Riskier?
- Swimming with sharks?
- Ignoring the effects of inflation in your retirement planning?
with sharks, ignoring inflation can
bring its own kind of danger.
In short: Inflation eats value for lunch. An individual who spends around $320 a month on groceries today may need to spend $578 a month for those same groceries in 20 years, assuming a 3% rate of inflation. Current inflation rates may be higher.
Riskier?
- Confiscating a teen’s smart phone?
- Or investing in bonds yielding low interest rates?
be too smart, low bond rates
present unique risks of their own.
When bond rates rise, values (how much you can sell the bond for) drop. A bond worth $100,000 could lose over $40,000 in value if rates rise 3%.
a good swimmer. But trying to time
the market could leave you under water.
A person who retires and begins withdrawing 5% annually at the start of a market decline could end up with significantly less money in 20 years than an individual who retires and begins the same withdrawals at the start of a rise in the market.
Riskier?
- Wearing a Yankees cap to Fenway Park?
- Or relying on low interest rates for fixed income in retirement?
armor too. But you’re also vulnerable when
you rely on low interest rates for fixed
income during retirement.
When a retiree begins withdrawing money from savings to meet necessary expenses, it can lead to withdrawal risk — the risk that the retiree runs out of money. Withdrawal risk can rise when interest rates are low, especially in times when the rate of inflation is higher than the rate of interest.
