Red Alert! The Decade of Portfolio Contraction Has Begun
The four horsemen of the financial apocalypse are already on their way. Each one a danger in themselves, but combined they are Economic Armageddon. Portfolio contraction will be caused by four factors: excessive withdrawals, the sequence of market returns, bad investor behavior and extended longevity. Watch the interview with economist, best selling author, registered investment adviser and Masters of Science in financial services Dan Casey.
Excessive Withdrawals – The old 4% rule of thumb isn’t a wise reference point for income any longer when you consider that a retirement portfolio’s distributions of stock dividends and bond interest are generally below the antiquated benchmark. Most financial advisers recommend 3%, some even lower. However, most retirees don’t meet often enough to make adjustments in their distributions and continue to withdraw at levels their portfolio can’t sustain, resulting in portfolio principle loss.
Bad Investor Behavior – Some seniors raid their retirement portfolios to fund unscheduled events like home repair, a sudden trip to Europe or emergency medical costs. Few understand that their retirement portfolio was most likely predicated on monthly income needs based on their retirement plan. Bad investor behavior can cannibalize portfolio principle.
The Sequence of Market Returns – The rules that govern the accumulation phase before retirement are not the same rules during distributions in retirement. The strategies are different ascending to retirement, then those descending during retirement. Take mountain climbing: Most of the deaths occur during the descent. The biggest retirement mistake is not adjusting your withdrawals for the downward market cycles and readjusting the new lower threshold that has now become “par.”
Extended Longevity – If you concede that the average survivor of a married couple will live to age 93, then you may need to plan for a longer retirement based living longer than the average. Willard Scott celebrated centurions on his TV show. There’s over 72,000 in the U.S. Susanna Jones just died in May of this year at 116. She was a tri-centurion and a super centenarian teenager. Jean Calment lived to age 122 and is the oldest person who ever lived according to the Guinness Book of World Records. Dr. Aubre De Grey, noted gerontologist, has said that the person who will live to age 150 has already been born. Could that be you?
The four horsemen of the financial apocalypse are coming and it will be economic Armageddon.
Syndicated financial columnist Steve Savant interviews economist, best selling author, Registered Investment Adviser and Masters of Science in financial services Dan Casey. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.
