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The Danger of Taking Too Much

One of the most frequently asked questions regarding retirement income deals with the withdrawal rate.  “ How much can I take out?”. Below is the best chart I’ve seen that illustrates the damage that can be done if a retiree takes out more than 4% per year.

withdrawal rate



Disclaimer: * Hypothetical value of assets held in a tax-deferred account after adjusting for monthly withdrawals and performance. Initial investment of $500,000 invested in a portfolio of 50% stocks, 40% bonds, and 10% short-term investments. Hypothetical illustration uses historical monthly performance from January 1972 through the most recent year from Ibbotson Associates: stocks, bonds, and short-term investments are represented by the S&P 500® Index, U.S. intermediate-term government bond, and U.S. 30-day T-Bills, respectively. Initial withdrawal amount based on 1/12 of applicable withdrawal rate multiplied by $500,000. Withdrawals are inflation adjusted. Subsequent

A Brief History of Bubbles

Excerpt from Faber’s “Learning to Love Investment Bubbles: What if Sir Isasc Newton Had Been a Trendfollower”

“From a behavioral and psychological standpoint [a trend following investment strategy] is often the most difficult to deploy when it is most useful. Strong discipline would have been required to sell technology stocks in 2000, REITs in 2007, or South Sea stock in 1720, especially when one’s colleagues, friends and neighbors were making money hand over fist. In the end, for those who imposed such discipline, it was the prudent choice.”

Seems relevant for what we’re seeing in today’s recovery.

If you want to read more about how trend following works during investment bubbles, read this paper (especially the summary at the end):

The Mississippi Bubble: One of the First Bubbles

There’s a lot of talk about if the US market is in a bubble these days. It’s next to impossible to determine if we are, in fact, in a bubble. But the media will do just about anything to produce a story that will get more people to read their publications.

Instead of reading their predictions, consider watching this video about one of the first economic bubbles ever recorded.

John Law and the Mississippi Bubble by Richard Condie, National Film Board of Canada

John Law and the Mississippi Bubble

Seven Mistakes to Avoid In the First Year of Retirement

USA Today outlines seven common mistakes that we constantly flag for our clients. If you are close to retirement, chances you have overlooked at least one of these. We see a lot of new retirees who don’t consider inflation in their planning process. Maybe they are more concerned about long tail events, like the great recession. And they forget about the slow, ever present erosion of purchasing power that occurs each and every year.