Some retirees take out a fixed dollar amount over a specific period of time. For example, you might decide to withdraw $40,000 annually and then reassess the dollar amount at the end of a five-year period. While this provides predictable annual income, it doesn’t do much to protect against inflation; and depending on the dollar amount you choose, you could erode your principal. Moreover, if your investments are down in value due to market volatility, you may need to sell more of your assets to meet your withdrawal needs.
Potential disadvantages: This approach doesn’t protect against inflation; for example, $40,000 may not have the same purchasing power from one year to the next. Additionally, if you are invested in marketable securities, in a down market, you may have to liquidate more assets to meet your fixed-dollar withdrawal.
Another approach is to withdraw a set percentage of your portfolio annually. The dollar amount of the distribution will vary, based on the underlying value of your portfolio. While this method creates a certain amount of uncertainty, if you choose a percentage below the anticipated rate of return, you could actually grow your income and account value. On the other hand, if the percentage is too high, you risk depleting your assets prematurely. Let’s say you have a portfolio of $1 million dollars, and you decide to take out 4% every year. That gives you $40,000 to spend for the year.
Potential disadvantages: The 4% you decide to withdraw is unlikely to equal the same amount each year. The pool of money you’re drawing from may grow or shrink every year, so you may not get a consistent annual income
In a systematic withdrawal plan, you only withdraw the income (such as dividends or interest) created by the underlying investments in your portfolio. Because your principal remains intact, this is designed to prevent you from running out of money and may afford you the potential to grow your investments over time, while still providing retirement income. However, the amount of income you receive in any given year will vary, since it depends on market performance. There’s also the risk that the amount you’re able to withdraw won’t keep pace with inflation.
Potential disadvantages: You won’t withdraw the same amount of money every year, and you might get outpaced by inflation.
The Statera Retirement Method was developed to look at retirement in a different light. Unlike the withdrawal method or “4% Rule” that uses your portfolio to hedge your retirement risks, the Statera Method looks at the retirement risks individually and then in coordination with each other to help figure out the most appropriate balance in order to allocate your funds to hedge each retirement risk.
Just like a finger print, everyone's retirement is unique. Every plan is custom to the individual. We work with you to help design a plan that meets your needs, risk tolerance, and is properly positioned to hedge the retirement risks. The key to building a sound retirement plan is to have a proper balance between all of your assets to hedge these risks.
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