The Catch-22 of Retirement

Stein, Michael K.
May 1999
Journal of Financial Planning;May99, Vol. 12 Issue 5, p28
Academic Journal
This article comments on the arguments of some financial planners and academicians regarding the retirement capital in the U.S. Millions of U.S. citizens have worked and saved for years to accumulate the capital they need for retirement. The rising tide of stock and real estate markets has increased their net worth. Just when it looks like they have that wonderful retirement within their grasp, overly cautious financial planners and their associates in academia step forward to tell these people that there is a probability that the retirement capital will fail before they attain their life expectancy, if they withdraw more than a modest percentage of their starting retirement capital each year. There are two fundamental problems with this idea. The first is the simple and obvious observation that the cost of living in retirement does not increase inexorably year after year. The second criticism is even more powerful. The failure of the retirement capital base predictably comes when the market experiences a major decline in values, but the retirement budget continues to grow. Fortunately, people do not run their lives that way. Most affluent retirees have a significant margin of discretionary expenditures in their retirement budget. When the market hits an icy patch, the retiree can easily pull in their belt for a year or two or three until the market begins to recover, and thus reduce their capital draw to reflect the decline in their investment portfolio.


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