Last time, we compared retirement spending rules using historical data, but I believe we can arrive at a much more realistic picture for today’s retirees using Monte Carlo simulations. To that end, today I want to simulate these strategies with Monte Carlo simulations for stock and bond returns using current market environment as a starting point.
With this overview of how the different variable spending strategies performed historically, it is worthwhile to put a bit more effort into understanding the relative performance of these strategies in different market environments.
The end of the year is a great time to get your financial house in order. As the market bounces along throughout the year, your portfolio bounces right along with it. Every once in a while, you need to give it a checkup. And it’s not just rebalancing your investment portfolio (though I cover that in step 4) – you need to make sure your entire financial picture is in good working order.
Thus far, we have compared the historical performance of various spending strategies when the initial spending rate is 4%. Over the next couple weeks, we will apply an XYZ rule and consider how spending may be impacted by the low-interest-rate environment facing retirees.
It seems that no matter how much information is out there, people are still hitting retirement with little or no preparedness at all. Here are 5 of the most common ways people are sabotaging their retirement.
Deciding on the right retirement spending strategy for your particular situation is both incredibly difficult, and incredibly important. There are huge numbers of reasonable options, but how do you know which is right for you? The answer depends on several factors.
One final spending rule serves as a reasonably easy way to implement an actuarial method for retirement spending. Actuarial methods generally have retirees recalculate their sustainable spending annually based on the remaining portfolio balance, remaining longevity, and expected portfolio returns.
There are a lot of myths about diversification. Today, I want to address a pernicious lie floating around out there that diversification only works when times are good.
A final example in the decision rules category is the Target Percentage Adjustment method introduced by David Zolt in his 2013 Journal of Financial Planning article, “Achieving a Higher Safe Withdrawal Rate with the Target Percentage Adjustment.”
The next decision rule approach provides the name for this category of methods. The Guyton and Klinger spending decision rules derive from work by Jonathan Guyton in 2004 and the team of Jonathan Guyton and William Klinger in 2006.