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Inflation shocks the 4 laws of retirement, how much does 100 million retirement assets shrink every year?

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market price inflation

In October 2021, the domestic inflation data in the United States once again "exploded." The Consumer Price Index (CPI) rose 10% year-on-year, exceeding expectations of 6.2%, setting a new high since 5.8.

In the wave of rising prices, the October inflation rate in the Atlanta, Georgia metropolitan area was close to 10%, and the price increase ranked first among major cities in the United States.

In TheLifeTank's op-ed "How much does it cost to retire in the US?What is the 4% rule for retirement?In the article, the author points out how saving for your own retirement is calculated.

However, retirees' retirement portfolios, as well as common retirement income withdrawal plans, are also facing shrinking effects under the impact of inflation.

(>>>Recommended reading:Where do Americans go to care for?Ranking of 10 affordable retirement cities in the U.S. and rent prices )

4 rules of inflation shock retirement

In TheLifeTankRetirement Savings ColumnIn, we introduced the common "What is the 4% rule and the 10 times rule for retirement?"

The 4% retirement rule originated from a 1994 study.After going back to historical data since 1926, the study found thatAs long as 50% of retirement assets are in stocks and 50% in bonds, thenWithdraw 4% of the initial funds each year, You can provide retirement income for life.

allocation mod risk(©️Investing.com 50/50 portfolio)

However, under the influence of current-than-expected inflation, according to Morningstar’s analysis, retirees may need to reduce their expenses.Reduce 4% of income withdrawal ratio, In order to realize the plan of withdrawing retirement income for life.

The 4 Laws of Retirement are reduced by 0.7%

People who are going to retire in the future may find that the 4 rules of retirement have to be reduced to 3.3%, a decrease of 0.7%.

In other words, if we reach retirement age, we will save $100 million.According to the past "4 Laws of Retirement", 4% of the total amount of funds is withdrawn each year-and today, the retirement asset portfolio of 100 million US dollars,The estimated annual income will be reduced from 4 US dollars to 3.3 US dollars, and the annual income will be significantly reduced by 7 US dollars.

Similarly,For a retirement asset portfolio of 500 million U.S. dollars, the annual expected income will be reduced from 20 U.S. dollars to 16.5 U.S. dollars, and the annual income will be reduced by 3.5 U.S. dollars.

(>>>Recommended reading:After selling a house for cash, popular science and comparison of 2 lifetime cash flow retirement income schemes (Figure)

The government raises pensions, 70% on its own

According to the 1973 legislation, the pensions of the retirees in the United States will be adjusted according to inflation data.

The Social Security Administration recently issued an official notice* that the pensions for retired people will increase by 2021 percentage points after December 12.The first increased retirement pension will be distributed to retirees in January 5.9.

According to the 2020 data report provided by the Social Security Administration, there are 4600 million retirees in the United States who receive government pensions, with an average of only $1,555 per person per month.The old-age pensions issued by the government account for 30% of the income of the retired family*.

In the end, 70% of the source of income after retirement still needs to be accumulated and managed by each of us before retirement.In the context of current inflation, with the depreciation of asset values, the "4% retirement rule" that was once regarded as an iron rule is also facing shrinking.

How to effectively combat asset depreciation and find reasonable retirement financial management channels has become a top priority for retirement income planning. (End of full text)

(>>>Recommended reading:How long can $100 million be used after retirement?Look at the rankings of the states in the U.S.)

appendix
*https://www.ssa.gov/oact/cola/latestCOLA.html

*https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

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