FINANCIaL
FIELd NOTES
Historical Results of a 4% Withdrawal Rate (1928-2023)
One often-quoted rule of thumb in retirement planning is the 4% withdrawal rate. It suggests that retirees can withdraw 4% of their initial investment portfolio balance annually, adjusted for inflation, without significantly depleting their savings over a 30-year retirement period. But how does this rule hold up under the scrutiny of historical data, particularly for a balanced investment portfolio?
The Compounding Cost of Avoiding Volatility
With interest rates rising for cash, CDs, and bonds, there is renewed interest in owning more conservative investments instead of riskier assets like stocks. Since the best estimate of future bond returns is roughly their starting yield, 5% is probably a fair place to start (while nothing is certainly guaranteed). Stocks on the other hand have earned 10% per year on average.
For some investors, it may make sense to take less risk and “clip” the bond coupon, especially for the money they plan to spend in the coming years. But many investors, including retirees, often have a portion of their investments that are for long-term growth over 10-20+ years that have historically been in stocks…
How Big Is the Average Emergency Fund?
In the realm of personal finance, few concepts are as universally endorsed as the emergency fund. An emergency fund serves as a financial cushion, providing peace of mind and stability during unexpected events such as job loss, medical emergencies, or major repairs. But how much do people actually set aside?
According to J.P. Morgan, most have somewhere between 4-8 weeks of net income set aside…
The Tax Rules for Roth IRA Withdrawals
In a recent meeting with a client, they had two big, unexpected expenses come up – they needed a new car, and their daughter was getting married! They were concerned about how these purchases would affect their taxes. Fortunately, they have had some money saved away in a Roth IRA that they withdrew from to help mitigate the tax burden of withdrawing all that money from a pre-tax IRA.
The Roth IRA is one of the most powerful tools in your retirement planning arsenal. Its tax advantages during the accumulation phase are well-known, but understanding the rules for Roth withdrawals is equally crucial…
Navigating Family Conversations Around Mortality
Conversations around mortality are rare. Usually, the person aging wants to avoid it, and families are more than willing to oblige, given how difficult they are to have. Because of this, end-of-life care is often not handled in a way that most would prefer.
I recently finished a book, Being Mortal, by Atul Gawande – where he shares from his perspective as a doctor how families navigated real-life scenarios, both the good and the bad. Here are my key takeaways…
Is US Market Concentration a Concern?
Over the past decade, the weight of the top 10 stocks in the S&P 500 has nearly doubled.
It’s nearly impossible for the market to be up or down without these big stocks (Apple, Amazon, Google, etc.) going in the same direction. This is not a first – in the 70s, over 40% of the market was dominated by the top 10 stocks, and even more by the “nifty fifty.” While this does introduce some risks if these companies were to be broken up or face increased competition, in general, I don’t view it as a significant concern for three main reasons…