Three smart ways to make your savings last as long as you do
From a Hedgehog to a Fox
By Jane Bryant Quinn
ast year, my husband and I ran a “how are we doing” test. If we quit work- ing, how much could we reasonably
take from our savings each month, consistent
with our personal and family goals?
Both of us had left longtime jobs behind.
We have new projects in hand—including, for
me, this monthly personal finance column.
Still, we needed a reality check, given the hit
that the equity portion of our investments
has taken in the past decade. If we went into
spend-down mode—living only on savings,
Social Security and incidental income—what
would our future be?
As I studied it, I thought of the famous es-
say by Isaiah Berlin about the hedgehog, who
knows one big thing, and the fox, who knows
many di;erent things.
You’re a hedgehog when you’re saving mon-
ey for retirement. The single, simple path is
the same for everyone: save more, spend less,
diversify your investments.
When you start living on your savings,
you’re a fox. There are various paths to con-
sider, depending on your age, health, savings,
pensions, legacy goals, family circumstances,
risk tolerance and market conditions. If you
spend too much early on, your money might
not last for life.
If ever there were a time to consult a finan-
cial planner, this is it—when you are wonder-
ing if, and when, you can a;ord to retire. You
need someone to run the numbers, under
various saving and investment scenarios, to
help you match your future spending to your
available income. (Please choose a fee-only
planner, who charges only for advice and
doesn’t also sell financial products.)
The magic number is 4 percent. You should
plan on withdrawing no more than 4 percent
of your total savings in the first year. For
simplicity, take it in a lump sum, de-
posit it in the bank or money market
mutual fund and budget it for paying
12 months’ worth of bills.
In each following year, raise your
take by the percentage increase in in-
flation. This way, your money should
last for 30 years, assuming that you start
with a portfolio invested half in diversified
stocks or stock mutual funds and half in di-
versified bonds, with dividends reinvested.
Four percent isn’t a lot of money, on a mod-
est stash. For example, it’s $4,000 out of
$100,000. That might be enough if you have
a pension as well as Social Security. If not, the
sooner you figure that out, the better. While
you’re still working, you can focus on “re-
tirement prep”—increasing savings, cutting
spending, reducing debt.
If you’ve recently retired and are taking
more than 4 percent, go on red alert. You’re
risking that your money could run out. Aim
to reset your budget so you can take the pru-
dent 4 percent next year, with inflation ad-
justments in future years.
If you’ve said “never again” to stocks and
hold only fixed-income investments, you’ll
have to start with less than 4 percent to make
your money last, says planner Tom Orecchio of
Every five years or so, run the
numbers again. If you’re plan-
ning for just 20 years of retire-
ment, you might be able to start
withdrawing 5 percent plus fu-
ture adjustments for inflation.
Within the traditional 4 per-
cent rule, there are many dif-
ferent ways of creating a life-
long stream of income. I’ll run
through three of them to give you some ideas.
The total return strategy.
your investments over stocks and bonds, in the
usual way. In a year when stocks are
up by 4 percent or more, take
your entire withdrawal
from the stock portion
of your investment pot.
If the market rises by
less than 4 percent,
take some money
from stocks and
bonds. If the
no more than
of your total
savings in the
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