Today we’re talking about how “the 4% rule” is losing relevance in today’s economy. In retirement, a common guideline allows a 4% annual withdrawal from your portfolio. According to an article published by JP Morgan Private Bank, a retiree with a $30 million portfolio would run out of money if they followed that guideline in today’s economic climate. The article, “Retirement Planning? Even Multimillionaires Can Run out of Money,” claims that withdrawing 4% from a thirty-million-dollar portfolio yields a 78% failure rate, depleting the account entirely.
Over the next 10 years, JP Morgan predicts the markets will underperform and inflation will continue to increase. Many economists and we at Centennial Advisors have foreseen for years that investing in a diversified portfolio with a 4% withdrawal rate is certain to crash and burn.
Markets are down, and if you retired at the beginning of this year, you may be wondering if you’ll have to return to work. Most financial advisors aren’t equipped to properly structure accounts for retirement. While many “do-it-yourselfers” are exceptional at researching while trying to make the best decisions, research on how to build a portfolio for retirement is lacking and is a niche within the financial planning community.
As we discussed in our previous segment, you must make a calculated effort to carve out your retirement accounts. Evaluate your overall portfolio and determine what vehicles you can invest portions of your money into that will effectively generate income to last you 20-25 years (or however many years you project). The remainder of your money can be isolated for growth-focused investing.
Many years ago, my dad, like many others, used to say, “Son, if it ain’t broke, don’t fix it.” This is sound advice, and the opposite is also true; if it is “broke,” you should probably fix it. The primary mistake people are making today when they discover their accounts are down 20% is waiting for something that is “broke” to magically fix itself. If you’re 30 or 40 years old, this may not be a major concern. However, if you are over the age of 55 and notice this kind of decline in your accounts, you must fix it! You cannot sit on the sidelines waiting for the market to increase when people like Jeff Bezos from Amazon are warning us of a significant recession coming in 2023. Additionally, stock markets will likely drop as well, and you will only sink deeper into your broken system as you lose more money.
If you’re currently in this position with your portfolio, don’t worry! There are action steps that can be taken to fix what is broken and we will discuss them in our next segment.
Past performance is not indicative of future results. The material above has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed, and Centennial Advisors, LLC makes no representation or warranty as to the accuracy or completeness of the information, which should not be used as the basis of any investment decision. Information contained on third party websites that Centennial Advisors, LLC may link to are not reviewed in their entirety for accuracy and Centennial Advisors, LLC assumes no liability for the information contained on these websites. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Centennial Advisors, LLC. For more information about Centennial Advisors, LLC, including our Form ADV brochures, please visit https://adviserinfo.sec.govor contact us at 512.265.5000.