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Rethinking “Safe” Investing as Retirement Approaches

When it comes to retirement drawdown strategies, what you read in the popular and financial press is often focused on households with higher-than-average savings. Yet typical households approaching the end of their working years have less than $200,000 saved for retirement.

Given this level of savings, we suggest that typical workers approaching retirement may want to re-evaluate two popular guidelines that may still be good advice for wealthier retirees.

Popular guideline #1: Once you are retired, you should follow a structured withdrawal strategy to optimize your retirement spending.

This guideline assumes that a mechanical spending pattern would significantly improve quality of life. But this may not be true for workers with less than $200,000 saved for retirement. In this case, it may be more appropriate set aside a portion and keep it invested for the long-term.

Popular guideline #2: Your investments should get safer as you approach retirement.

This guideline assumes that savings account for the majority of your retirement income. But if you don’t plan on spending a portion of your savings for at least 20 years, and if you will derive your regular income from Social Security and pensions, you may want to continue to invest that money in stocks. That may allow for greater spending flexibility later in retirement, which will have a measureable effect on quality of life.

To see the full brief, click here. In the meantime, take a look at this chart, which shows that only about 6.5 percent of households approaching retirement with a defined contribution plan have as much as $1 million saved. Despite the fact that defined contribution 401(k)-type plans have become the most common employer offering, Social Security and pension income still make up the majority of assets for workers nearing retirement.

Percentage of households by savings

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