Right Now: A Terrible Time for Undersaved Retirees to Try to Catch Up

Real Investment Advice  ( Original )
MAY 14, 2018

What happened yesterday will probably happen again today. And once it does, it’s almost certain to happen again tomorrow.

And in such elementary fashion, investors forget the stark lessons of the past with breathtaking speed. In a melt-up market that discounts all bad news and completely ignores fundamental deterioration as the perpetual Fed bid props everything up, it becomes more and more difficult to remember this incredibly long-in-the-tooth bull market will end.

Suddenly, all those underlying problems that didn’t matter for years will really matter. And undersaved retiree pipe dreams of “catching up” so they can live comfortably for decades to come will be replaced by the reality of figuring out how to financially survive for the next few years, let alone beyond.

Currently, 75.4 million Baby Boomers in America—about 26% of the U.S. population—have reached, or will reach, retirement age by 2030. Unfortunately, the majority of these individuals are woefully under-saved for retirement and are “hoping” for compounded annual rates of return to bail them out.

It isn’t going to happen and the next “bear market” will wipe most of them out permanently.

Important points individuals should start giving serious consideration to:

  • Lowering expectations for future returns and withdrawal rates.
  • With the potential for front-loaded returns going forward unlikely, increase savings rates.
  • The impact of taxation must be considered in the planned withdrawal rate.
  • Future inflation expectations must be carefully considered, it’s better to overestimate.
  • Drawdowns from portfolios during declining market environments accelerates the principal bleed. Plans should be made during up years to harbor capital for reduced portfolio withdrawals during adverse market conditions.
  • Future income planning must be done carefully with default risk carefully considered.
  • Most importantly, drop compounded annual rates of return for plans using variable rates of future returns.

In this Central Bank driven world, with debt levels rising globally, interest rates rising, economic growth weak with a potential for a recession, and valuations high, the uncertainty of a retirement future has risen markedly. This lends itself to the problem of individuals having to spend a bulk of their “retirement” continuing to work.

Of course, this could be why there are currently more individuals over the age of 65 still in the workforce than ever before in history.

Oh, and there also the tiny fact the majority of American’s don’t have $1 million saved for retirement. For most it is less than $250,000.

But that is an entirely different problem.

ORIGINAL SOURCE: Retirees Face A “Pension Crisis” Of Their Own by Lance Roberts at Real Investment Advice on 5/14/18