The number one fear of most retirees is running out of money.? What does Wall Street and their ?so called financial planners,? propose as the solution?? It is always ?invest in the stock market? to lower the ?probability? of outliving your money.? Monte Carlo simulations and other forecasting techniques tell you the probability of running out of money but there are no guarantees.? Nor are you told what to do if the forecast is wrong.? Here are some quotes from an August 25, 2011 article from CNN Money written by Walter Updegrave.? The article was titled ?How Long Will My Retirement Savings Last? and is fairly typical.
[?] many advisers recommend that you follow the ?4% rule. ?[y]ou can still run out of money, especially if you get hit with losses early in retirement.?
[My comment] Is there some likelihood you could ?get hit with losses early in retirement? if your money is in the market?
?Maryland financial planner Michael Kitces has done research showing that you may be able to safely go to a higher initial withdrawal rate, say, 5% or more, if you?re starting out when the stock market is undervalued and thus more likely to earn above-average returns going ahead.
[My Comment] How will you know if ?the stock market is undervalued??? And, if it is undervalued does that mean you?re ?likely to earn above-average returns???
Minneapolis financial planner Jonathan Guyton and retirement-planning software developer William Klinger have done computerized simulations showing that a retirement portfolio has a high probability of lasting 40 years even with an inflation-adjusted initial withdrawal rate of just over 5%, provided you strictly follow a series of ?decision rules? that call for you to adjust your withdrawals throughout retirement based on your investment performance.
[My comment] All you have to do to make your money last 40 years is ?adjust your withdrawals throughout retirement based on your investment performance?. Wow, this is sage advice ? if your money runs out, just stop withdrawing!
What all these ?solutions? have in common is ?investing in the stock market?.? This means your money will be ?at risk? which in turn means you could lose it.? The advice from these ?financial advisers? is nonsense that will add stress during what is supposed to be your ?worry free years?.? There is a better, and far simpler, way that eliminates the probability of running out of money: purchase a guaranteed lifetime income from an insurance company.
If you face financial risk you cannot assume, what is the answer?? Correct, you buy insurance: homes, cars, boats, health, life and more.? So why not insure the risk of outliving your retirement money?? Yes, you might do better in ?the market? [your house may not be destroyed] and then again you might do worse and run out of money [but if your house is destroyed the financial loss will be catastrophic].? The law of Occam Razor says if there are several ways to reach the same solution, use the least complicated one.? Using insurance is far less complicated than trying to out guess the market.? If you run out of money, then what?? Why face risk when the solution is simple, and cheap?
Shelby J. Smith, Ph.D.
September 1, 2011
Source: http://www.theretirementpros.com/blog/2011/09/running-out-of-money-in-retirement/
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