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Withdrawing Money In Retirement

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As we get close to graduating from High School/College we quickly realize that working for at least the next forty years is a stark reality.  We have bills to pay. Many of us invest in our company retirement plan or start a Traditional or Roth IRA.  In most cases the overall goal of our lifetime investing is to be able to retire comfortably.  Our expenses do not stop once we retire.  Social Security checks are a supplement, but one that most individuals will have a hard time living on. According to the SSA.gov website, the average retired worker receives just over $1,500 each month. So, we turn to our retirement account to make up the difference.

One of the first questions that I hear from clients is “How much can I withdraw every month and not run out of money?”  First, you need to decide what your end goal is.  Do you want to spend your last penny on your death bed?  Do you want to maintain the principal and forward the balance to your children and/or charity? Or do you want to grow your account as much as possible, regardless of how little you may be able to withdraw?

Outside of health, nothing is more fearful in retirement than the thought of running out of money.  As a rule, I tell clients that withdrawing 4-5% per year is the best conservative option.  Some historical numbers can explain my reasoning.  From 12/30/1929 to 12/31/1999 the S&P 500 Index had an annual rate of return of 10.47%.  From 12/31/1979 to 12/31/1999 the same index annualized 17.85%.  Based on these numbers I should be able to withdraw 10% per year and be just fine, right?  Well, so far this century (12/31/1999 to 10/30/2020) the S&P 500 has annualized only 5.94%.  If the last twenty years is the “new norm” then taking 4-5% annual distributions is probably a safer route than what many investors were used to before the turn of the century.  The above S&P 500 returns were calculated using ©Bloomberg software.

A very common and practical way to take annual withdrawals is by taking a fixed percentage that remains constant throughout your lifetime.  If you take 5% per year (monthly withdrawals to live on) you will get more per month the following year if your portfolio grows greater than 5% and less per month if your portfolio return is less than 5%.  But it is a safe way to ensure that your portfolio will never be depleted.  Trust accounts employ this strategy frequently to ensure the beneficiaries won’t squander the proceeds.

Another very practical way to look at withdrawals in retirement is like the example below.  Many times, the conversation goes as follows:

“I have $500,000 and need to withdraw $4,000 monthly.  Will it last me 25 years?”  I created a simple calculator that is very useful in giving clients realistic expectations based on their starting portfolio value and monthly withdrawals.  I usually use 5% as an annual rate of return.  These three numbers can be adjusted annually based on current value.  Based on the hypothetical question above, you can see the results below.


In the case above, it is unrealistic to believe that withdrawing $4,000 per month will last 25 years.  Based on a 5% annual rate of return, this client’s portfolio will be depleted in about 15 years.  “So how much can I withdraw for the next 25 years?”  Again, by adjusting the monthly withdrawal in the calculator we come up with an answer of $2,900 per month.

Again, the above example is using a conservative rate of return based on what the market has done over the past twenty or so years.  If returns are bigger going forward the portfolio will last longer.

The examples above are just a few of many possible examples out there.  Every client is different.  Preparing early is always the best approach to avoiding disappointment in retirement.  I would encourage you to call our Client Services Team at Spectrum so we can discuss your specific goals, whether you are a prospective or current client.  You can reach us at 888-463-7600 Monday through Friday from 8:30-4:00 p.m. ET.

Pandemic Security: Coronavirus and Protecting Your Digital Assets

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With Christmas and the holidays behind us, we still have the added complication of COVID-19. This fact has not been lost on cybercriminals, the “bad guys” who are always trying to steal your identity by tricking you into giving up some of your personal information. So, now that you may have a little less time pressure on you, let’s take a minute to review some basic online safety measures to keep you as safe as possible while enjoying time with family and friends (probably virtual), and of course, online SHOPPING!

The CDC and your local government have provided medical guidelines for safe interactions during COVID, but we’re talking about cyber health and what you can do to add a layer of safety and confidence to your online interactions.

Who are the “bad guys”?

Just who are these cybercriminals? They can be young or middle aged, mostly male but also female, any nationality, and they could be next door or on the other side of the world. Most do it for money, but some do it just because they can; for fun and bragging rights. The important point is that they are smart and have the tools that make it easy to exploit any of your online accounts or transactions that aren’t well-protected.

What’s at stake?

Being careless or just unaware of proper online safety can allow a cybercriminal, the “bad guy”, to steal your credentials like passwords, social security number, bank account logons, etc. Here are some of the bad things that they can do:

  • Credit card fraud—use your information to make charges on your credit card
  • Ransomware—lock your computer files and extort you for money
  • IoT threats—compromise a router or connected camera
  • Account takeover—use your credentials to make online transactions on your behalf
  • Identity theft—steal your identity and act on your behalf
  • They could even steal the title or deed to your home!

According to Fool.com, 2019 was the worst year in history for identity theft, and 2020 has not been better so far.

Are you a target?

If you have a social security card, you are at risk for identity theft. These bad guys target the young, the old, and everyone in between. It turns out that most of the identity theft occurs within the 20-49 age group, because they have more credit cards and they purchase more online. However, when it comes to fraud reports other than credit cards, most of that occurs in the 60-69 age group. The most likely reason is that people become more trusting as they age.  Check out this chart showing the average fraud loss amount by age.

Fraud loss by Age

Younger adults lose money to fraud more often, but when older people experience a fraud-related financial loss, the median amount is much higher, according to the Federal Trade Commission.  Source:  2020 Identity Theft Statistics | Consumer Affairs

What are the COVID-related things they’re doing?

According to IdentityForce, the most common COVID-19 scams in 2020 include:

  • Fraudulent e-commerce vendors for masks, sanitizers, and test kits
  • Fraudulent investment sites
  • Phishing (email) and vishing (voice calls) through update emails, texts, and voicemails
  • Spoofed government and health organization communications
  • Fake vaccines or “miracle cures”
  • Scam employment posts
  • Phony charity donation offers

What you can do

Keep your antivirus software up to date

If you don’t do anything else, make sure you have an antivirus installed on your computer and keep it up to date. For Microsoft Windows, you should be on version 10, where Microsoft Defender Antivirus (formerly called Windows Defender) is the default and is actually pretty good. And, it’s free and easy to use. If you feel that you need more, there are numerous apps available.

Check your bank account transactions regularly

If you regularly balance your checkbook and check your bank statement, you’re ahead of the game on this point. Often the cybercriminal will steal your credit card information and begin making small purchases from the same places that you do. These small amounts add up over time but may not be caught by your bank or credit card company. If you see transactions that you did not make, call your bank or credit card company immediately!

Password manager—you need one

If your passwords are easy to remember, they’re probably too weak. Basically, short passwords are weak; long passwords are strong. When it comes to passwords, the longer, the better. Also, you should never use the same password twice. If you’re thinking “There’s no way. I can’t remember long passwords!”, you’re right. That’s why you need a password manager. You create one very long difficult pass phrase that you can remember. Then you use that to unlock the password manager, which stores all your other passwords.

For the iPhone and Apple products, use the iCloud Keychain. This is great for Apple products, but unfortunately, it doesn’t easily adapt to a PC.

Here are a few good password managers: RoboForm, Keeper, LastPass, DashLane, Bitwarden, LogMeOnce, etc. Most of these don’t cost much, but they are extremely important for keeping your passwords organized and safe. Most of these can sync your passwords across all your devices, which is a must if, for example, you shop Amazon on your iPhone and your PC.

MFA!

Today, even a good password is not enough! Weak passwords can be guessed; strong passwords could be stolen. The solution is multi-factor authentication (MFA). Simply put, MFA is short code or number that is sent to you in a text or email in addition to your password. For example, you go to your bank website to logon. You enter your username and password. Next, they send you a code that you must enter into a box on their site. This verifies that it was really you who is signing in; the “bad guys” will not have the code even if they had your password.

What we’re doing

At Spectrum, we’ve also felt the impact of the pandemic, and we’re doing our part. We’ve tightened our security stance to protect your data and ours. Here are some of the specific things we’re doing to protect your information:

  • Our “Client Portal” protects you by avoiding sending personal info in email
  • Our “Prospect Portal” similarly protects prospective clients
  • Diligent email filtering, monitoring, and user training
  • MFA where possible
  • Business Continuity and Disaster Recovery testing
  • Masks, social distancing, and hand washing
  • Regular office sanitizing

Together we can make our online experiences safe and profitable in 2021.

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Spectrum Financial, Inc 2023