It really depends on whether you listen to financial ‘advisers’, or use the common sense that you have.
Look at the example in the article. If you have $600K at 65, you don’t have to take anything until you are 70 1/2. Transferring the money to an IRA, investing in good stocks paying solid dividends, and reinvesting the income could increase the money to at least $800K by the time you have to make withdrawals. At that point, your minimum distribution is 3%, which should be less than what the account yields annually. The account should continue to increase in value until you are at least 80, and have to start taking larger withdrawals.
If you can’t do that, then you don’t have enough money to retire. It is better to be working in your 60s than run out of money when you’re 80.
1. First and most importantly, the market crash of 08-09. Most investors had never experienced anything like that before. Some still had a memory of the recession of 73-74 and the crash of 87, but even for them, the crash of 08 and 09 seemed much more fundamental and therefore unnerving. Those that suffered most of the losses and took their money out before the rally that began in March of 09 will probably never fully recover. Even those who stayed the course and therefore recovered most of their losses are less likely to stay in the next time there is a significant downturn in the market. I believe this lack of confidence has contributed to the volatility we have seen this month.
2. Second, we face uncertainty as to whether we are in a period of deflation or inflation. Quantitative easing should lead to inflation but will not in the absence of velocity. You can lower interest rates to zero and in effect fund federal borrowing with newly printed money and still not have inflation, and indeed have asset deflation, if no one is borrowing and spending.
3. The traditional safe havens for retirement funds offer little in the way of returns, and some of them are subject to more than normal risk these days. To get any kind of yield from such investments these days, you have to go bonds rather than insured deposits and longer term bonds at that. If inflation does kick in and interest rates go up, you know what will happen to the principal value of those longer term bonds.
So, what is person to do? One of my clients has just been downsized. He is single, 60 years old, and in good health. It is possible, although not likely, that he will again be employed at the level to which he has become accustomed. He has no debt. He has approximately $250,000 invested in securities outside of his IRA's, approximately $1,500,000 invested in securities in his IRA's, and approximately $150,000 invested in real estate which throws off approximately $12,000 per year. Assuming that Social Security is still available to him in two years, he should receive about $22,000 per year from it. He is willing to live today on $70,000 per year pretax - $12,000 from the real estate and $58,000 from the securities in his IRA's and his non-IRA account - approximately 1/3 of his predownsizing income. The question he faces is how to invest the non-real estate assets to protect principal both from losses and possible inflation and to return approximately 3% per year. Ten years ago the answer would have been obvious. Today, not so much.
And if folks like my client are puzzled and unsure about how to proceed, that's a pretty clear indication that our economy has a ways to go before those of us less well-off than my client can feel at all secure in our possible retirements.