How to Fund Your Retirement in a 4% Return World

Here’s a wake-up slap for anyone near or in retirement.

John Bogle is one of my heroes in our business; and there aren’t many. He is the founder and former CEO of the Vanguard Group and is one of the few money talking heads I listen to.

His latest guestimate about the market is the focus of the slap this week.

[ad#Google Adsense 336×280-IA]He says – and I believe him – long term, you should expect 4% stock returns.

Before you scoff at that number – even in what appears to be the sky-high market we’re in now – we have averaged only about 5% per year since just before the collapse, when the Dow was at its then record high of 14,100.

If you’re in or near retirement, and you’re banking on the more often quoted long-term average of 7% from stocks to fund your golden years, this isn’t good news.

In fact, if you’re using the 4% annual withdrawal plan most advisors still recommend, this is a real problem.

That will leave you with zero growth over an ever-increasing number of years in retirement.

After inflation and taxes take their bites, that becomes a very slow, quiet ride to the poor house.

Bogle says the only solution is to use the four disciplines that have always helped increase returns:

  • Stay invested and keep saving. Most of your returns will come from contributions each year in a dollar-cost averaging plan.
  • Rebalance. It’s one of the proven ways to boost your returns.
  • Watch your expenses. Paying unnecessary fees will make this 4% situation worse.
  • And – this one will sound very familiar to my bond readers – stay well within your risk envelope and stay diversified. Taking unnecessary risk drives losses, not gains. And I’m sure we all know about eggs in one basket and what that can do for our returns.

The only good news is that Bogle says he could be wrong. And if he is, your problem will be having more money than you planned for.

I can live with that.

Good investing,



Source: Wealthy Retirement