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October 28, 2021

Retirement something of a lottery: report

Retirement is a lottery where the chance of winning is more dependent on just when you retire rather than the soundness of any investment plan, says Michael Nairne who head ups a Toronto firm that dubs itself a family office for “exceptionally affluent families.”

The truth is you’re probably better to leave work following an extended downturn rather than when times are booming, his research suggests – encouraging news for all those being forced out the door these days.

Here’s his analysis.   

There’s lots of research suggesting that finding yourself in the red during the first few years of retirement drastically increase your chances of running out of money down the road.

Someone with a $500,000 portfolio (invested 55 percent in equities and 45 percent in bonds) who withdraws 4 per cent the first year and increases that amount by 3 per cent each year to keep up with inflation, has an 89 per cent chance of having enough money to last 30 years, according to T. Rowe Price.

But if the portfolio had an average return of less than 5 per cent in the first five years of retirement, the probability of being able to sustain the same withdrawals over the same period can drop as low as 43 per cent, T. Rowe Price maintains.

Since stock prices are moderately above the historic average while long-term interest rates are near record lows, we may not be quite at the retirement sweet spot, Nairne suggests.   

All of which means that winning tickets will only be available to those who can keep their retirement spending in line with this reality, he adds. 

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...