Wednesday, January 17, 2007

Keeping the gold in the golden years - MarketWatch

If there is one topic for retired individuals to ponder, to stay up with what advisors are saying, it is this.

How to spend more money in retirement without going broke - MarketWatch

Some take-aways: "'People need cash flow; they need money and they need it to grow by more than the inflation rate,' said Harold Evensky, a financial adviser in Coral Gables, Fla. 'You need to think holistically and throw out the concept of an income portfolio.'" I tend to agree that going too conservative with your investing will subject you to the greatest long-term risk, that of outliving your money as a consequence of low portfolio returns, inflation, and a good long life. You don't (speaking rather generally, here,) invest like a young person, but neither should you go into the investing equivalent of the fetal position either. At 66, for example, you may still have a twenty or twenty-five (or Lord willing, even longer) investment horizon -- that makes you a long-term investor, and frees you up (some) to go for some gains.

Another: "A generalized approach to spending starts with a '4% solution' -- taking 4% of a portfolio's total value in the first year of retirement and increasing this amount annually to match inflation. ... but 4% is a baseline. A study by financial adviser Jonathan Guyton, published in the March 2006 Journal of Financial Planning, says retirees can accelerate spending provided they adjust to market fluctuations. " Guyton's study is very intriguing, and intensely debatable. I've read it. I'm certain that it won't be the last word. The article does a reasonably good job of synopsizing Guyton's conclusions, but you really should not not modify your own draw-down plans without discussing the question with your financial advisor.

Read the entire article carefully. There's a lot more good stuff in there.

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