3 Ways to Avoid Running Out of Money in Retirement

June 13, 2013

retirementRetirees want to make sure their retirement accounts last longer than they do, but investors can’t know precisely how much they’ll need in retirement or how long they’ll be living off their retirement accounts.

There are a few ways that investors can increase the probability of outlasting their money, and a New York Times article, For Retirees, a Million-Dollar Illusion, highlighted three of them:

1.  Withdraw less from your retirement accounts; and/or
2. Delay your retirement age; and/or
3. Add stocks to your portfolios.

A chart that accompanied the article showed how each of these options reduced investors’ probability of running out of money in retirement.

Some of these options may be more feasible than others. Not all investors can change their cost of living or retire at a later age, but most investors can invest in stocks.

The Times’ chart indicated that investing in stocks can dramatically reduce the probability of running out of money in retirement. The charts showed that a couple who retired at 65 and was entirely invested in bonds would have a frightening 70% chance of running out of money. If the couple invested 60% of their portfolio in stocks and 40% in bonds, they’d have less than a 20% chance of running out of money.

We include stocks in the retirement accounts we manage for clientsbecause retirees don’t need all of their money at once; instead, their money is paid out over many years. And we want to make sure our clients’ accounts will last through their retirements.

The trade-off is that stocks can be volatile, and some retirees may not believe they have enough time to recover from stock market declines. But remember that the bond market isn’t immune from declines. As the Times noted, “Bond investing is likely to remain challenging for years to come. Investors may face a double-whammy — low yields now and the prospect of significant losses as yields rise.”

We believe a mix of stocks and bonds can help control downside risk and provide long-term growth and income for investors in or near retirement. The right mix of stocks and bonds depends on investors’ need for growth and their ability to withstand volatility. If you want to discuss your retirement allocation with one of our portfolio managers, please contact us.


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John Kund June 17, 2013 at 5:45 pm

Totally agree… diversification is key. I even think including a small percentage (say 5%) of one’s portfolio in precious metals isn’t a bad idea… I’ve read a lot of articles saying that even though the prices plummeted lately, long term forecasts are looking good…

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