Can My Portfolio Support My Lifestyle in My Retirement?

ST. CROIX INSIGHTS

 

Can My Portfolio Support My Lifestyle in My Retirement?

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

With the stock market declines in 2015 and so far in 2016, we are seeing a good learning opportunity and a reminder that we can’t predict what the markets will do each year. It’s time to ask yourself, can my portfolio support my lifestyle in my retirement?

Outliving our money is the 2nd biggest concern I hear from my clients. One of my favorite words is synergistic – according to Webster Dictionary it means “conditions such that the total effect is greater than the sum of the individual effects”. Wow…in Brett’s words, this means that you kicked butt in one area but weren’t so good in another area, and the net result is that it brought you down.

Retirement Years

When it comes to our retirement years, we have a number of items that can determine the successfulness of those years including:

  • Health
  • Type of lifestyle
  • Inflation
  • How much money we have
  • How well our investments have performed

It’s typical for me to have a conversation with clients during their retirement years on how much they’re withdrawing from their retirement assets. Usually, when someone first retires, you have 365 Saturdays. You don’t have to show up for work and you’ve experienced a freedom like you’ve never had before. And now when you don’t have to do go work, chances are you’ll spend time traveling, doing home projects, spending money, spoiling the grandkids, and doing whatever else you want.

Investment Portfolio Examples

So let’s look at the numbers because numbers don’t lie. I looked at American Funds Balanced A share for my example to illustrate what happens to an investment portfolio if we take too much, too soon, too fast. I wanted to look before the market crash of 2008, with an initial investment of $2,000,000 on 12/31/2007. I’m illustrating two examples of one person receiving distributions of $100,000 each year and another person receiving distributions of $200,000 for the last 8 years. Here’s an example of the two portfolios and the two different distribution amounts.

 

$100,000 Distribution Amount: Average annual rate of return 10/1/2007 through 1/31/2016 4.48%.
12/31/07 Ending Value $1,946,127.00
12/21/08 Ending Value $1,348,307.00
12/31/11 Ending Value $1,584,266.00
12/31/14 Ending Value $2,047,671.00
1/31/16 Ending Value $1,934,621.00
$800,000 in Distributions
$200,000 Distributions Amount: Average annual rate of return 10/1/2007 through 1/31/2016 3.14%.
12/31/07 Ending Value $1,946,127.00
12/21/08 Ending Value $1,251,189.00
12/31/11

Ending Value

$1,114,923.00
12/31/14 Ending Value $998,093.00
1/31/16 Ending Value $786,679.00
 

 

$1,600,000 in Distributions

When it comes to retirement planning and how much money you’ll need in your retirement years, there isn’t one clear path, or method, or strategy on how to achieve your goals. In the example above, one person received $800,000 more in distributions and the other one had $1,147,942 more in the ending account value.   Where I become concerned is in the 2nd example- when taking $200,000 a year in distributions, I suspect that within 5 years, the account would be completely depleted. That may not be an ideal situation for most of us.

Hudson Retirement Planning

In the first few years of your retirement, if you take out too much too soon, chances are you have to adjust your lifestyle down because your portfolio may not be able to keep up at such an aggressive distribution rate. I suspect for most of us, we’d prefer to be somewhere between the middle of these values and distribution amounts. It’s important to have and to follow a financial plan to help achieve the type of retirement you desire. If you’d like me to send you hardcopies of these hypothetical investment illustrations, please send me an email at brett@stcroixadvisors.com. If you’d like help in creating a financial plan or your retirement plan, drop me a note, as well.

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Ask yourself- can my portfolio support my lifestyle in my retirement? 

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