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Welcome to this session of grand rounds, a collection of posts I have discovered in the blogosphere and have found of interest and hope you do too.
This offering of Grand Rounds looks at articles from around the web that deal with issues that may negatively impact your retirement/nest egg.
How confident are you that things from the last century can accurately predict the future many decades later?
But a lot of the FIRE community does just that, pinning their retirement nest egg on a study that was published in 1998 where the 4% safe withdrawal rate originated from (Trinity study).
A lot of things have changed since 1998, so it comes as no surprise that what worked back then may no longer work now.
Physician on FIRE addresses this problem in, “The 4% Rule May Not Work for Early Retirement.”
One factor that was not as big an issue in 1998 that is now becoming more and more relevant to retirement portfolio survivability is inflation, also known as the silent thief.
As there is no end in sight to money printing and nothing tangible backing up FIAT currency, purchasing power will certainly decrease in the future, putting added stress on a fixed income retiree.
ESI Money calls attention to this problem in, “Why is Inflation the Single Biggest Retirement Threat?”
As modern medicine continues to improve there is a good possibility you will a lot longer than your predecessors.
While have a long lifespan is a good thing, those extra unplanned years may put undue stress on your retirement nest egg, especially if you only planned for a 30 year withdrawal in your initial calculations based on the Trinity study.
Early retirees can add an extra decade or two for drawing down a retirement portfolio truly stressing the system.
Financial Samurai takes the better safe than sorry approach and discusses what needs to be done in, “Preparing for a 50-Year Retirement With Vanguard’s New Return Assumptions.”
A cardiac stress test essentially puts your heart through the paces (either on a treadmill or via chemical means) to catch any potential issues before they become worse and real damage is done.
It is better to catch a problem early when you still have time to correct it.
Well the same principles can be used for evaluating your retirement portfolio.
It is better to catch any deficiencies your nest egg may have while you are still working and have the ability to correct it.
Fortunately FI Physician shows you how to do this in, “Portfolio Stress Testing.”
Trust me, you do not want your retirement portfolio to flatline.
I am pretty sure that after reading all the above Debbie Downer articles, my readers are freaking out thinking that they will never be able to retire.
Much like a palate cleanser to get rid of the taste of the previous course, I thought I would end this roundup with a positive article that states that you will do just fine in retirement regardless of the above related risks.
The Wealthy Accountant assures us that our retirement safety nets may be overkill in, “How Much You Need to Retire is a Lot Less Than You Think.”
Hope you enjoyed the reading material.
Have a great rest of the week.
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Thanks for the shoutout Doc! I was skewered when I came up with my FS Safe Withdrawal Rate rule.
Glad people are coming around and opening up their minds to the possibility of down years.
You are more than welcome. Definitely an eye-opening article and worthy of the inclusion. I think we get lulled into complacency when the markets are on record bull runs and forget that there can be a downside that can hurt you if you do not prepare for it.
Have a great one!