Warren was recently interviewed for a short piece in Investment News about empowering individuals to manage their own investments.
Read the full article here. Free registration required, but if you don’t want to register, you can bypass registration by clicking here to Google search for “Warren Flick Investment News” and then clicking on the first result.
The last post related how emergencies can put a retiree’s living standards at risk. Now the discussion turns to thinking and working through emergencies in ways that manage the risk appropriately.
If retirees pay regular living expenses from their investment portfolios, and then spend some of those investments to resolve emergencies, they put future withdrawals at risk. It’s different in middle life when living expenses are paid from salaries or wages, and savings are commonly used for emergencies.
Some Financial Approaches
One solution is to set aside a portion of a retirement portfolio for emergencies. A retiree with a $500,000 portfolio could set aside $100,000 for emergencies, using only $400,000 for ordinary living. If the withdrawal rate is 4 percent, the retiree would withdraw $16,000 annually for ordinary expenses. The $100,000 emergency fund would be left alone.
In addition, retirees have other options:
An idealized retirement story might sound like this: Saving for years, retiring from work, then taking planned withdrawals on through retirement. It sounds orderly and easy, yet many retirees know it is anything but.
Emergencies arise, not only in a retiree’s life, but also in the lives of loved ones. Ordinary life includes a leaky roof, a needy middle-aged son or daughter, or a troubled grandchild. If retirees have savings, even if they rely on them for monthly living, there is the ever-present urge to liquidate savings and put some money on the problem.
There is an ugly trick with the urge to be generous, and it’s subtle.