A Common but Incorrect Assumption About Retirement Savings Can Be Your Undoing
Fox Business is reporting on the results of a new Retirement IQ Survey from Fidelity Investments that reveal plenty of folks in the Baby Boomer community may have a woefully inaccurate vision regarding how their Golden Years will play out. The survey cites three issues, in particular, that the generation has a demonstrated tendency to mishandle, and one, in particular, has the potential to be downright catastrophic.
One problem area for many is in the prediction of how much money they will need to cover the costs of health care as they age. Another is the long-term potential provided by the stock market, which many Boomers tend to dismiss because all they see ��� or remember ��� are the shorter-term expressions of volatility that are heavily played-up in the media and leave many afraid to tread at all in equities. The problem with that is the resulting loss of overall portfolio growth by having stayed entirely away from what remains the best-performing asset class over the long haul.
However, perhaps the most harmful misconception has to do with how much money one can safely withdraw from retirement savings each year. According to the survey, more than 10 percent of respondents believe they can withdraw 10 to 12 percent of their savings annually as retirees. Unfortunately, that is an unsustainable figure, given the long-term performance of even the most reliably-performing asset class out there, the aforementioned stock market. Withdrawing from retirement savings at a rate of 10 to 12 percent per year will very likely lead to the evaporation of your money years before your life is over (and perhaps even in less than a decade, according to Fidelity). For that matter, withdrawing at even 7 to 9 percent per year is taking a significant risk with the long-term viability of your savings.
Many experts say that one should withdraw from savings at no more than four to five percent per year in order to ensure that your retirement account remains in good shape over the course of your life. As a matter of fact, shooting for no more than a three percent-per-year rate of withdrawal is even better, given the expectations that the stock market, despite how it has been faring during the ���Trump Trade��� honeymoon period, is not likely to offer the same, consistent level of quality, positive returns it did during the years that closed out the previous decade.
By Robert G. Yetman, Jr. Editor At Large
