Few people, if any ever feel comfortable in retirement. We always wish we had a little more saved up, even if we don’t necessarily want to spend more.
But as the age of pensions fades in the rearview mirror and recent as well as prospective retirees try to figure out how to get through retirement mostly on their savings, things are getting harder.
In the late 1990s, financial experts landed on the 4% rule. You could withdraw 4% of your assets every year and still be reasonably assured that your nest egg would continue to grow, although slowly. But at the time, the 10-Year Treasury bond yielded 5%. You could put your money in this bond, withdraw 4%, and still be expanding your investments by 1% per year.
That’s no longer the case. Now the 10-Year Treasury yields about 0.69%, or less than 1% per year. Approaching it the same way (only withdrawing 80% of the interest earned), you can only safely withdraw 0.32% per year. In a fit of generosity, a financial expert recently rounded that up to 0.5% per year.
Thanks for – almost – nothing.
To put this in perspective, in the late 1990s you wanted to spend about $20,000 per year from your retirement accounts, you needed to have $500,000 in the bank because $20,000 is 4% of that number. Today, you would need to have $4 million in the bank to achieve that same $20,000 per year if you’re only withdrawing 0.5%.
If you’re wondering how we got here, thank your friendly neighborhood Federal Reserve, which has been holding down interest rates for years to “save” the economy. The bankers know they’re screwing savers, and they think you’re better off overall, no matter what you think or how little income you receive.