Often times many investors have performed similar to the benchmarks for the last 20+ years without recognizing the market has pulled them along. However, using academics and historical data we can show you that when investors switch to the distribution phase at retirement there is a significant negative consequence which most are unaware of.

Using the same portfolios over the same time period (2000-2019), let’s consider a newly retired 65-year-old couple with a $500,000 portfolio. At the start of every year, they withdraw 5% of the initial value ($25,000 of initial $500,000 starting value). This withdrawal is increased 3% each year to help the couple’s income keep pace with inflation. 

By 2019, the 65% stocks/35% bonds portfolio would be worth $215,721 (and this is after withdrawing $671,759 in income). 

Meanwhile, the S&P 500 portfolio ran out of money.