Don't Be Worried and Confused About Making Your Money Last in Retirement

Last year, Merrill Lynch and Age Wave released a report titled, "Family & Retirement: The Elephant in the Room."  Figure 16 of this report listed the results of a survey describing the greatest worries different generations had about living a long life.  The top two worries cited by both the "Silent Generation" and the "Baby Boomer Generation" were "running out of money to live comfortably" and "being a burden on my family" (which is arguably partially related to the worry of running out of money).   In fact, these two concerns were cited by more than 60% of the survey respondents. 

The September issue of the AARP Bulletin contained an article about the five steps to a happy retirement, including Step Number 5--Make Your Money Last by Jane Bryant Quinn.  I have to say that this article was unfortunately one of the most confusing articles from Ms. Quinn that I have read.  She initially indicates that the 4% Rule is the gold standard for financial planners.  According to Ms. Quinn, "If you stick to that rule and are properly invested, your money should last for at least 30 years and, in most cases, much longer. You should be financially safe."  She then asks a number of experts what they think and, not surprisingly, the safe withdrawal rates vary from 2.5% to 5.5%.  She closes by advising retirees to "prepare to be nimble", "stay the course" and "begin again with the money you have left if you sell when the market falls and miss the upturn."  With advice like this, no wonder many retirees are confused and worried about running out of money or becoming a burden on their families.   

One of the big problems with the 4% Rule and other "safe" withdrawal strategies is that after the first year, you have no real way of knowing whether you are still "on track."  In addition, these approaches are based on assumptions that may not apply to your specific situation.  To be less confused and worried about overspending (or underspending) your accumulated savings, you should use the Actuarial Approach recommended in this website.

The Actuarial Approach automatically adjusts for actual experience as it emerges and annually lets you know whether you can increase your spending or whether you should decrease your spending based on your personal situation and objectives.