Inflation is the silent thief. Over time, the cost of goods and services increase while most retirees live on a relatively fixed monthly income. This can dramatically decrease purchasing power of your retirement dollars. An inflation rate of 3 percent may mean your income needs to double over a 24-year period just to keep pace with future domestic spending. There are “income-generating” products with a cost-of-living adjustment that can mitigate some of the inflation risk. Until six years ago, Social Security always paid an annual increase. Three of the last six years haven’t paid an increase at all. Could this be a sign of things to come?
Excess Withdrawal Risk
Withdrawing 4 percent of your portfolio is fine as long as the interest and dividend portfolio performance generates the rate of return to cover it. So, many advisors have reevaluated their income recommendation to 3 percent. But is $30,000 worth it if you must hold hostage a $1-million portfolio to generate such a small annual income? Most retirees can’t live on that. So they take out more than their portfolio generates, withdrawing too much, eroding their portfolio principal with a high probability of running out of money later in life. There are products that can generate $30,000 with an inflation provision that may only need $650,000, freeing up the other $350,000 for investment opportunities.
All three resource risks can derail your retirement, so be cautious to keep on track.
Syndicated financial columnist Steve Savant interviews popular platform speaker, best selling author and adjunct professor Curtis Cloke on the 18 Retirement Risks that can Derail your Retirement. Curtis is also a leading retirement software developer and has been ranked as one of the top advisers in the country.