Planning does not stop in retirement

Planning does not stop in retirement

A big concern for workers is ensuring that their assets last in retirement. As workers plan for retirement, they may want to understand that withdrawal rates and investment style in retirement can significantly impact how long those assets will last. That is why it is important for pre-retirees to seek professional financial advice.

Selecting a withdrawal rate is an important decision
The rate at which you withdraw assets in retirement affects the long-term balance. The following chart, based on monthly historical returns from 1926 to 2012, illustrates how a hypothetical portfolio of 60% stocks, 30% bonds, and 10% cash — regardless of account balance — would have lasted on average given various withdrawal rates. All withdrawals represent the percentage of the original account balance that is taken out each year. Withdrawals were increased by historical inflation each year. As the chart illustrates, even moving from a 3% to a 4% rate results in a loss in asset longevity of more than 12 years.



Investment strategy in retirement plays a role
Portfolio asset allocation decisions are also critical in retirement. The client’s strategy — whether it is conservative or aggressive — needs to keep up with inflation and weather market downturns. Clients and advisors should regularly review, monitor, and periodically adjust the portfolio for market swings.

Meeting with clients prior to retirement can be helpful in setting expectations. Putnam’s investor education piece on withdrawals in retirement provides an understanding of the calculations behind the impact of retirement withdrawals and asset allocation.

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