I recently received an email from a radio show listener posing the following scenario: You’re in Vegas and have $1,700,000 riding. A guy walks up to you with a deal: he’ll give you a bet with an upside of $1,800,000 or a downside of $1,000,000. You don’t know the odds. Would you make this bet or pick up your chips and walk?
Articles & Education
You may have heard investors talk about “the rule of 72.” It sounds mysterious, but it’s really just a simple mathematical equation that can help you calculate returns by estimating how many years it will take for you to double your money at a given annual rate of return.
Recently on my radio show, I ran a segment on “your magic number,” which is the amount of money I suggest you have to plan for a comfortable retirement. Many people haven’t reached their magic numbers yet, so they think they should create a budget; find ways to cut back on expenses so they can begin saving and reach that number. What do I think of that?
At the beginning of each year, I present my fearless forecast. This year, I predicted the Dow would hit 21,000. I thought it might take awhile to hit that mark, but it didn’t. We took the express route to 21,000. Now, I think we’ll see Dow, 23,000—but this time I think we’re going to take the scenic route.
I’ve worked with retired clients for over 28 years, and in that time, I’ve noticed a trend in their cost of living as they age. I’d like to share that experience with you, to help you plan for your retirement.
When people plan for their retirement, a typical rule of thumb is to take out 4 percent of their investments for their cost of living (you can learn more about this rule here). But this “rule” is not complete, because you have to account for increases to your cost of living.
The Federal Reserve will very likely raise interest rates soon. You may have heard that bond values go down when interest rates rise. Not necessarily: Not all bonds are hurt by higher interest rates, and some actually go up. It depends on the type of bond.
The financial community used to talk about the “4 percent rule,” saying that retirees could typically withdraw 4 percent from their investments without running into trouble. Now many advisors have changed that amount from 4 to 2 percent. Why the cutback? Think about the last two bear markets: If retirees had taken out 4 percent during the Y2K and 2008 bear markets, how would they have likely fared? Not well.