Thursday, January 18, 2018
Business

Retirees beware of the 4% rule

One thing retirees fear is outliving their money. Since the mid 1990s many of them have relied on a staple of retirement planning known as the 4 percent rule to avoid that. Although the name says 4 percent, the rule states that if retirees withdraw 4.5 percent of their savings every year, adjusted for inflation, their nest egg should last 30 years, the length of time generally used for retirement planning.

That percentage was calculated at a time when portfolios were earning about 8 percent. Not so anymore. Today portfolios generally earn much less, about 3.5 percent to 4 percent, and stocks are high-priced, which is linked historically to below-average future performance.

Michael Finke, a professor at Texas Tech University in Lubbock, says there are many problems with the 4 percent rule, but a big one is that it doesn't acknowledge the new economic reality of prolonged low returns. "There haven't been any historical periods that look like today," Finke said.

Many advisers recommend maximizing earnings by moving away from the 60 percent stocks to 40 percent bonds portfolio allocation on which the 4 percent rule is based, says Jay Wertz, director of wealth advisory management firm. He says that as interest rates have fallen and stayed low, "earning 2 to 3 percent on 40 percent of your assets for the next several decades doesn't really make sense."

Retirees wanting more certainty in the future might consider investing in a deferred income annuity, Finke said. Deferred income annuities pay a yearly income that kicks in later in life — usually starting about age 80 or 85.

Steve Vernon, a retirement consultant advises investing up to half of retirement savings in an immediate fixed annuity, which starts payouts when you retire. The annual income usually ranges from 5 to 6 percent of the amount paid for the annuity, and those payouts, together with Social Security, should be used to cover basic living expenses, says Vernon. "The remainder of savings should be invested and systematically withdrawn to cover everything else," he said.

Another option is a managed payout fund, especially for people who do not want to actively manage their money. These funds invest savings for you and send out a check each month that is a combination of investment income and a return of principal.

Comments
House approves government spending bill

House approves government spending bill

A divided House on Thursday passed an 11-hour plan to keep the government running. But the GOP-written measure faced gloomy prospects in the Senate, and it remained unclear whether lawmakers would be able to find a way to keep federal offices open pa...
Updated: 2 hours ago
Crystal Lagoon planners cut the ribbon on a chilly day (w/video)

Crystal Lagoon planners cut the ribbon on a chilly day (w/video)

WESLEY CHAPEL — Mother Nature seems to have a way of putting a chill on one of the hottest amenities in residential real estate development.Members of the business community, elected officials and executives with Metro Development Group and Crystal L...
Updated: 6 hours ago

Consumer agency to spend rainy day funds

NEW YORK — The Trump-appointed acting director of the federal government’s consumer watchdog agency requested zero dollars of funding for its second-quarter budget, saying he intends to first spend down the agency’s rainy day fund. In a letter to the...
Updated: 6 hours ago
Tampa Bay area doesn’t make cut as Amazon second headquarter finalist

Tampa Bay area doesn’t make cut as Amazon second headquarter finalist

To no one’s surprise, Amazon on Thursday released its list of location finalists for its second headquarters, and neither Tampa nor St. Petersburg was on it."We knew it was going to be a long shot and a difficult road," Tampa Mayor Bob Buckhorn said....
Updated: 11 hours ago

Deal clears way for Oldsmar townhomes

OLDSMAR — The City Council voted 4-1 last month in favor of approving a development agreement for a 50-unit townhome community on a nearly 4-acre parcel on St. Petersburg Drive. According to the terms of the agreement, Oldsmar Towns LLC will build a ...
Published: 01/18/18
Here are Tampa Bay's priciest home sales in 2017

Here are Tampa Bay's priciest home sales in 2017

If there’s one word to describe the buyers of Tampa Bay’s 25 priciest homes in 2017 it’s this: eclectic. As in previous years, the group included doctors, lawyers and professional sports figures — three of the homes were purc...
Published: 01/18/18
Ace Hardware in Oldsmar has those hard to find home items

Ace Hardware in Oldsmar has those hard to find home items

When Vision ACE Hardware opened in Oldsmar last November, the very first customer came in looking for a light bulb that he couldn’t find anywhere else."We had that lightbulb," said Stone Ackroyd, marketing manager. "That’s what ACE does. We have thos...
Published: 01/18/18
Mellow Mushroom opens third locationin Wesley Chapel

Mellow Mushroom opens third locationin Wesley Chapel

LUTZ — Mellow Mushroom opened the doors to its new location this week in Wesley Chapel.This is the third location for owner Rob Johnson, who opened the Mellow Mushroom in Brandon 12 years ago, and then expanded to Clearwater.Johnson began looking at ...
Published: 01/18/18
Sweets, savories and surprises at Jules’ Place in southeast Seminole Heights

Sweets, savories and surprises at Jules’ Place in southeast Seminole Heights

Tampa native Julie Harris worked for the City of Tampa for 22 years, under four mayoral administrations, until retiring as director of communications and neighborhood liaison in 2003.Her familiarity with Southeast Seminole Heights and countless conta...
Published: 01/18/18
Popular Spanish cuisine restaurant joins Hyde Park food scene

Popular Spanish cuisine restaurant joins Hyde Park food scene

HYDE PARK—Featuring popular Spanish cuisine, Bulla Gastrobar compliments Soho and Hyde Park’s vibrant restaurant scene offering an authentic Madrid-inspired tapas dining experience to be shared among friends for brunch, lunch and dinner. "Tampa is gr...
Published: 01/18/18