Why the “Safe Withdrawal Rate” Won’t Work for Most Retirees

You?re doubtlessly familiar with the many retirement strategies that say something like this: If you invest X dollars per year for the next Y years, at Z percent, you?ll have N dollars by the time you?re ready to retire. That?s certainly true in theory (though most people won?t even get close). But what about once you retire? The financial industry loves formulas, and the answer to this one is the safe withdrawal rate. Today let’s dare to consider why the safe withdrawal rate won’t work for most retirees.

Now the safe withdrawal rate is widely admitted to be a theory in most circles. It holds that if you withdraw no more than 4% of your retirement portfolio in any given year, you?ll never outlive your money.

Why the Safe Withdrawal Rate Won't Work for Most Retirees
Why the Safe Withdrawal Rate Won’t Work for Most Retirees

It goes something like this?You have $1 million in your retirement portfolio, and you withdraw 4% per year, or $40,000. Your portfolio never runs dry, because it continues to earn 7% or 8% each year in a mix of stocks and bonds. If your return is 7%, you can withdraw 4%, and leave the remaining 3% in the portfolio to cover inflation Voila, you?ll never run out of money.

Now let?s look at the reasons why the safe withdrawal rate won’t work for most retirees.

There are No Safe Investments Paying 4% Right Now

The only way to truly guarantee a 4% safe withdrawal rate is by investing in interest-bearing securities that pay at least that amount. But there hasn?t been a safe investment with that kind of interest rate yield in years.

Assuming you wanted to tie up your money for that many years, the current yield on a 10 year US Treasury Note is 2.96% (as of June 12, 2018). Shorter term securities are paying even less.

If you?re withdrawing 4% each year, and earning less than 3%, your portfolio will shrink by 1% per year. That doesn?t include the effects of inflation. What that means is you?ll be withdrawing 4% on a slightly smaller balance each year. Eventually, that won?t provide enough income.

There?s No Guarantee You?ll get 7% or 8% on Your Money for the Rest of Your Life

Based on the S&P 500, the stock market has produced an average annual rate of return of about 10% going all the way back to 1928.

If you have 50% of your money in an S&P 500 index fund, earning an average of 10% per ear, and 50% in 10-year US Treasury notes at 3%, your average annual rate of return would be 6.5%. As long as inflation goes no higher than 2.5%, the 4% safe withdrawal rate will work just fine.

But the problem is the 10% annual return in stocks. It?s an average over the past 90 years ? but it?s not a guaranteed annual rate. Should the stock market fall by just 10% over the next three years, your 4% annual safe withdrawal rate will begin depleting your portfolio.

Your treasury notes at 3% per year, will produce a 9% gain. But against the 10% loss in stocks, you?ll have a net loss of 1%. And because you?ll withdraw 4% per year for living expenses ? 12% total, your portfolio will drop by 13% in three years.

You?ll then be withdrawing 4% of 87% of your original portfolio each year. And once again, that?s not factoring inflation into the mix. For that matter, it?s not even a dramatic outcome for the stock market.

You Probably Won?t Be Invested in Stocks as You Get Older

This is another basic problem with the safe withdrawal rate. While you might have a healthy chunk of your portfolio in stocks in your 60s, you?ll probably whittle that down as you move into your 70s. Eventually, you might be 100% invested in fixed income securities.

While it?s easy enough to assume you?ll be heavily invested in the stock market throughout your life, your risk tolerance will almost certainly decline as you get older. As a practical matter, as you get older, you simply don?t have time to ?wait out? a market decline, with the expectation of recovering your losses in the future. Since the future becomes increasingly limited, there?s no certainty of recovery. That alone will force you to move out of stocks.

Unless interest rates rise substantially in the future ? which is not at all certain given the levels of debt in the country ? it?s unlikely you?ll get returns of greater than 4% in fixed income investments. And even if you do, it?s probably because inflation has gotten higher.

One Stock Market Crash Changes the Whole Game

This is the part of retirement planning that financial planners and financial bloggers prefer to tiptoe around. But the reality is that we have had three stock market crashes, going back to 1987. Would you bet against one or two more in the next 30 years?

Here?s the problem?It will only take one stock market crash to completely derail the safe withdrawal rate. If 50% of your portfolio is invested in stocks, and the market takes a 50% loss, then 25% of your portfolio will be wiped out in short order.

Now you?re down to taking 4% of 75% of your portfolio. If you had $1 million to begin with, and it?s now down to $750,000, your annual withdrawals will drop from $40,000 to $30,000.

If you continue withdrawing $40,000 per year, you?ll draw down you savings even faster.

I suspect most people are aware of this possibility by the time they reach 70, and that?s why they prefer to avoid a large position in stocks.

You May Take More than 4% – And That Has Long-term Consequences

This is the emotional factor. It takes a certain amount of discipline to take only a very small slice out of a very large portfolio each year. If income from other sources proves to be less than expected, you might make up the difference by taking larger withdrawals. You might reason that you need 5%, 6%, 7%, or even 10%.

That might make sense if you?re 80 years old, but what happens if you?re only 70?

If you have a need to withdraw more than 4%, you?ll deplete the portfolio earlier than expected. This raises the very real possibility of outliving your money.

When I was doing income taxes a few years ago, I noticed a disturbing trend that retirees were withdrawing principal ? not investment income ? from their retirement savings.

Once again, people over 70 are less likely to invest in stocks. For that matter, they?re not entirely likely to invest in 10-year treasury notes either. Most were investing in CDs paying somewhere between 1% and 2%. That makes a necessity of drawing down principle. Interest is simply insufficient to provide the necessary level of living expenses.

In many cases, it was completely obvious that the draw down was taking place fast enough that the retiree was in real danger of depleting his or her savings.

I should also note that the majority of these retirees were on the higher end of the wealth pyramid (which also means higher financial requirements). But a large retirement portfolio doesn?t eliminate either financial conditions or decisions based on emotion or necessity.

Why the Safe Withdrawal Rate Won’t Work – And a Better Alternative

OK, let?s get unconventional here. It?s a common recommendation in the financial universe to tout accumulating a very large retirement portfolio, then relying on the safe withdrawal rate. It?s even used to advance early-retirement.

That?s actually quite doable for wealthy individuals who have well over $1 million in investment assets. But for the 90+% of the population who are not millionaires ? and won?t be ? it may not work. (Statistical fact: Less than 10% of US households are worth $1 million or more.)

What?s the alternative, especially if you have more modest retirement savings?

Nothing scientific or empirical here, but over the years I?ve seen a lot of people continue to work in some capacity well into their retirement years, while collecting Social Security and maybe a pension. They work as long as they?re able, and only begin tapping their retirement savings when they reach an advanced age, and can no longer work.

It may be that you?ll have to rely on Social Security and some level of earned income until you?re, say, 75. If you have retirement savings of, say $200,000, you might begin taking a percentage based on your remaining life expectancy.

For example, if you expect to live to be 85, you might begin taking 10%, or $20,000 per year. It would be better if you can take less, but that?ll depend on how much money you need. If you expect to live to 95, you might take 5%, or $10,000 per year.

It?s not a strategy any financial planner would ever recommend. But it might be the best choice for those with only moderate retirement savings. Which is most of the population.

Final Thoughts on Why the Safe Withdrawal Rate Won?t Work for Most Retirees

The bottom line is, the longer you can go without tapping your retirement savings, the less likely you?ll be to outlive your money.

Any other suggestions on how much retirement savings to tap ? particularly for those who won?t be millionaires?

( Photo by CreditDebitPro )

39 Responses to Why the “Safe Withdrawal Rate” Won’t Work for Most Retirees

  1. We are fortunate enough to have a pension that has cost of living adjustments so we simply allow ourselves to take out the earnings our investments create. By earnings, I only mean dividend and interest income, not the growth. And many years, we don’t need to take out all the earnings, so that creates a compounding effect.

  2. You’re doing it right then Kathy. The bigger issue is for people who don’t have pension, or pensions with cost of living adjustments. That’s when it gets more serious.

  3. Valid points, although my impression of the 4% rule is that in most scenarios a person ends up with more than their initial nest egg by the end of their life. So there is a lot of leeway in the rule, and it can tolerate some downturns.

    What are your thoughts on that?

    If you have the poor luck of starting your retirement right before a major downturn, the story might be different.

    Granted, my method is via real estate, so the 4% rule doesn’t really apply in my case.

  4. Hi Taylor – I actually agree with that assessment, but it depends entirely on getting the hoped for much-better-than-4%-return. If you don’t, even for a few years, the whole situation changes. The financial markets are just not that stable, though the past 9 years has lulled everyone into thinking they are.

    In so many ways real estate is the perfect retirement asset. If you can live on the rents, and the property continues to appreciate, you earn a living while your investment grows. Plus it largely keeps up with inflation (rents go up with inflation so your income goes up).

  5. I seen this happen twice Kevin. In 2008 their we’re two guys I worked with that had over half their worth lost in the crash a year before they we’re going to leave. One guy was so distraught he killed himself.
    I have a pension but I never count on it being there. Everyday I have it I consider myself lucky. I live on that pension. All my business income gets put into investments.
    Once I saw that I knew I had to start my own business. I’ll do it until I’m dead. I don’t count on any investments or savings or S.S. to save me.

    I would advise anybody to have some same type of thinking.I love the numbers above. You broke it down well. Most people don’t understand this.

  6. Hi Tim – Part of the problem is that people like simple numbers and strategies. So the financial industry tells them “you’ll never go broke as long as you stick with the 4% SAFE withdrawal rate”. People like that. It’s one simple number, 4%, and the implied guarantee you’ll never go broke. They stop asking questions after that. Of course, like everything else in life, it’s always more complicated than it sounds. But hey, the real money is in selling the dream.

    BTW, I knew quite a few people who were planning to retire around 07-08, and had to change their plans. The whole retirement scheme, especially early retirement, hangs on a perpetually rising stock market. If it shifts, all bets are off. But that’s totally ignored while the market is rising.

  7. Excellent analysis. The industry?my industry?continues to peddle this nonsensical rule of thumb.

    I very much like your even gentle example of what could go terribly wrong. Equity market returns have been tremendous for over 9 years and yet everyone is complacent.

    What did Mike Tyson say? ?Everyone has a plan until they?re punched in the nose?.

  8. Hi Ian – I actually like the SWR as a theory and a starting point. But it’s full of holes and that needs to be anticipated and prepared for. If your retirement savings are your main income source, not being prepared can force you right out of retirement. And maybe by then your job skills have gotten too rusty to be turned into a cash flow. As well, I’ve seen the portfolios of a good number of optimists who have 80%, 90% or 100% in stocks. They’ll get hammered if the market takes a 50% haircut. And maybe you know this better than me, but I’ve noticed that if the market falls 50%, individual investors get clipped for anywhere from 60% to 80%. I’m guessing because their portfolios include some speculations that are more sensitive to downturns. But then everyone’s a genius investor when the market’s up.

    I love that saying from Mike Tyson! So true. It’s a better version of “the best laid plans of men and mice go awry”. That’s a truth that people prefer to ignore. I suppose too we have to recognize that there’s a whole new generation of investors who have come into the market since 2009 who have never experienced a major downturn. This market has been eerily consistent – almost mathematically so – against the backdrop of what has become a hollowed out economy.

  9. I love that saying Ian. Tyson is a personal favorite of mine.
    It rings so true. I have never been complacent. Being in law enforcement for 25 years I have seen too much go bad.

  10. You’re hitting on an important point Tim, with 25 years in law enforcement. Once you’ve been around a while, you’ve seen enough to know that reality isn’t always real. What looks good can be temporary and even a facade. I love the saying “A conservative is a liberal who’s been mugged”. Once you’ve been “mugged” a few times in life, your BS meter starts to kick in, and you begin to grasp the reality that things really aren’t always what they seem.

  11. For sure Kevin. Honestly the stock market is complete lunacy to me. There are companies who loose millions every quarter and drowning in debt but their stock price keeps going up?
    Think Uber, Netflix, Twitter. I don’t think twitter has ever made money. People buy their stock though.
    I even read where Warren Buffet isn’t buying now. He’s stock piling cash. If that doesn’t tell you then you deserve to get wiped out.

    Things are good until their not. Reality isn’t real, lol. Isn’t that the truth.

  12. I agree Tim, this market is in the Twilight Zone phase. It’s not running on fundamentals, but on the faith everyone has that the Fed will protect the market from any disturbances. They will of course, until they can’t.

  13. By keeping three years of living expenses in cash, you are insulated from all but an extended dip in the market.

    Also, when you look at the 2008 crash, how many quality companies actually suspended their dividends? Many people just kept cashing their dividend cheques.

    XEI.TO is a quality basket of blue-chips currently yielding 4.77%. And much of that is taxed in a more preferential way than a long-term bond.

  14. Hi Neil – The three year cash strategy is an excellent one. But I wonder how many people actually do it. In today’s investment universe, people are being told to be “fully invested” to minimize “cash drag”. As to the dividend paying stocks, that’s a possibility. But with so many companies borrowing to buy back their own stock, I’m in the doubting camp that so few of them will suspend dividends in the next downturn. Read this Washington Post article Beware the “mother of all credit bubbles“. It just came out a few days ago, and I know it to be true from three+ years of writing stock reports.

    I think Ian Bond is right on target that there’s too much complacency out there. It’s reached an unnatural level.

  15. I do like that credit bubble article. It was very eye-opening to see that companies are borrowing money to buy back shares. I have never believed that buy backs are a good practice. With borrowed money they exhibit either incompetence or shady objectives. I feel bad for the average American… they have a lunatic for a role model, and Wall Street is certainly not looking out for them.

  16. True Neil, Wall Street detached from Main Street back in the 1980s. Now it’s a financial phenomenon, operating apart from the real economy. That’s why you see all the buybacks, it’s pure stock price manipulation, and little else. The ETF phenomenon also worries me. People are pouring into them, but when they do they’re investing in markets, not individual companies. Part of me thinks that could go on forever, moving the markets higher along the way. But the other part says sooner or later reality will reassert itself.

    I think this is why we’ve had three crashes since the 1980s and why it’s a fools bet that we won’t have more. Think about it, the last crash before 1987 was 1929, nearly 60 years before. Now we’ve had three in just over 30 years. It’s not a coincidence. That’s why I’m warning against relying on the safe withdrawal rate.

  17. Kevin,
    I realize this article is mostly about the withdraw rate. Of course, it morphs into the stock market. I just wonder why nobody ever talks about alternative investments.
    Maybe down the road, we can get a discussion going about them.

    I have a self-directed IRA. It enables me to invest in precious metals, Fine art, real estate, etc, etc. I realize it’s not in vogue. I have always invested in hard assets.
    Honestly, I do follow the market but I have never owned one stock.

    I have always believed in these types of investments. It has done well for me. I’m very happy with it. There’s just something about wall street that I have never trusted. Unless I was directly on the inside of some of these companies to me its like throwing darts at a board, hoping to get lucky.

  18. Hi Tim – I’m glad you brought that up. I’m a long time fan of Doug Casey, who’s probably the ultimate investment contrarian. I read his site Casey Research a couple of times a week, and it’s got what I think are the most insightful articles on what’s going on and where to invest. I’d like to start writing on this. The past few decades have been very favorable to mainstream stock investing, but I think that will change. The 20s and 30s are likely to be the decades of out of favor investments, as the mainstream stuff goes in the tank for a long while (its happened before, but most people don’t look back much more than a few years). It’s all about buying what no one else is, and looking for 10-1 and 100-1 returns, rather than 10% per year. Casey refers to it as intelligent speculation.

    I’d also recommend spending some time on Ian Bond’s site. I perused it, and it’s got articles on creating cash flows, rather than traditional investments. I think he’s onto something, especially for those who don’t have big retirement portfolios.

  19. “Intelligent speculation”? That got my spidey-senses tingling. Feels a little like “military intelligence”. 🙂

  20. It’s nothing that technical Neil. Basically, you look at what’s needed. If anything necessary to the economy is out-of-favor, that’s what you buy. For example, if energy stocks are suppressed, that’s what you buy. The basic idea is you’re always buying at the bottom, rather than near the top with the herd, when it feels safe. You’re speculating, but doing it intelligently, because you know energy will never go to zero, or become unnecessary. Markets are based on human emotion, so investors frequently pile up on one side of the boat. But the real money is usually on the other side of the boat, because speculation has been squeezed out of what’s on the other side of the boat. Make sense?

    It’s actually an extreme version of value investing, which used to be called contrary investing (if you’re familiar with the Fidelity “Contra” Fund, yeah that). But that’s out of favor itself, because there’s very high confidence that the S&P 500, and particularly the FAANG stocks, are destined to rise to infinity.

  21. I have read Doug Casey’s things. Ian Bond I do not know. Multiple cash flows from different areas is good. Rent, business, investments, pensions, etc etc. Not limiting yourself to one area of life is a good thing. Options are good. If one source dries up you have another to fall back on.

    I’m not quite there with that. I only have three right now. The best thing I ever did is get out of my traditional job. I made decent money but I found it really stunted my growth. Once I left my brain actually cleared up and I was able to start looking at things so much different. Yes, I had my pension but I could have stayed. Nobody forced me to leave.
    Once I got out of that paycheck mode it changed my whole way of doing things.

  22. You’ve hit the nail on the head with getting out of a traditional job. There’s a mindset that goes with that. You get in line and march, and not only can you not see what else is possible, but you stop looking. Years ago I heard that described as a “wage slave” by a guy who predicted how all this would play out. But once you get out of the traditional job mentality, options open up. You can create them even in a salaried position, but the regimentation of the job, plus the social scene that goes with it makes it much harder to pull off. I think that’s why a lot of people blossom after a firing or a layoff. Once outside the corporate cage, you start marching to the beat of your own drummer.

  23. Funny, that’s the way I invest but didn’t realize there was a name for it. It just seem normal to me to do that.

  24. You’re not a billionaire, and Bloomberg isn’t interviewing you every week, but from what I’ve learned about you over the years you represent sophisticated money. You only invest in what’s a good deal, and you don’t follow the herd. Those are the people who usually outperform the herd over the long run, because you’re not dependent on the performance of the financial markets. You have to be sophisticated to do that, even if you don’t think of it that way.

  25. LOL,
    Nobody ever called me that. Thanks for the vote of confidence. I never got beyond 12th grade. I don’t have the knowledge but I trust my gut. I always have. Your knowledge is far superior and admittedly I don’t always know what you’re talking about.
    So Thanks.

  26. Hey Tim, I love your approach and I?ve built 5 wealth management platforms on four continents for some of the biggest banks you can name. My hallmark has always to be in the leading edge of alternative investments for suitable investors.

    When I started my new job 4 years I also committed myself to figuring out how to build an outside income in what I call the ?New Economy ?. Today my wife and I run multiple Ecommerce stores that sell over 7 figures in the USA, all while we live abroad. We use outsourced workers and the leverage of the internet.

    Love your strategy and courage , but really love your mindset!

  27. It seems I am continuing to learn more and more from this site! I was never very good with investing, but am learning. Having never had a financial advisor that took me all the way through retirement, until now, this is what I was told. I will need at least $460,000, can take social security at age 70, and must work at least part-time after age 65, and can only retire when I have all of my debt paid off (except my mortgage) to be able to have enough to last me through a 30 year retirement with my current lifestyle. I should say my current lifestyle is quite frugal. That was really a sobering eye opener for me! I am not even close to that amount. They actually are pretty conservative, include inflation, and suggest a lower withdrawal rate than 4% in order to ensure your money lasts. I am looking into starting an online business, as well as applying for part-time jobs. I may look into a self directed IRA. I have a traditional 401K, as well as an IRA. My full-time job has now started increasing their outsourcing, so I am quite engaged in trying to find a “Plan B”. At 59 years old, this is a position I never thought I would find myself in. I think many people have a poor understanding of not only what is needed to get to retirement, but what is needed to get through retirement! While this is only my situation, I hope putting some numbers out is helpful for others reading this. I know if I can obtain another source of at least part-time type of income, it will help me become debt free much quicker.

  28. I think you’re thinking right, with getting out of debt, saving more money, delaying retirement and planning to work part-time. Your situation describes the average middle class person, but at least you have strategies in place to deal with the reality of what’s more likely to be semi-retirement. My guess is you’ll be just fine, and you’ll enjoy your life.

  29. What about this article?


    It references the trinity study that was done. That study analyzed what would have happened for a hypothetical person who spent 30 years in retirement between the years 1925-1955. then 1926-1956, 1927-1957, and so on. They gave this imaginary retiree a mixture of 50% stocks and 50% 5-year US government bonds, a fairly sensible asset allocation. Then they forced the retiree to spend an ever-increasing amount of his portfolio each year, starting with an initial percentage, then indexed automatically to inflation as defined by the Consumer Price Index.

    The trinity study assumes a retiree will:

    -never earn any more money through part-time work or self-employment projects
    -never collect a single dollar from social security or any other pension plan
    -never adjust spending to account for economic reality like a huge recession
    -never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
    -never collect any inheritance from the passing of parents or other family members
    -and never do what most old people tend to do according to studies ? spend less as they age

    Now granted this study was done from 1925 to 1985, but other people have done similar studies that extend up through more rescent years. In the trinity study, the lowest SWR for any 30 year period, was right at 4%. Along with all the other points above that the trinity study assumed, it seems to me the 4% rule is actually a pretty good rule to start out with.

    Now again, this is just a starting point, each persons situation is different and should be looked at for your own personal needs and what you want to do with the rest of your life. If you want to retire early, maybe this is a little un-conservative since this only covers 30 year periods. A lot of people who retire early though (have there 25 times annual spending) usually retire and do something they actually enjoy doing, and make money while doing it, so increasing there wealth, yet retired.

    This model most likely wont work with modest savings though. You also need to truly look at your budget, and what you actually spend now, and will spend in retirement, including healthcare, rent, mortgage, car, etc. Hopefully if you are retiring, you do not have any debt, but thats for another day.


  30. Thanks for weighing in with that information Steve. I won’t argue with the numbers in the study, but I would argue about the timing. Two points:

    1) If it’s 1929 you’re about to see your 50% in stocks plunge by 86% in the next three years – in addition to three 4% annual withdrawals. Not sure most people have the stomach to see that through. Also, while the studies may prove true over 30 years, they probably won’t during certain decades. And when you’re retired a single bad decade can be a game changer.
    2) The Dow retraced its losses from 1932 through 1954, so it was a straight up market (saving the plunge through 1932). I wonder how it would have looked if the study ran from 1906 to 1936?

    In the end, I think you can make numbers do whatever you want. But what people will do along the way is another matter entirely. As Mark Twain is famous for saying, “There are three kinds of lies: lies, damned lies and statistics”.

    That said, I do agree SWR is a good starting point. But I’d recommend relying on it only lightly. That’s especially true in retirement when most people become naturally more conservative and favor interest bearing investments.

  31. The article assumes retirees will lack flexibility or won’t have any contingency plans in place. For example, my wife and I plan to retire early and have approx. 3-years worth of cash on-hand to greatly decrease sequence of return risk. Of course, if we have, say, an 8-year bear market, we’ll be in trouble. However, as JL Collins would say, it that happens we’ll surely be dealing with much bigger problems in this country.

  32. I think you’re handling it right Danny. In the article I stressed using SWR as a starting point, but not to rely on it completely, and I think that’s sage advice. But you’ve insulated yourselves with a three year cash cushion, that enables you to assess what you’ll do as circumstances play out. That’s the way to do it. And yes, with an 8 year bear market, all bets are off and emotions become a real factor. Theory and emotion are not easy traveling companions!

  33. I like the idea of buying an annuity + social security to cover my basic expenses. Then i wont have to worry about running out of money or what the stock market is doing.I think the 4 % safe withdrawl would only work if you have a safe financial base to fall back on.

  34. Hi Steven – I get where you’re going with the annuity, but PLEASE BE CAREFUL! Annuities contain “gotcha provisions”, like high fees, surrender charges, and the very high possibility that the company will retain your investment if you die before the money runs out. These provisions are why more people don’t use annuities. In theory, they’re an excellent deal. But as Ross Perot used to say “the devil’s in the details”. Agents/brokers aren’t always forthcoming about details. If you do go with an annuity, have the contract (yes, it’s a legally binding contract) reviewed by an attorney before you sign, invest and commit. They’re all different and the agent/broker may not share negative features unless you specifically ask about them.

  35. I find Steven’s idea to hold a lot of merit. Using a life annuity to cover basic expenses ensures that you never outlive your money.

    The term “annuity” does cover a variety of products. In Canada you would typically buy a simple payout annuity, a life annuity with or without a guaranteed period.

  36. Hi Neil – It does have merit, but in the US you have to watch out for “gotcha provisions”. I know people in the insurance industry who don’t like annuities. That speaks volumes.

  37. I love this article?it really says what I?ve been thinking for years: the market is not where your money should be if you can?t afford to lose it. We lost a significant amount of money in 2008 because of the crash. My husband is planning on retiring at 63 and that money was going to help us postpone taking his social security until he was fulled vested at 66 (he is 62 now). Since 2008, I?ve managed to pay off all of our bills, including mortgage. We have around $300K in our retirement funds now, but like Warren, I?ve been stockpiling cash rather than investing anymore money in his IRA. The only reason I still contribute to my SEP IRA is because I need to reduce our annual earnings for tax purposes. Once he retires though, that stops as well. I don?t trust the market no matter what you?re investing in. Like you said ?Once you?ve been ?mugged? a few times in life, your BS meter starts to kick in, and you begin to grasp the reality that things really aren?t always what they seem.? Bingo! My only thought now is how to transfer the IRA funds out without incurring a huge tax bill. We are still working on that one. Great article!

  38. Hi Linda – As a general rule, I like the stock market. My problem is THIS market. I feel as if the upside potential is seriously limited, due to high valuations, but the downside is enormous for the same reason. If you look at the market patterns, big, prolonged increases are followed by big declines. But after the next declines, it should be time to jump back in. But right now the risk is just too high. Better to play it safe.

    As to the IRA withdrawal, sit down with a CPA. It’ll cost you a consultation fee, but that will be a very small price to pay for the money you’ll save in taxes. You need an intelligent, comprehensive strategy to do that, and it must be based on your tax situation. General advice is never appropriate in this situations.

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