are for retirement by using the Alliance for Lifetime Income’s calculator.
To learn more on this, listen to ThStreet's podcast.
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