For people close to retirement, the problem is acute. The conventional financial advice is that the older you get, the more you should put into bonds, which are widely considered safer than stocks. But consider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds wants to retire. They plan to withdraw 4 percent of their savings a year—a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.
Efforts by the Fed and others to stimulate the economy by keeping interest rates low have produced cheaper mortgages, but they have also hit savers hard. As the report notes, benchmark Treasury yields have remained below four percent since the beginning of the financial crisis. If an ordinary American’s portfolio income is below four percent, withdrawing that much annually, combined with inflation, will bleed his portfolio over time.Even millionaires in the top eight to ten percent of American households now need to be more careful with their retirement plans. The only safe retirement advice remains: save more than you think you should, and plan to work longer.With people living well into their eighties and beyond, retirement at 65 is now out of the question for most Americans. This doesn’t have to be a bad thing. Work is natural to human beings and keeps us mentally and physically more healthy. And besides, the social goal of mass retirement in the mid-sixties is simply not possible anymore. All of us need to make the attitude adjustment that 70 or even 72 is the new 65.That, or we can all just plan to retire abroad.[Retirement image courtesy of Shutterstock]