by Dave Kutcher
Well, if you have been following us here each week, you’ve heard us discuss safe distribution guidelines before. For years the industry accepted rule was not to exceed 4% of your retirement plan assets, invested in a traditional 60/40 split of equities (stocks) and debt (bonds). By limiting your distribution to 4% you would provide yourself a very strong probability of success; success defined as your money lasting as long as you do … in other words, not running out of money before you die.
We have previously told you the old 4% rule really is closer to 3% today and we are here to tell you it is looking like that 3% is now 2%. You read that right … 2%! So, a million-dollar retirement portfolio, invested in a 60/40 allocation of stocks and bonds, should have a strong probability of outlasting you if you limit your distributions to 2%. That is $20,000 on a $1,000,000 portfolio. We know, that seems crazy. How can you be limited to such a low distribution rate when you have worked hard and saved hard for years?
The last 40 years interest rates have trended downward, and this trend helped reduce overall portfolio volatility. In 2022, however, the Federal Reserve has raised rates far faster than anyone anticipated in their effort to curb inflation, but these increased interest rates have wreaked havoc on the equity markets as well as the bond market. The traditional and well-known allocation of 60/40 experienced trouble on both sides of the market and caused stocks and bonds to both fall in unison. In addition, other assets classes have declined as well.
“Where do I go from here?” is something we hear more and more frequently these days. People don’t know where to hide from market volatility. Economic and market conditions are screaming that we need to be more frugal with our distribution assumptions at retirement, yet it is costing us more and more just to meet life’s basics; food, transportation, utilities.
We have been incorporating tax efficiency and non-correlated assets into retirement planning strategies for quite some time now. When we incorporate tax advantaged financial solutions with guaranteed asset growth regardless of market returns (non-correlated assets) and we couple those solutions in multi-faceted products that can also minimize or eliminate major risks that can loom ahead in your retirement years, we can manage your overall retirement income strategy in a way that you can return to not just a 4% guideline, but actually get you closer to 6%-7% distribution rate without changing your probability for success compared to the much lower distribution rate of 3%-4%.
The types of non-correlated assets we use are loaded with tax-advantaged features, they act as an alternative to bonds in a risky bond market, they can include leverage for covering major financial risks and the assets can be collateralized and used to acquire other assets if those other assets become more attractive in later years.
Retirement income planning can be complicated and requires a good look into many, many factors beyond just rate of return on your money. The earlier you start to contemplate the years ahead, the more options will be available to you and accessing those other options will be more favorable the younger you are.
There is no time like the present to find out “where to go from here”.
I am Dave Kutcher, a retired Marine Corp Captain and founder and owner of Kutcher Financial Services in Eagle River. We are on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Kutcher Financial Services, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.
