The article below describes how most Americans don’t have a plan for their retirement income. Over the years, I have observed this to be true. No one that I’ve met plans to fail, but most certainly fail to plan.
Why set a plan for retirement income? Isn’t it OK to put the Social Security check in the bank each month, and then take from your investments as needed? Sadly, since most do not have a pension these days, those two sources are what most have to rely on, and most don’t run the calculations necessary to plan for lifetime income.
I’ve encountered many who think that they will earn 6% from their investments, and can therefore take 6% from their investments as income, and never run out of money. That is a recipe for disaster. For many years, the rate of withdrawal from market-based investments that most planners have used to plan for lifetime income has been 4% per year. Newer studies, such as the one by Wade Pfau, PhD and published in the Journal for Financial Planning, take into account the two very significant market corrections since 2000 indicate that the safe withdrawal rate is much lower than 4% – perhaps as low as 2%.
Developing an income plan that has a low probability of running out of money by age 95 is a complicated but necessary task.