Solutions For RealSolutions For Real
  • Home
  • News
  • Personal Finance
    • Savings
    • Banking
    • Mortgage
    • Retirement
    • Taxes
    • Wealth
  • Make Money
  • Budgeting
  • Burrow
  • Investing
  • Credit Cards
  • Loans

Subscribe to Updates

Get the latest finance news and updates directly to your inbox.

Top News

Summer Financial Checklist

July 1, 2025

3 Gently Used Cars You Can Still Buy for Under $20,000

July 1, 2025

20 Companies With Permanent Remote Jobs

July 1, 2025
Facebook Twitter Instagram
Trending
  • Summer Financial Checklist
  • 3 Gently Used Cars You Can Still Buy for Under $20,000
  • 20 Companies With Permanent Remote Jobs
  • 8 Things You’re Forgetting to Include in Your Monthly Budget
  • NASA, Netflix Team Up to Live Stream Rocket Launches
  • Mark Zuckerberg Reveals Meta Superintelligence Labs
  • You Don’t Need A Retirement Coach—Or Do You?
  • Cut Costs Not Quality: 5 Grocery Upgrades That Save Money in the Long Run
Wednesday, July 2
Facebook Twitter Instagram
Solutions For RealSolutions For Real
Subscribe For Alerts
  • Home
  • News
  • Personal Finance
    • Savings
    • Banking
    • Mortgage
    • Retirement
    • Taxes
    • Wealth
  • Make Money
  • Budgeting
  • Burrow
  • Investing
  • Credit Cards
  • Loans
Solutions For RealSolutions For Real
Home » This Is Your Biggest Retirement Danger
Investing

This Is Your Biggest Retirement Danger

News RoomBy News RoomAugust 19, 20230 Views0
Facebook Twitter Pinterest LinkedIn WhatsApp Reddit Email Tumblr Telegram

I just read one of the best articles on personal finance I’ve ever seen.

The piece, titled “I Saved Too Much for Retirement: What I Wish I’d Done Instead,” by Martin Dasko and published on Yahoo Finance, warns of a very real danger: “If you save too much for retirement,” Dasko writes, “you could find yourself missing out on your best years, and even end up with a higher tax liability when you stop working.”

Of course, the article also says that it’s better to overprepare financially and warns of how difficult it is to retire on your own (“hire a professional!” the implication goes). But it admits something few financial planners want to: you could really be shooting yourself in the foot if you save too much.

Step 1: Decide Your Yearly Retirement Spending (and Forget the 4% Rule)

The first way to avoid this risk is to identify how much money you need to retire. Most financial planners ask you to multiply how much you spend per year by 25 to get to the right figure. Plan to spend $50,000 annually? You’ll need to save $1.25 million. Want to spend $100,000? Double that.

The reason for this number is that financial planners think you can only safely take out 4% of your portfolio annually without running out of money. This is based on the conclusion of a study that was done in the 1990s—a conclusion the author himself has since disowned.

Truth is, the actual amount you can take out annually depends on what is in your portfolio and how you manage it. If you day trade, then yes, anything above 4% and you’ll run out of money—quite likely below that, too. And if you pay high fees to a financial planner, again, above 4% and you’ll probably run out, as well.

However, if you invest in often-overlooked income alternatives like the closed-end funds (CEFs) I’m about to show you, things can change a lot. Take a look at this chart to see what I mean:

Sticking with $50,000 in yearly spending and our financial planners’ rule of multiplying our forecast retirement spending by 25, you can see by looking at the red line how fetching a higher return on your investment means you can retire on a smaller nest egg.

If we go from a 4% to a 5% return, for example, we need to save $250,000 less, while going up to an 8% return gets us down from a $1.25-million-dollar nest egg to just $625,000, a 50% drop! That also means years, possibly even decades, less time working in an office.

To be sure, financial freedom becomes a lot easier to get when we can generate an 8% return on our nest egg, rather than 4%. So why doesn’t everyone assume 8%? Because, as dozens of financial planners have said to me over the years, it’s impossible.

But that’s just wrong: it isn’t just possible, but thousands of investors are quietly doing it right now.

Converting “Paper Gains” to Hard, Spendable Cash

One reason why I think you can count on an 8% return is history. Let’s say you wanted to retire back in 2002, a little more than 20 years ago. Since then, we’ve seen the dot-com collapse, the War on Terror, a few years of higher interest rates leading into the collapse of the housing bubble and the 2008/’09 financial crisis, then years of near-zero interest rates, the pandemic, a spike in inflation and the Ukraine War.

No matter: stocks did what they always do over the long run: they rose.

Over the long term (we’re talking 100 years here), the US stock market as measured by the S&P index (this used to be less than 500, but the S&P 500 would be the measuring stick from 1957 onward) has given a 9.4% annualized return. That is a lot—and it also means that if you could get 8% of that in cash, you would have had a secure 8% income stream in perpetuity, plus a bit extra.

However, S&P 500 index funds yield less than 2%, so you have what financial professionals call a liquidity problem: you have a 9.4% return but not a 9.4% income stream. The two aren’t the same; you need something to turn the overall return into income—and to do so without killing the long-term return.

Enter CEFs, many of which are good substitutions for popular index funds. The Liberty All-Star Equity Fund (USA), for example, is a close proxy to the S&P 500; the Cohen & Steers Quality Income Realty Fund (RQI), strongly resembles the S&P United States REIT Index, and the PIMCO Corporate & Income Opportunity Fund (PTY), is a good stand-in for the US corporate bond market.

Over the last decade these funds have booked strong returns, mostly through dividends. They focus on giving you as much of their return as possible in payouts, which is why they yield over 8% each, with PTY yielding the most at exactly 10%, while USA’s 9.9% yield isn’t far behind, and RQI’s 8.2% yield is also above our 8% threshold.

These funds’ focus on “dividend conversion” is also why their payouts tend to fluctuate a bit, and they tend to rely on special dividends to “catch up” on any year’s portfolio gains. Many dividend investors would see this as a weakness, but it’s really a strength, as their managers work to get us as much income as possible. Let’s look at how these payouts played out for an investor who bought these funds back in 2002.

In other words, an investor who bought these three funds in 2002 would have earned an average 9% income stream for 21 years.

Note that this is 1% more than the 8% I’m calling for now, and that’s for someone who invested through the dot-com bust, the burst housing bubble, the greatest economic recession in nearly 100 years, the largest global pandemic in 100 years, and many more market catastrophes.

No matter. The key takeaway here is that none of those (either on their own or in combination) would have forced our hypothetical CEF investors to return to work—for more than two decades.

Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Steady 10.4% Dividends.”

Disclosure: none

Read the full article here

Share. Facebook Twitter Pinterest LinkedIn Tumblr Email

Related Articles

Mark Zuckerberg Reveals Meta Superintelligence Labs

Investing July 1, 2025

Try This AI-Powered Stock Picker

Investing June 30, 2025

This One Leadership Move Will Transform Your Team’s Loyalty and Performance

Investing June 20, 2025

Meta Plans to Release New Oakley, Prada AI Smart Glasses

Investing June 18, 2025

Citigroup Gives Employees Two Weeks of Remote Work in August

Investing June 11, 2025

Meet a Swift Student Challenge Winner Attending Apple’s WWDC

Investing June 10, 2025
Add A Comment

Leave A Reply Cancel Reply

Demo
Top News

3 Gently Used Cars You Can Still Buy for Under $20,000

July 1, 20250 Views

20 Companies With Permanent Remote Jobs

July 1, 20250 Views

8 Things You’re Forgetting to Include in Your Monthly Budget

July 1, 20250 Views

NASA, Netflix Team Up to Live Stream Rocket Launches

July 1, 20250 Views
Don't Miss

Mark Zuckerberg Reveals Meta Superintelligence Labs

By News RoomJuly 1, 2025

Meta CEO Mark Zuckerberg, 41, is reshaping the company’s AI efforts to focus on superintelligence,…

You Don’t Need A Retirement Coach—Or Do You?

June 30, 2025

Cut Costs Not Quality: 5 Grocery Upgrades That Save Money in the Long Run

June 30, 2025

10 Creative Ways to Save for a Big Goal (Like a Vacation!)

June 30, 2025
About Us
About Us

Your number 1 source for the latest finance, making money, saving money and budgeting. follow us now to get the news that matters to you.

We're accepting new partnerships right now.

Email Us: [email protected]

Our Picks

Summer Financial Checklist

July 1, 2025

3 Gently Used Cars You Can Still Buy for Under $20,000

July 1, 2025

20 Companies With Permanent Remote Jobs

July 1, 2025
Most Popular

Century 21 CEO optimistic over 2025 real estate market: Here's what buyers 'don't realize'

December 16, 20241 Views

15 Best Paid Survey Sites For Kids

December 12, 20231 Views

Summer Financial Checklist

July 1, 20250 Views
Facebook Twitter Instagram Pinterest Dribbble
  • Privacy Policy
  • Terms of use
  • Press Release
  • Advertise
  • Contact
© 2025 Solutions For Real. All Rights Reserved.

Type above and press Enter to search. Press Esc to cancel.