Figuring out how much a retiree can withdraw from their accumulated savings is one of the most difficult calculations a financial planner faces.
First is the obvious question: no one knows where "the finish line" is. With advances in medical technology, it is safe to assume that we all will live longer than our grandparents, yet this really doesn't help too much.
Next is the question of inflation. Health care costs - one of the major expenses older folks face - have been rising faster than the general rates of inflation. Whether the most recent healthcare initiatives from Washington will change this trend is obviously uncertain.
What about the returns on the savings? The last 10 years have been poor for the stock market, and bond yields today are uninspiring. What return assumption should be used in planning?
I could go on, but the attached article does a reasonable job of trying to address some of the issues. More to follow.
Managing Retirement Income: Part IV
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