Weekend Reading: How Can I Make Sure That the Money I've Saved Will Last My Whole Retirement?

Posted: 08/27/2021

|Financial Planning |Income |"Market Watch" Articles

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.

Weekend Reading

Many retirees wonder if their lifelong savings will last the long-run, and you might be one of them. Feeling confident in the stability of your retirement plan includes honing in on your income, and this article highlights two questions to ask yourself while doing so:

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📌What is the best investment strategy for your portfolio: Wealth-focused or income-focused?

📌What is the best spending strategy: A fixed strategy (i.e., the four percent rule), a flexible strategy or some other strategy?

Running the numbers: A recent research paper, titled, Investing for Retirement Income: A Comparison of Asset Allocations and Spending Strategies, aimed to answer these questions, and revealed that an income-focused portfolio (25 percent invested in stocks upon retirement with the rest in inflation-protected bonds) produced similar income as a wealth-focused (higher-risk) portfolio – plus, protection from market, interest rate and inflation risk. These results show that aggressive investing isn’t always needed to generate your desired retirement income. In fact, wealth-focused portfolios are not only more volatile, but also aren’t able to manage longevity risk.

Spending strategies: As for asset allocation, financial experts have varying opinions across the map. You’ve inevitably heard of the four percent rule, but ultimately, there is no best practice. Past podcast guest, Wade Pfau, previously discussed a high allocation to equities approach. His proposed strategy involves a rising equity glide path for retirement income, which starts a portfolio out conservative, then gradually becomes more aggressive throughout the retirement horizon. On the other hand, other researchers argue an appropriate equity allocation range is between five percent, and even as high as 25 percent. The bottom line? There is no all-encompassing answer, and it’s ultimately going to depend on your unique financial situation.

My thoughts: If you find this article a bit confusing, it’s understandable. The reality is, there aren’t nearly as many strategies outlined here as it may seem. Much of this comes down to lingo. The whole financial world would be simpler if we could all agree on the same terminology.

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