The retirement industry focuses so much on getting people to save enough for retirement or invest well that the topic of retirement income never comes up. CAPTRUST Consulting Research Group said that is a mistake, particularly with 10,000 baby boomers retiring every day for the next 16 years.
Today's low-interest-rate environment requires a different approach to retirement investing and income generation. People need a plan for withdrawal management.
CAPTRUST recommends that retirement savers accumulate enough wealth to replace at least 70 percent of their pre-retirement income as they enter retirement. That means that an individual making $50,000 a year would need to save enough to replace $35,000 a year to retire comfortably. That amount is a combination of Social Security and retirement savings.
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In the past, retirees could rely on 10 percent returns on an all bond portfolio, but in the past decade, that was turned upside-down, with returns at about 1.39 percent for the 10-year Treasury.
"Needless to say, the days of 10 percent yields are long gone, and most investors can no longer depend on yield alone to fund retirement spending," the report said.
To counter that, CAPTRUST uses an example of a portfolio that consists of 40 percent market-driven or directional assets and 60 percent non-directional assets. A person should be able to withdraw 3 percent for 30 years or 4 percent for 20 years based on this allocation. Every $100,000 of retirement savings should be able to reliably provide $3,000 per year of inflation-adjusted cash flow for 30 years of retirement or $4,000 per year for 20 years.
So based on its data, the person who makes $50,000 a year would need to accumulate between $500,000 and $667,000 to safely fund a retirement that lasts between 20 and 30 years.
Individuals need to plan for longevity. On average, a 65-year-old female will live another 20 years and a male of the same age will live nearly 18 years longer, which means they now have to plan for two or three more years in retirement, CAPTRUST said.
"The remedy to these concerns is recognizing that withdrawal management is not a set-it-and-forget-it endeavor. This is in distinct contrast to the accumulation phase, when putting a plan in place and sticking to it can be a primary determinant of success," the report found. Any decumulation plan put in place should be subject to change based on market conditions, investment results and changes in personal circumstances.
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