Saving or accumulating money in a portfolio is easy. Easy, if you start early, save regularly, and remain disciplined. Dollar-cost averaging and compounding will transform your monthly payments over time into a meaningful portfolio to support your retirement.
Spending from your portfolio in retirement, or decumulation, on the other hand, is more challenging. During decumulation, you are subject to overspending, unplanned costs, and sequence of return risk. The sequence of return risk is the potential of a market downturn or crash early in retirement, which forces a retiree to sell investments at a discount and increases the likelihood of prematurely running out of money.
Industry thought leaders and academics are actively seeking solutions and strategies to minimize the spending’s risks during the decumulation. One of the latest publications titled “Viability of the Spend Safely in Retirement Strategy,” authored by Wade Pfau, Ph.D., CFA, Joe Tomlinson, FSA, and Steven Vernon, FSA was released last year by the Stanford Center on Longevity and is an essential read for anyone planning their retirement.
The 55-page report, in addition to providing a basic spending strategy, provides insights into ancillary issues such as taxes, healthcare costs, and uneven cash flow needs and accordingly is an excellent comprehensive primer on retirement.
The primary steps are:
- Social Security maximization, and
- Generating retirement income from the portfolio via the IRS required minimum distribution (RMD) calculations.
The report then goes on to discuss asset allocation, healthcare costs, cash flow issues, income alternatives, and buckets for fund retirement goals. A tattered copy sits on the edge of my desk.
To access the readable 55-page study go to the Stanford Center of Longevity (http://longevity.stanford.edu/ ) or clink on this link: Viability of the Spend Safely in Retirement Strategy
Photo: August 2019 by KWR, Blue Mountain Lake, NY