I'm interested in responses to the reverse compounding issue. In my situation my retirement funds which are locked into an irrevocable trust are down about 30% from the market high. I will be receiving a payout which will now be about 6.6% of the total. I am planning on saving about 1.8% which includes some earnings. But that only reduces my payout to 4.8%. Maybe that will be enough to maintain a lasting retirement fund if the stock market recovers over time.
But I'm concerned. I don't know whether I should be taking drastic action at this point to reduce my expenses. Or should I wait a year or two. That's why I'm asking for opinions.
1. Reverse compounding
During the years you were saving for retirement, compounding played a powerful part in the growth of your money. That's because, as you added to your investments, reinvested dividends and capital gains were added to the principal balance and earned more money through compounding. Now that you're in retirement and withdrawing portions of the assets you've accumulated, it's important to be familiar with the concept of "reverse compounding."
Reverse compounding means that as you withdraw assets in retirement, a smaller pool of principal is left to build upon. This is especially important if you're making withdrawals during a market downturn. As your portfolio value declines, you may be withdrawing a larger percentage than usual, thereby leaving a smaller pool of assets available for future growth. One way to combat reverse compounding is to reduce your spending during market downturns
https://personal.vanguard.com/us/planningeducation/retirement/PEdRetMonitorLookAtPortfolioContent.jsp
But I'm concerned. I don't know whether I should be taking drastic action at this point to reduce my expenses. Or should I wait a year or two. That's why I'm asking for opinions.
1. Reverse compounding
During the years you were saving for retirement, compounding played a powerful part in the growth of your money. That's because, as you added to your investments, reinvested dividends and capital gains were added to the principal balance and earned more money through compounding. Now that you're in retirement and withdrawing portions of the assets you've accumulated, it's important to be familiar with the concept of "reverse compounding."
Reverse compounding means that as you withdraw assets in retirement, a smaller pool of principal is left to build upon. This is especially important if you're making withdrawals during a market downturn. As your portfolio value declines, you may be withdrawing a larger percentage than usual, thereby leaving a smaller pool of assets available for future growth. One way to combat reverse compounding is to reduce your spending during market downturns
https://personal.vanguard.com/us/planningeducation/retirement/PEdRetMonitorLookAtPortfolioContent.jsp