All Shook Up

Richard Quinn

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:

  • A dependable income stream offers security and peace of mind. My retirement income comes largely from a pension and Social Security. Other possible income streams include immediate annuities, stock dividends and bond interest payments.
  • A cash reserve is essential. The 2022 stock market plunge has made it clear that the ability to temporarily avoid selling longer-term investments is very desirable.
  • We should overestimate our retirement spending needs. It’s risky to assume all we require is “enough to cover expenses” or simply to declare “we’ve always lived modestly.”

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.

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