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Retiring with low returns

By Jennie L. Phipps ·
Thursday, August 11, 2011
Posted: 1 pm ET

End-the-Ponzi-Scheme, a regular reader who frequently comments, complained about the blog I wrote a couple of days ago. The blog said that the odds of being able to pull $1,000 per month from a $150,000 nest egg without running out of money after about a dozen years were 50/50.  End-the-Ponzi-Scheme said I didn't provide enough information and scoffed at the suggestion that considering an annuity was a good idea.

Then he rolled out some assumptions that were once true, but don't make good sense in today's economic environment. Ponzi wrote, "At a small 8 percent return, the $150,000 generates $12,000 a year.  Withdrawing $12,000 a year doesn't even touch the principal.  If you haven't touched the principal, what is the odds of running out of money?  I'd guess near zero."

My question for Ponzi is: Where are you going to get 8 percent these days? A retiree with that goal will have to take a lot more risk than most of us would think prudent to get anywhere close. Heck, with investment-grade bond yields at 1.5 percent to 3 percent, you'll have to take quite a bit of risk to even get 5 percent.

Historically, those in retirement could put 20 percent in stocks and 80 percent in bonds and expect to generate a safe 6 percent return. Today, you'll be lucky to get 3 percent to 4 percent.

Should retirees be looking at putting more than 20 percent in equities in this market? Some financial advisers are still suggesting that. But for a lot of us that's a scary retirement planning thought, and that's why I think it is worth looking hard at annuities, especially when you don't have a huge nest egg. Annuities let you offload on an insurance company some of the risk that you'll run out of money.

If you have $2 million or $3 million to invest, that's a different story. But most of us aren't that lucky.

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August 17, 2011 at 8:24 am

Why do the Republicans insist on peddling a fear that has no basis in reality? Why do some of their supporters insist on ignoring the real evidence?

It is greed;I cannot answer either one of these questions with any other answer. They want to collect and hold every last penny! The survival of those less fortunate does not concern them.

End the Ponzi Scheme
August 17, 2011 at 8:01 am

Apparently posting a direct reply to the authors question won't get posted if it doesn't fit the story line.

I posted a list of funds exceeding 10% annualized for the last 10 years, just as the author asked. BTW they number over 80 funds, but a shorter list was posted with ones that only exceeded 10% for each of 1, 3, 5 and 10 years.

If you don't know the answer, don't ask the question.

If you don't want to know the answer, don't ask the question.

Jim Waldorf
August 13, 2011 at 12:10 pm

Google ushasproblems title of blog is RETIRE OUTSIDE THE US subtitle is, What happens when a bank says "sue us" Horror story of a bank not honoring a jumbo CD past maturity, with little recourse for the CD holder. Good read.