The market fell another 500+ points today and will probably continue to fall for a few more weeks. No one can predict where it will bottom out but anyone trying to live on their 401k money will be forced to make some tough decisions.
For instance, imagine you had a fund worth $300,000 before the market started to fall. You were able to take 5% a year to add to your living expenses, or $15,000. Then suddenly the value of your account drops to $225,000. What do you do? You got used to getting $15,000. Now, though, if you take that much you will be taking out almost 7% bringing your account value down to $210,000. From there, you will need to have much faster growth to get back to where you were before.
Why 5%? Assuming you retire at 65, it is reasonable to assume you will live another 20 years to 85 and 1/20th of the total balance is 5%. Since we don't know when we will die, we are gambling that we will be gone by then, not to mention the fact that inflation could also eat up the value of your withdrawals. When you start taking 7% or more you are cutting into your future and could end up broke when you are too old to get another job.
Thus, depending on the stock market for your retirement is a bit like diving into a pool blindfolded and hoping someone put water in it. My annuity continues to grow.
I mentioned a few posts ago that the market has become extremely inflated by all the 401k money held by unprofessional investors. When we see the market take a dive, we panic, we worry and then we take some action that is probably not wise. Thus, moving your money to something stable with guaranteed growth and cool-headed investment managers looking out for my better interest might help you sleep much better at night.
I am not endorsing any particular company here. You need to do your own research. What I would recommend, though, is that you give annuities some serious thought as a way to protect both your future and your present. In future writings I will explain how annuities work.
No comments:
Post a Comment