Dealing With Shock Drops in Your Nest Egg Value
The recent share market plunges have had huge effects on retirees, or more particularly on the funds that should be funding their retirement. Money Magazine recently gave advice on how to deal with the sudden (and massive) drop in value your retirement portfolio may have sustained, particularly if you are already retired and needing to use this money to live on.
One important thing is not to panic and change your investment strategy out of stocks and into safe (but low yielding) funds - it’s too late for this to have a positive impact. Instead, you should focus on how you can live now on less and calculate how much you can safely withdraw from your retirement portfolio to live off while still having the best chance that your funds will not run out.
For example, if you’re fairly newly retired you should be calcuating that your funds need to last you for 30 years. Experts suggest that if you withdraw 4% of the total in the first year, and then a similar amount (but adjusted for inflation) every year thereafter, this fund should last 30 years. However, if the value has dropped dramatically, you should now recalculate the 4% value based on the current worth and that might mean making lifestyle changes like forgoing a vacation, getting part time work or selling assets.
This entry was posted on Tuesday, December 16th, 2008 at 4:00 am and is filed under Retirement. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
