Make your money last in retirement; 5 keys
The thought of running out of money scares many retirees. Here's one who has a chance to avert outright disaster, though he has some hard choices to make.
Phil Horstman retired at 55 with a nest egg of $1.5 million and a lot of confidence his best years were ahead.
Seven years later, the Murrieta, Calif., resident is down to $300,000 and is, as he puts it, "running out of money and options."
Horstman takes $28,800 a year from his retirement accounts for living expenses, a withdrawal rate that once seemed paltry but that now will have him broke in about 12 years -- far short of the 25 or 30 years he's expected to live.
Horstman is a poster boy for almost everything that can go wrong in retirement, from a bear market early on, to a withdrawal rate that proved unsustainable, to questionable financial advice that kept him invested in risky assets even as his portfolio plunged.
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"My financial adviser didn't deliver in providing me with a secure retirement income," Horstman wrote me in an e-mail. "He kept telling me that the market would come back. Well, it hasn't in my case."
Horstman's situation, unfortunately, is "far too typical," said financial planner Bob Frey, a fee-only advisor in Bozeman, Mont. Retirees are often overconfident about how long their money will last and may fail to adapt quickly enough to changing circumstances. Horstman's goals now -- to grow his portfolio and get more income -- aren't realistic, Frey said.
"He seems to need a lot more income than the portfolio can supply under any reasonable assumptions and using any strategies at his age," Frey said. "His biggest worry should be the portfolio going to zero long before he runs out of time."
Horstman does have some options, and I'll detail those in a minute. But for right now, we'll use his situation for some object lessons in what retirees and near-retirees need to know to make sure they don't run out of money.
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