Ray Lucia: We each have a unique financial fingerprint, so there simply isn't any investment template that applies to a 100% of the people a 100% of the time. So baby boomers should think a little more critically, if they are planning their retirements spending based on the so called 4% rule.
You know the theory that retirees can plan on withdrawing 4% of your accumulated savings each year, adjusted for inflation for income to last throughout their life and retirement. So hypothetically a five hundred thousand dollar portfolio provides 20000 a year in retirement, then adjusts as cost inflate.
But what if your portfolio was overweighed and volatile stocks and you retired just as the market sunk, by 50% or more as it did some years ago. If you had planned to take a 4% withdrawal from that portfolio when stocks plunged, you would be trying to live on $10000 a year.
And what if you retire at a time when inflation spikes as some speculate it soon could, would a 4% distribution allow you to maintain your standard of living, or would you have to make concessions just as you lost your purchasing power.
So here is the bottom-line, planning on a 4% distribution may not give boomers the protection they need in volatile or inflationary times. The formula is too over-simplified and can't be predictable for all of your years in retirement. This is why it's essential to have a written financial plan that can be stress tested in anticipation of whatever variables could derail your primary retirement plan.
And keep in mind; it's critical to have a carefully calculated backup plan for your retirement too. Be proactive in establishing some protection for your portfolio.