Perhaps the biggest concern that older investors have is the fear that they will outlive their money in retirement. Those fears grow even stronger when we suffer through a bear market, as we've done twice in the past decade. The people at T. Rowe Price recently took on this question, studying which investing strategies helped retirees make it through when their investments hit a rough patch.
The study used a representative portfolio, with 55 percent in the S&P 500 and 45 percent in a broad bond fund, then withdrew 4 percent of the assets monthly, while giving the retiree a 3 percent inflation raise every year as well. Then they plugged that into the actual market performance for the last decade. The best strategy, the one most likely to keep the retirees' financial position solid, was to cut back during the lean years, reducing withdrawals by 25 percent for three years after the bottom of the bear market. After those three years, the retirement plan was back on track.
One thing that didn't work, interestingly enough, was switching to a more bond-heavy portfolio. The researchers found that people who sold off their stocks ended up simply locking in their losses, and ending up no better off. You can see the entire T. Rowe Price report here.
No comments:
Post a Comment