In January, a 65-Year-Old Has $1.3 Million Saved but Still Faces Retirement’s Biggest Threat

Core Financial Reality - A retiree needs $65,000 annually, with Social Security providing $28,800, resulting in a $36,200 gap to fill from the portfolio, equating to a 2.8% withdrawal rate, which is conservative under normal conditions [4] - The portfolio consists of $950,000 in a traditional 401(k), $180,000 in a Roth IRA, and $170,000 in taxable accounts, with a current 70/30 stock-bond allocation that requires immediate adjustment [5] Sequence of Returns Risk - The sequence of returns risk is highlighted as a significant threat to retirement portfolios, where the timing of market returns is crucial when withdrawals are being made [3] - An example illustrates that a retiree starting with $1 million in 2000 and withdrawing $50,000 annually would have depleted their funds by 2015, while a retiree in 2010 with the same withdrawal strategy would still have over $1 million today [3][8] Financial Advisors' Recommendations - Advisors suggest building a cash reserve using a three-bucket strategy: 2 years of expenses ($72,000) in high-yield savings at 4.5%, 3-5 years ($195,000-$325,000) in short and intermediate-term bonds, and the remainder in stocks to avoid selling during downturns [6] - Delaying Social Security benefits until age 70 can increase the monthly payment to $3,456, representing a 44% increase, with each year of delay adding 8% to the benefit [7] - Financial advisors recommend rebalancing the portfolio from a 70/30 to a 50/50 or 40/60 stock-bond allocation, with bonds currently yielding around 4.5% [5][8]