Steve Utkus oversees the Vanguard Center for Retirement Research, which studies many aspects of retirement in America—from how individuals start saving and investing in the early part of their careers, to how they prepare for actual retirement, to how they spend down their savings once they’re retired.
We’ve just launched some new content on vanguard.com designed to provide insights into generating and taking income in retirement, and we’re interested in hearing your thoughts about it.
Our new web content is based on 3 ideas. First, if you’re comfortable with your existing portfolio, the question may be how to generate a reasonable income from your portfolio in a tax-efficient way. The process starts with redirecting income distributions (i.e., dividend and interest income) from taxable accounts into a cash buffer account, such as a money market fund. You would then direct withdrawals from tax-deferred accounts into that same cash buffer. Over time, you also need to think about how quickly you are “spending down” your savings.
The “future of retirement” seems very much on the public’s mind. The topic is surfacing in the press, in the institutional marketplace, and will be the focus of a Washington, D.C., policy forum I’m attending in May. Here are some of my thoughts. I welcome your comments and will try to incorporate them in my upcoming discussions.
It’s very clear that there is a future for retirement. But to me, it’s really a tale of two futures: the future of retirement income, and the future of retirement health benefits.
I was traveling a few weeks ago to visit with institutional clients. For my travel reading, I downloaded Michael Lewis’s The Big Short. It’s a colorful look at some of the personalities during the great financial crisis of 2008–2009—in particular, the handful of market participants who saw the crisis coming.
I’ve been thinking a great deal about the dynamics of asset price bubbles, like the mortgage crisis or the internet stock craze. Recently I issued a Vanguard research paper sketching out a psychological model that might underlie the formation of bubbles. To put the paper’s argument in a simple way: The fundamental cause of bubbles seems to be a form of group self-delusion. Many (but not all) market participants develop a view of the future that is wholly unrealistic, and they disseminate this idea widely throughout the financial markets.
A recent article in the Wall Street Journal tells a sad tale of retirement preparedness: The typical pre-retiree baby boomer has less than one-quarter of what he or she needs in a 401(k) plan to retire.
In my view, this assessment is entirely too bleak. As I’ve noted previously, estimating retirement readiness for an entire generation is a difficult task, and the result is sensitive to the assumptions used. Moreover, the issue isn’t a black-and-white question—who’s ready, who isn’t?—but one of degree.
In my January 25 post, I looked at two tactical retirement issues: improving savings rates and evaluating portfolio risk levels. In this post, I’ll wrap up with three additional ideas.
