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The Goose and Golden Eggs Thumbnail

The Goose and Golden Eggs

Financial Planning Insights Investing Retirement Planning

The main question pre-retirees have when planning for retirement is, how much money can I spend in retirement and not run out of money? This is where the planning tactic of a safe withdrawal rate enters the conversation. Based on decades of data, financial planners have determined that a safe withdrawal rate of about 4% of investable assets, per year, can help in making your nest egg last the duration of retirement. As a retiree pulls more than 4% out of their nest egg annually, the risk of running out of money dramatically increases. 

Imagine that your nest egg is a golden goose that lays golden eggs. The golden eggs are your 4% withdrawals and can be spent every year without greatly increasing your risk of running out of money. You can eat your golden eggs every year, but if you consume more than the eggs (or your 4%) you start to eat part of your golden goose. And when there is less golden goose, there are inevitably less golden eggs to consume.

In order to sustain your golden goose in retirement it needs to be invested in a way that allows it to grow with your increasing cost of living while still providing you with the stability required to stay invested in market corrections. We accomplish this by determining your risk tolerance in coordination with your need. In order to keep pace with inflation your portfolio will need to earn roughly 7% annually 4% for you to spend and 3% growth to help with cost-of-living adjustments. The goal is to have the goose grow with your lifestyle expenses.

The best way to achieve this is to invest your golden goose in a globally diversified portfolio of stocks to help keep the goose growing and bonds to help dampen volatility and keep you invested for the long-term.

If you and your life savings are being ignored or feeling taken advantage of, come join our family. We are a family-owned financial planning and investment advisory firm who promise to treat you like family. No products. No hard sell. No gimmicks. Just honest advice based on four decades of experience.