Honey, I Shrunk the Portfolio

AN 80-YEAR-OLD WRITES, “We spend a substantial sum each year for travel, which eats up a good share of our retirement accounts’ required minimum distribution. That means our total nest egg decreases even when the portfolio shows a gain. We could stop traveling so much. But that’s no fun. So we are relegated to the facts: Our portfolio will show a decrease as long as we insist on traveling.”

My response: “You shouldn’t necessarily be concerned that your portfolio shrinks a little each year. If I were in your shoes, I would pick a target life expectancy. Let’s say it’s age 100—20 years from now. As long as your portfolio doesn’t shrink by more than 1/20th this year—or 5%—I wouldn’t be too worried. Next year, your threshold would be 1/19th, and so on.”

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