Beware of old retirement rules of thumb – they may lead to poor planning practices.
While most advisors assume that they will adjust retirement plans for market conditions that exert varying amounts of stress on retirement portfolio growth, fewer consider the need to adjust their assumptions about income generation in retirement.
As a result, retirement strategies fall short because they underestimate the cost of generating retirement income, says Phil Murphy of S&P Dow Jones Indices. As investors and advisors attempt to juice their portfolio income, their plans become more prone to interest rate, duration and, most of all, sequence of returns risk.
“The retirement industry has to do a better job of getting people’s awareness and mindset refocused,” says Murphy.