Tag Archives: QLAC

Core Investing Skills

I usually focus on a particular area in these posts, but today we consider two core investing skills. These may apply to your accumulation or distribution phase. Either way they are valuable skills to have in your arsenal.

Core Investing Skills: Protecting your principal balance.
No matter whether you are in the accumulation phase or the distribution phase, you want to protect your principal. Now, you do not want to do that at all costs, i.e. zero risk investing. You still need to grow your principal, you just do not want to lose it all – even on a paper basis. This article introduces a great term ‘margin of safety.’ Notionally you devote some portion of your principal to risk coverage. It seems like a good way to think of the concept. What to Do About Fading Stock Market Momentum
The article on stock market momentum does not tell you how to create your margin of safety. There are myriad ways to do so, and they depend – to a degree – on where you are in the retirement life cycle. A Qualified Lifetime Annuity Contract (QLAC), for instance, is a great element of a margin of safety for someone in the distribution phase. This article delivers a very specific, rather unusual approach. It focuses the majority of assets on a steady return and a very small portion on ‘home run’ investments. It is not for the faint of heart, or is it? The Holy Grail of Investing – The Barbell Approach
If that is too crazy for you, you may consider options as a means of delivering your margin of safety. This provides a nice primer for you to start. Options Strategy and Tactics: Diagonal Spreads

Core Investing Skills: Delivering consistent income in retirement.
As noted above, the QLAC is a great vehicle, if you can get it, for creating margin of safety in the distribution phase. It is also a great way to deliver consistent income in the distribution phase. Indeed, this article does a nice job of summarizing the prudent role an annuity can play in retirement security. It points out some of the key decision points – health in particular – and notes that annuities work beyond the QLAC. A Simple Way to Get Guaranteed Income in Retirement Whatever your preconceived notion of annuities, you need to do this research. This is Not Your Father’s 401(k): The Retirement Product You Should Know About Finally, another one that touches on the salient points around immediate annuities (outside your plans). The right way to get the retirement income you need
The other basic way we talk about delivering consistent retirement income is through dividend stocks, good ones. This is a very good article about the why of dividend stocks. Response to ‘Should You Build a Portfolio of Dividend Stocks?’
This piece takes a somewhat different tack, arguing that dividend growth investing works in both accumulation and distribution phases. It is a very valid perspective, and one worth considering. The Dividend Growth Investing Mindset
Finally, we all know the very best dividend stocks tend to be fluid and opportunities present themselves. High-Dividend Stock Yields 10%, 11 Straight Dividend Hikes, Pullback Buying Opportunity and 10 High-Yield Dividend Aristocrats Worth Considering

Luck of the Irish

Happy St. Patrick’s Day, a day when the Luck of the Irish becomes topic for barroom discussion. One thing we all know is that a successful retirement has very little to do with luck. Beyond the possible sequence of return risk luck – good or bad – your retirement hinges far more on the effort you put into planning.

Luck of the Irish: Understand the environment in which you are investing.
Even the best plans need course correction, and understanding the environment is always a good place to start. Yes, retirement saving is long horizon, still there is room for prudence in where you invest new money. How is the economy doing? Do markets match up with macroeconomic reality? Is the Economy Doing Well?

Luck of the Irish: Leverage a combination of savings tools.
The foremost saving tool to leverage: compounding. That’s right, you do not need a government program to effectively save for retirement. You need to start early and be consistent in your saving habit. The power of compounding will repay you in spades. The Power of Compounding: A Patience Game (note that he points out the need to stay aware of the environment here)
While this comes at it from a different angle, the employer’s, it illustrates the power of the HSA. This tool is the Swiss Army Knife of saving, looking to become more powerful in Republican circles. What Clients Need to Tell Employees About HSAs

Luck of the Irish: Remain calm.
Understanding compounding, being diligent and consistent in investing you will accumulate a nice sum of money. Markets do have downturns and the key is not to panic. This article helps put this into better perspective for you. Early in the Accumulation Stage, Price Risk Can Look a Lot Different

Luck of the Irish: Focus on income in the distribution phase.
Once you retire the key is to transition your thinking to distribution of money from your savings. The distribution phase is largely about income, yet preserving principal is not a bad thing. You have the difficult balancing act of greater longevity and theoretically capped principal. That’s why we often highlight good dividend approaches and annuities as tools. Here’s an ‘income menu’ that could help retirees make their savings last Dividends Pile Up with This High-Yield Dividend ETF With Rising Rates Ahead, Stick with High-Quality Dividend Growers The right way to get the retirement income you need 4 Overlooked Tax Breaks for Retirees

Have a Retirement Plan

With all the focus on process here it goes without saying that you must Have a Retirement Plan. Still this latest study indicates that it may not be that simple. We all know that many, many Americans have little or no retirement savings. I suppose that should indicate a lack of a plan, but more often assume it is simply an unfortunate prioritization. That makes it no less vital to focus, plan and execute for your later life. 10 alarming facts about women and retirement risks

Have a Retirement Plan: It starts with the fundamentals.
The simplest retirement plan begins with saving as much as possible as early as possible. Take advantage of time and compounding. Be consistent in saving for retirement. Take advantage of tax advantaged savings vehicles. Scary as it may be, be more aggressive than you think you should – more equity weighting.

Have a Retirement Plan: Sweat the small stuff.
Fees will kill your retirement savings returns, always be diligent about them. Maintain a diversified portfolio. There is no such thing as a set and forget retirement plan – at least not a successful one. Plus, remember the key risks you face in retirement: longevity risk, medical expenses, sequence of return risk, and others. You must face reality in the magnitude of the challenge and keep your eye on the ball.

Have a Retirement Plan: Change your mind set in retirement – distribution not accumulation.
While you must stay invested and saving (if you can) in retirement you also have to change your mindset. Now is the time to draw down your nest egg – this is the distribution phase. That may translate into different types of investments. Dividend stocks are often highlighted as ways to throw off income and maintain principal. Like everything, dividend stocks are a moving target. So, we are back to remaining diligent … even in the distribution phase. Dividend Champion Portfolio March Update
Another way to tackle the distribution transition is to consider lifetime income products – like Qualified Lifetime Annuity Contracts or other, similar solutions.

Have a Retirement Plan: No matter how you tackle it, get started.

Retirement Insecurity

Finally, something we can all agree on: retirement insecurity. Perhaps through persistence or saturation or simply self-awareness people are coming around to the unnerving truth. Whether driven by slow starts, low balances, Social Security, longevity risk, medical costs or something else, people are concerned. Democrats and Republicans Alike Worry About Retirement Security
Just in case you think that is all overblown, the Congressional Budget Office just released this study on Social Security. Social Security ‘broke’ by 2029: What’s not in it for you?

Retirement Insecurity: Don’t just sit there, do something about it!
We have talked many times about the QLAC (Qualified Lifetime Annuity Contract) and the potentially vital role it can play. These Government authorized ‘longevity insurance’ annuities provide you income for life within your qualified plans … when plan sponsors provide them. Seems that may be getting some traction now. Employers are trying to solve their workers’ retirement income problem It doesn’t hurt to bring it up with your employer.
We say it here virtually every installment, use all the tax advantaged tools you can when saving for retirement. Just in case you missed that, there’s this. 6 Tax-Efficient Strategies to Keep More of Your Money in Retirement

Retirement Insecurity: Save more while you are working and be smart about it.
I admit I have not heard of this before, but it is very, very interesting. If you are still working it is worth the time. Another way to measure retirement readiness: Your ‘Power Percentage’
Like most people you likely do not know how much you need to retire. There are plenty of guides, most pretty well useless. This may be, too, but it is great food for thought and might just get you motivated. The 25X Rule to Early Retirement
If you happen to subscribe to the Financial Times this might be interesting reading. If not, it says that looking through US regulatory filings shows that the most successful investors have one thing in common. They all disregard macro trends in favor of betting on individual companies and industries. You might say ‘so what’ I’m not going to do that, but wait then there is this article. Here if you are willing to invest the effort you may well join that club by doing some really interesting analytics on individual stocks, ETFs and more. If nothing else do yourself a favor and read the beginning. The Schwab US Equity Dividend ETF vs. the S&P 500 Index: A Comparative Case Study

Retirement Insecurity: Change your mind set in retirement – distribution not accumulation.
In the perfect world, you manage to get appreciation of your assets and income. That’s where dividend stocks can be helpful by throwing off income without liquidating assets. It is a fluid environment, though, and you should stay on top of your choices. Dividend Champions for March 2017
In case you have not yet figured it out, longevity risk is a giant one for your retirement. That means dealing with it explicitly is a priority. In turn that means you may need to think outside the box on how to address this risk. Life Insurance in Retirement: Who Needs It?

Retirement Planning Strategy

How best to frame your retirement planning strategy, that is how we are focusing our efforts now. You may have noticed a shift in our approach to focusing on the accumulation phase and the distribution phase. These two broad categories give you insights into the two frames of mind you need to successfully navigate your own retirement planning strategy.

Retirement Planning Strategy – doing the right things during the accumulation phase.
I am a big fan of best practices, and this seems like a reasonable place to start with respect to retirement saving. Here’s How to Build Wealth Like a Multimillionaire
Every move you make in the run up to your retirement is important. The last moves are often the most important. Steps to Take in the Year Before You Retire
This robo-advisor, Wealthfront, is getting a lot of press. Indeed last week we shared a comparison of Wealthfront vs. Vanguard as an investment model. Here is some more background on Wealthfront, if you were intrigued. Wealthfront Review 2016: Fees and Investment Facts

Retirement Planning Strategy – delivering income in retirement.
Here is a review of global best practices. See how other countries smooth the transition to the ‘distribution phase.’ What the US gets wrong about lifetime income
I may be an outlier, preaching the value of annuities. I am particularly fond of lifetime income annuities. This quick read gives you a sense for some options. The deferred income annuity is just a QLAC (Qualified Longevity Annuity Contract) for non-qualified money. 5 Best Annuities for Your Financial Plan
Read this cautionary tale about Spain’s retirement safety net and Social Security, and you will contact your representative about getting something done here. Spain’s Bankrupt Social Security System – Is This What Awaits the U.S. Too?
To be fair, the 4% rule was sound when proposed. Here are some ways to rescue it for today, if you prefer a simpler model. Here Are the 4% Retirement Rule’s Major Flaws

Retirement Planning Strategy – plan for your future expenses.
I realize no one wants to consider this, but …. Fact is healthcare and long term care costs are a big, glaring reality in retirement. Plan for them, you will thank me. How to Pay for Nursing Home Care

Retirement Planning Strategy – understand the investing/retirement environment.
Here is a quick checklist to consider. Longevity, of course, plays a large role. Nine different ways to think about money
This piece gives interesting background of the retirement plan options and the drivers of the retirement funding challenge. Why the Retirement Train Wrecked

Your Retirement Game Plan

Labor Day Weekend seems like the ideal time to think about Your Retirement Game Plan. What better thought for the holiday weekend than considering when you no longer have to work? So, this time we give you as much current thinking as possible on the most vital steps to take in planning for your future, long, healthy retirement: Your Retirement Game Plan.

Your Retirement Game Plan – doing the right things during the accumulation phase.
Active vs. passive, stocks or bonds, self-serve or advisory, there are many choices. Robo-advisors are the latest wave, and this article gives good insight into the implications. Wealthfront vs. Vanguard: Which is the Better Choice for Retirement Investors
You have read here before about the power of compounding. It never hurts to reiterate, the more you can save, the earlier … the better. The Power of Compound Interest
Of course, you should also invest wisely. Use all the tools at your disposal to get the best possible outcome. Why you might want more than one IRA

Your Retirement Game Plan – generate income during your retirement.
If you choose to be a more active investor, dividend stocks are a good way to generate income and maintain capital.  The nice thing about this one is it gives a way to set a portion of your savings here. Setting Up a Solid Dividend Portfolio with Only $10,000
Not only that, there is a constant stream of analysis out there to help. This one is a bit dated, but gives you a good idea of what you can find. Dividend Stock Yields 19%, Way Below Book Value, Major Growth, Reports This Week
I will continue to harp on the QLAC (Qualified Longevity Annuity Contract) until you get one. The one thing none of us know is how long we will live. This is insurance against that. Learn more about it, please. How Retirement Savers Are Stretching Their IRAs: The QLAC Archipelago
Stay up to date on developments in the retirement industry, too. Try this on for size: “The first person who will live to be 150 years old already has been born.” – Michael Kazanjian, Lincoln Financial Group’s vice president for annuity and retirement plan services marketing. Retirement income innovations aim to ease longevity’s strain on assets

Your Retirement Game Plan – know your future expenses.
We discuss the “4% Rule” and other ways to consider managing your savings during retirement, i.e. the distribution phase. Lately the literature is turning to a more enlightened view, that expenses change over time in retirement. It makes sense, right?  It is worth a good, hard look as a preferred alternative to boilerplate ideas. How to Invest in Retirement
This is the tricky part, unusual expenses. Imagine, while 28% never see one, 19% get hit with four or more. 17 unexpected expenses in retirement

Your Retirement Game Plan – understand what you are up against.
Sometimes it is worth looking back. This entertaining article shows how we just don’t know what we don’t know. The One Factor to Explain Them All

Longevity Quandary

With each installment, I find the best thinking on retirement, and this week is a treasure trove of commentary on the longevity quandary. Michael Phelps presumably just wrapping his competitive swimming career is a great model for longevity. Both Michael Phelps and Usain Bolt competed in four Olympic Games … and neither won a medal the first time. There may be an analog here because that is not what you remember about either of them. The lesson for the rest of us is to work harder, longer on your savings because you will be retired longer.

Leverage the longevity quandary by watching expenses in your retirement accounts.
Sad to say I would not think to ask a Department of Labor employee for advice on retirement. This former one, however, makes a series of worthwhile points about common mistakes. I encourage you to read it. 10 Retirement Mistakes Baby Boomers are Making
We always harp on costs. When you consider the longevity impact on costs, it is even worse. So you must strive to lower your total investment cost structure. It can be as easy as having a simple, effective strategy and sticking with it. A financial planner says most people don’t need to pay someone to manage their investments

Leverage the longevity quandary by ensuring you save enough for retirement.
Here is a really good, comprehensive piece on just what challenges longevity brings, and ways to address them. The Longevity Paradox
We have mentioned HSAs before, but this drives home the point about. Fact is you will spend a lot of your own money on healthcare in retirement. An HSA is a way to save pre-tax money now, not get taxed on growth, and not get taxed when you withdraw for medical expenses … there is simply no better answer. Why Advisors Need to Know about HSAs
Just in case you forgot, or simply don’t believe me, here’s the latest on medical expenses in retirement. Health Care Expenses for Retired Couples Hit Record $260,000 : Fidelity
On a related note, long-term care insurance is an important thing to consider … just weigh the cost/benefit wisely. These tricks can help tilt the balance in favor of buying. 4 Tax-Friendly Ways to Pay for Long-Term-Care Insurance
Here is an advisor’s eye view of these medical costs in retirement. More importantly, the implications of the DOL fiduciary rule on advice you will get on them. It lays out some hard dollar costs and is promising in anticipating incorporation into plans under the new rule. Add this to your DOL checklist: health, LTC costs in retirement

Leverage the longevity quandary by focusing on building an income stream for retirement.
Switching mindset from accumulating wealth to generating income is a key retirement transition. Longevity, though, may have some bearing on when you make that move. Longevity and Your Retirement
Changing your mindset should begin with understanding your needs. This piece helps you put your retirement income needs into perspective. How to Solve the Retirement Income Equation
Here is some interesting insight on IRAs, and 401(k)/403(b) for that matter. They may not be the best in retirement vehicle for you when you consider longevity risk. IRAs are for retirement planning, not for retirement
Here is a fascinating, refreshing look at the retirement income puzzle. Is retirement spending a level pattern? Should you use a simple rule like the 4% rule? This says no. What is the “Retirement Spending Smile”

Weathering the Election

Now everyone understands this will be a very different election cycle. Smart money will prepare for weathering the election with careful management of your retirement accounts. It is never too early or too late to focus your energy on what will provide you happy times for 30 or more years in retirement. So start now or keep on top of it, either way, be prepared for whatever comes your way. 

Improving your retirement, first focus on fees.
It is worth noting that others are taking notice of fees, especially in 401(k) plans, and this may be coming to your business, too. So, take a close look at your fee structure and raise the issue if it is egregious. Transamerica settles excessive-fee lawsuit with its employees for $3.8 million Cetera, plan sponsor sued for excessive fees in $25 million 401(k)
While this is not spot on with fees, it is worth considering. 3 Retirement-Savings Mistakes the Average American Makes
Don’t be fooled by the title, this article is a worthwhile read for everyone concerned with how to weather the election. A Millennial’s Guide to Money and Long Term Investing

Improving your retirement, next focus on saving more.
We have mentioned HSAs before, but this article lays out a great case for using these as a great retirement saving vehicle after you max out others. It happens to be a great way for weathering the election, keeping your savings tax-deferred. 7 benefits of HSAs
Here is a nice, short article on reasons why we do not save enough. It is worth the five minutes, trust me. How Americans blow $1.7 trillion in retirement savings
This may come as no surprise, I hope it does not, but only 27% of Americans are adequately saving for their retirement. 9 Reasons Why You’re Never Going to Retire
For the younger reader, or your kids, this is sage advice on entering the workforce. What Every New College Grad Should Know About Retirement Savings

Improving your retirement, lastly focus on building an income stream.
While this is a bit aged, the facts remain true, and these type ideas can help drive an income stream for your retirement. How to Place Your Money for Three Years and Get 7.74% Cash Returns It is still running at a discount, albeit smaller now, another good approach for weathering the election. RFTA Stock Quote
Here is another quick guide to finding the best dividend stocks. This one makes the point about keeping your fees in check, too! Retirement Strategy: Five Dividend Aristocrats to Buy Here
Here is Fidelity’s take on the QLAC (Qualified Longevity Annuity Contract) as a means to get you guaranteed income later in retirement. I remain a big advocate in the right situation. It is certainly worth your time. A way to secure retirement income later in life

DOL Fiduciary and You

The Department of Labor released the DOL fiduciary rule, and critiques are pouring in which makes it time to consider DOL Fiduciary and You. Does this matter to you? Should you do anything differently? What is impacted? These are all good questions, so we will share some perspectives. First, my own opinion, expanding fiduciary rules is a positive for investors. We spend a lot of time here talking about fees as a detriment to your retirement returns, and the fiduciary rules help shed light on fees while compelling your advisors to work in your best interest … that’s the key. Let’s see what others are saying about the rule and its implications.

One interesting way to consider it is by looking at industry reaction.
For truly comprehensive perspective, check in on the Investment News site, Fiduciary Focus. One interesting way to think about it is how stocks reacted, remember that comment about fees? Post-DOL fiduciary rule, Wall Street gives the nod to low-cost fund companies
One of the biggest concerns I have is that compliance costs may mean advisors or brokers walk away from smaller accounts, effectively shutting out those who would most benefit from the law. The most obvious way to solve that is with technology, and that already appears as a solution. In wake of DOL fiduciary rule changes, technology can solve problem of small accounts
You will likely see this in the form of a “robo-advisor,” but don’t fret, that may not be all bad. LPL partners with BlackRock’s FutureAdvisor, paving way for robo-pilot program Vanguard, Fidelity bank on robos, low cost strategies to ride DOL fiduciary rule wave
Still, don’t kid yourselves, the jury is very much still out on this. One has to wonder how much litigation will wrap around this rule before it is fully implemented? My guess is there will be plenty, but, ultimately, the consumer should come out ahead here. Plus, the SEC is considering similar mandates on the non-qualified side, i.e. not tax advantaged savings. Industry insiders react cautiously to DOL fiduciary rule Inside the Pros and Cons of a New Fiduciary Rule
One way, or the other, I think the hidden fees and incentives will be outed for you. Retirees find victory with the end of hidden fees

I suggest it is also good to look at this selfishly, from your perspective.
The LA Times does a nice job summing things up here. Five things to know about the new federal rules on retirement advisors

You are still on your own, for now, so let’s get a little smarter, too.
I focus maybe too much energy on getting you focused on fees. There are other ways to hurt your returns, and it is always good to understand that. These 2 investing biases could shrink retirement savings by 70 percent
You have seen here before talk of deferred income annuities – longevity insurance – or QLACs, Since I have long been an advocate, I love a reasoned perspective on them. A deferred-income annuity may help you get more cash later

Your Best Retirement

It has been a while since I crafted an entirely new post, and it seems worthwhile to pull together many disparate themes from my normal, weekly posts to define your best retirement. Indeed, I will give you some broad guidance on generic ways to achieve your best retirement. First, I will summarize the best concepts and then elaborate for those wanting more background.

  1. Maximize pre-tax contributions to employer sponsored retirement plans
  2. Understand and minimize fees in all your investment activities
  3. Always invest with a strategy
  4. Remember your time horizon is very long term
  5. Understand your options
  6. Timing matters … when you retire

Maximize pre-tax contributions to employer sponsored retirement plans – This one is pretty basic inasmuch as pre-tax savings get you more to start and most plans deliver some employer matching program. Say your employer matches the first 3% on a dollar for dollar basis, saving 3% of each pay check gets you 6% right away (subject to vesting, of course). If you like the investment options in your retirement plan – cost structure and diversity – invest as much as you can. Even if you invest 10% in this scenario, you are starting with 13% each pay period. Plus, it is 13% of your pre-tax income. That means more invested now and lower tax liability this year. The general logic for investing pre-tax beyond that is the assumption that you will access the money when you are in a lower tax bracket (I cannot say I have seen any analysis which confirms that, but the logic is your total ‘earnings’ will be lower in retirement, placing you in a lower bracket, all things being equal).

Understand and minimize fees in all your investment activities – I harp on this one as often as possible, and there are myriad articles and examples scattered throughout my weekly updates to reinforce this point. Still, it may be more important than that first point simply because most people do save what they can, but few focus on this vitally important element. Consider it this way, each percentage point of fees you pay is one percent less return … each and every year, compounded. It matters, whether you are selecting investment options in your employer based plan, buying mutual funds in your online brokerage account, or working with a broker or advisor … understand the fee structure and minimize it.

Always invest with a strategy – Just last week I posted a link to a great article that highlights this point through a $100/week investment strategy into the S&P index. If you did not read it, or simply do not believe me, please do read it. The bottom line is that since your time horizon is long term, weekly, monthly, even annual fluctuations in markets should not cause you to lose sleep. The example given there shows that $100/week for 20 years becoming $205,963.08. They go on to suggest if that were simply left alone, no more contributions, until retirement (23 years more in the example), that individual’s $100/week investment of $104,000 would be $1,041,317.04. That’s as simple a strategy as there can be, invest a modest amount, every week, into a broad market index. Just imagine if the investor (you) kept investing and increased the investment as your means increased.

Remember your time horizon is long – The important point here is to stop worrying about a bad day or bad week or even a market adjustment. So long as you are not retiring squarely into a bad market, these things work themselves out over time. In fact, that $100/week example over 20 years had ups and downs, including the tech bubble bursting. Still, it delivered a 7.3% compound annual growth over the period. That’s not bad and required not one ounce of consideration or worry.

Understand your options – Employer sponsored plans are not the only way to save for retirement. In fact, there are plenty of other ‘qualified’ and ‘non-qualified’ ways to save – IRAs, Roth IRAs and Keogh plans, for instance. Permanent life insurance, for example, is a less utilized, but powerful saving vehicle. Come on, you’re saying, life insurance. Yes because you get tax advantaged ‘build-up’ inside of permanent life insurance policies, you can get the same type tax deferral benefits you see in your employer sponsored plans, albeit not with pre-tax money. In other words those ‘earnings’ on the money inside your life insurance, or annuity, can compound without generating current year income. It is the same basic concept in a different structure – plus you get a death benefit on top of it. Another option you absolutely must consider is a longevity annuity, what are now referred to as QLACs (Qualified Longevity Annuity Contracts) in the retirement plans arena. Whether you use it in a retirement plan context (employer sponsored or individual) or outside the retirement plan with other savings, these income annuities are really interesting because they provide you with a guaranteed income stream at some later date. Let’s say you have that $1,041,317.04 from our earlier example. You have to consider your expenses in retirement and your life expectancy. The good news is we live longer than ever. The bad news is we generally don’t save enough. With a good advisor you should be able to determine the right withdrawal strategy, and may layer over one of these products to backstop you after reaching say 80 or 85. The trick is the later you start the payments, the higher the payments will be. Do yourself a favor and seriously consider this.

Timing matters … when you retire – Back to the matter of retiring into a down market, the problem is you are theoretically changing gears from the ‘accumulation’ phase to the ‘distribution’ phase. You will see plenty of banter about a 4% withdrawal rate, and if you dig around my older posts there are a slew of articles about this topic. Fact is, 4% is not a panacea, and you should work with an advisor to consider what is best for you. For simplicity sake, though, let’s assume you have saved this $1,041,317.04 from our example. Let’s further assume you are planning to retiring with that number, but the market ‘corrects’ by 20% just as you retire. Now with roughly $800,000 do you take the $40,000 you were planning on taking, or do you take $32,000? Even if you take $32,000, your principal balance is now $768,000 vs. $960,000 – Ouch. Not much you can do about this, but save as much as you can to buffer it.