Dry Retirement?

Don't Let Your Retirement Well Run Dry

Want to be sure you won't run out of money in retirement? The standard advice that you'll hear from planners (or find on the pages of Money Magazine) is to follow the 4% rule: Withdraw no more than 4% of your portfolio the first year of retirement and then increase that amount for inflation each year. And indeed, if you do this, there will be roughly a 90% chance that your money will last at least 30 years.

By comparison, Russian Roulette offers an 83% chance of not being slaughtered. There's only one bullet so five of the six chambers are empty.

Note that the 4% rule and the 90% chance don't care about the current state of real interest rates, the current state of the stock market, the current state of the trade deficit, the current state of the war, the current state of commodity prices, the current state of the housing market, the current state of employment, or in a nutshell the current state of the union. One wonders how the odds would be altered given such external risks to one's portfolio. Russian Roulette might be even less risky, in theory.

Here's a crazy thought. What if your portfolio merely keeps up with inflation? There have been many eras when that goal alone was a worthy one (stagflationary eras come to mind). At 4%, your money would be gone in 25 years. It would be almost like you saved your money and then spent it. Would that really be so bad? There was a time when a penny saved was a penny earned. Maybe that's all it is supposed to be. Maybe a penny was never intended to expenentially grow at 10% per year, thereby allowing us to both have our savings and spend them too. Maybe this era of "overleverage" was and is not sustainable.

Something for nothing attitudes are still alive and well though it seems. Unfortunately, we've spent so much time (and energy apparently, based on current oil prices) in recent years both having our cake and eating it too. We could very well be due for a prolonged period of neither having cake nor being able to eat it. It is called reverting to the mean. I wonder what history would say about that?