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Schannep Investment Advisors, Inc.
Your future is why we're here.
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Playing the Right Retirement Cards
The goal of retirement is to enjoy these years to the fullest,
but not so fully that you run out of money.
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Much has been said
about "Monte Carlo" simulations and how one seeks to conclude how
much should be saved to cover the cost of retirement.
To use the accompanying tables, you have to decide how long your retirement
might last, what stock-bond mix you will hold, and what percentage of your
portfolio’s value you might withdraw in the first year of retirement. After
the first year, you are assumed to step up the amount you withdraw along
with inflation.
The tables don’t provide a definitive answer but offer possible percentages of successfully
outliving your money. Considering hundreds of possible market
scenarios generates the probabilities. These scenarios take into account not
only the historical volatility of returns, but also the diversification
benefits that can come from combining stocks with bonds or mixing U.S.
shares with foreign securities. This focus on different market scenarios
reflects a recent change in the way investment advisors think about
retirement spending. Before, advisors would often simply project likely
average returns for a retiree’s portfolio, make some allowances for
inflation and then figure out how much the retiree could withdraw so that
the portfolio would last, say, 25 years. The problem was, even if advisors
guessed right about the average returns, they could still come up with the
wrong answer. The crux of this study was that it’s the sequence of returns
that are critical, not the average rate of return.
Chart
Source: T. Rowe Price Associates
While this table is believed to be reliable, Schannep Investment Advisors
cannot guarantee its accuracy or completeness. |
Do You Feel Lucky?
To get a handle on how much you may be able to spend in retirement without running out
of money, check out the table below. For instance, the table suggests there
is a 58% chance that a mix of 60% stocks and 40% bonds will sustain a 5%
withdrawal rate all the way through a 30-year retirement. This is a
hypothetical illustration for information only - actual results will vary.
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| 20 Year Retirement |
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| Withdrawal |
------------Stock/Bond Mix-------------- |
| Rate |
100/0 |
80/20 |
60/40 |
40/60 |
15/85 |
5/95 |
| 4% |
97% |
99% |
100% |
100% |
100% |
100% |
| 5% |
91% |
93% |
95% |
96% |
97% |
93% |
| 6% |
76% |
78% |
77% |
70% |
48% |
19% |
| 7% |
56% |
53% |
46% |
28% |
2% |
0% |
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| 25 Year Retirement |
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| Withdrawal |
------------Stock/Bond Mix-------------- |
| Rate |
100/0 |
80/20 |
60/40 |
40/60 |
15/85 |
5/95 |
| 4% |
93% |
95% |
96% |
97% |
98% |
93% |
| 5% |
78% |
79% |
79% |
66% |
46% |
14% |
| 6% |
59% |
56% |
48% |
27% |
2% |
0% |
| 7% |
38% |
31% |
18% |
3% |
0% |
0% |
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| 30 Year Retirement |
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| Withdrawal |
------------Stock/Bond Mix-------------- |
| Rate |
100/0 |
80/20 |
60/40 |
40/60 |
15/85 |
5/95 |
| 4% |
85% |
88% |
86% |
85% |
71% |
37% |
| 5% |
68% |
66% |
58% |
42% |
8% |
0% |
| 6% |
47% |
41% |
28% |
10% |
0% |
0% |
| 7% |
24% |
18% |
7% |
1% |
0% |
0% |
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| BLUE = > 85%, a minimal accepted standard |
| RED = < 85%, below a minimal accepted standard |
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( Return to Investment Primer
Index )
Securities offered through First Allied Securities, Inc. A register broker/dealer. Member FINRA/SIPC.
Schannep Investment Advisors is a registered investment
adviser in the state of Arizona. First Allied Securities, Inc. does not endorse or
support this web site, nor are they affiliated with Schannep Investment Advisors,
Inc.
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