The No. 1 Retirement-Planning Problem (Podcast)

by: SA For FAs
Summary

To solve for spending in retirement, you need to plug in how much capital you have, what your rate of return is and how much time you have.

That last item is impossible to know. Adding in your spouse’s unknowable timeframe adds to the complication.

Longevity tables meant to offer guidance may understate the actuarially correct figures by two to three years.

Spending in retirement must also take into account the possibility of a poor sequence of returns in the initial period of withdrawals; costly health care expenses; inflation; and taxes.

Overcoming all of these hurdles, and uncertainty, will require a high level of savings and reasonable level of consumption, as well as other kinds of prudent preparation.

To solve for spending in retirement, you need to plug in how much capital you have, what your rate of return is and how much time you have – that last item being impossible to know. What’s more, longevity tables meant to offer guidance may understate the actuarially correct figures by two to three years (hat tip: robbo1802). In this brief podcast (3:42), I argue that these uncertainties plus numerous other hurdles will require a high level of savings and reasonable level of consumption to ensure the sustainability of the portfolio.

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