The 4% rule would have protected retirees from running out of money even in the worst 30 year period since 1926 in which to retire, which turned out to be from 1966 to 1995, according to Mr. Here are steps retirees can take to improve their odds of making their money last: Pfau said it could create “the perfect storm," leaving investors with a choice between withdrawing more from a shrinking portfolio or cutting spending to try to protect their nest eggs even as prices rise. If markets slide and inflation remains high for the next couple of years, as some economists have predicted, Mr. These factors caused many to drain their nest eggs faster than they would have otherwise, although many in that era were able to fall back to some extent on traditional pension benefits. Those who retired then were clobbered with back-to-back bear markets that started around 19, plus years of high inflation. The worst 30-year period in which to retire began in the late 1960s. government bonds.Īnother lesson for retirees contending with losses is to cut spending if possible, since “if you’re overspending from a portfolio that is simultaneously dwindling, that just leaves less in place to repair itself when the markets eventually recover," said Christine Benz, director of personal finance at Morningstar Inc. large-cap stocks and 50% in intermediate-term U.S. Pfau, who crunched the numbers for a portfolio with 50% in U.S. “As long as you didn’t panic and sell your stocks in 2008 you’d be doing fine today," said Mr. 1, 2007, and spent $40,000, adjusted annually for inflation, would have had about $874,000 left after two years, but would have about $1.63 million today. Thanks to the long bull market and low inflation that followed the financial crisis of 2008, someone with 50% in stocks who retired with $1 million on Jan. Two more years of similar withdrawals and 15% losses would leave about $527,000 to last potentially for decades.īy contrast, a 62-year-old who retires with $1 million and experiences 15% annual gains would have about $1.36 million after three years of $40,000 withdrawals.ĭespite the market’s importance in early retirement, history shows that the portfolios of people who retire in down markets can recover. With a 15% loss in the first year, the balance would fall to $816,000. (Such an approach, which has been questioned recently, calls for spending 4% of a balance in the first year of retirement and adjusting that amount in subsequent years to account for inflation.)Īfter taking the first annual withdrawal of 4%, or $40,000, the investor would have $960,000 left. 1 with $1 million and is following the 4% rule to determine how much to spend in retirement. “The five years after retirement are a pivotal period for determining a sustainable lifestyle in retirement," said Wade Pfau, a professor at the American College of Financial Services in King of Prussia, Pa., and author of “Retirement Planning Guidebook."Ĭonsider a 62-year-old who retired on Jan. Negative returns at the start of retirement, when a portfolio is usually largest, create a problem because the combination of market losses and withdrawals can leave a portfolio too depleted to last decades. As the stories of the four retirees The Wall Street Journal profiled this week show, even those who retired in 2008 have done fine provided they managed their money well. But those nearing retirement right now can take some comfort in research that shows that even people who retired in the worst time to do so since 1926 would have made their money last 30 years by sticking to certain rules.
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