FINANCIAL EXPERTS with “certified” in their title have plenty of good advice for retirees as they cope with today’s rough financial times. My qualifications are a little different. They’re limited to my eight decades of experience, plus my CC designation, short for Certified Curmudgeon.
What’s my advice? Say you’ve accumulated that magic $1 million nest egg and you’re following the 4% withdrawal-rate strategy. In year one, you’d pull out $40,000. In normal times, your remaining balance might grow, say, 6%, so you start the second year with $1,017,600, equal to $960,000 multiplied by 1.06. Assuming 3% inflation, your year two withdrawal would be $41,200.
But thanks to this year’s stock and bond market decline and escalating inflation, that $960,000 might instead have shrunk to $800,000 and your inflation-adjusted withdrawal in year two might have jumped to $43,000. Over time, things should get better. But right now, it’s a scary picture.
What to do? Here are three things I’ve realized over the past two turbulent years:
In recent months, I’ve been asking retirees and near retirees how confident they are about their retirement savings and income. Initially, most were very confident. The stock market turmoil hadn’t shaken them. But lately, attitudes have changed. I have been told by a few people that they may delay retirement or return to work. Several folks mentioned cutting expenses, and some said they were going to reduce their planned annual portfolio withdrawals.
