For the ages, retirees and pre retirees have been asking the thoughtful question, “How much can I withdraw from my savings and investments without risking outliving my money?” Stated a little bit more bluntly and in a more negative connotation, “Will I outlive my money?” It’s an important question to ponder. For years, the Harvard Study advocated that if you had a balanced portfolio of stocks and bonds and are well diversified you should be able to withdraw between 3.8% and 4% after fees, taxes, and expenses, to support your lifestyle throughout your retirement years. This iconic and prophetic magic number has become the generally accepted dogma and disseminated as such by the Wall Street Community.
That makes the article that just came out, “the magic withdrawal number and a low interest-rate retirement? You’ll Be Surprised,” by Darla Mercado, in Investment News on February 7, 2013, more startling. Specifically in this low interest rate environment, noted for easy monetary policy and historically (and might I had artificially low) interest rates, there’s been cause for a reformulation of the original Harvard dogma. This new article declares “it seems that a 2.8% withdrawal rate over a retirement period of 30 years with a 40% allocation to stocks is the recipe for a 90% success rate – if interest rates continue to stay low, according to a recent study by David Blanchet, head of retirement research at Morningstar Inc.’s investment management division. Wow! That’s a rude awakening and still a 10% possibility you will outlive your money. For this and other reasons it is good to take pause and begin consider evaluating your retirement needs early and consider safe money strategies designed into your retirement planning. The goal to achieve an abundant cash flow and manage the longevity risk so no matter how long you live, you will always have the assurance of an abundant retirement harvest.