Page 7 - Know-So Money, Hope-So Money, Retirement Secrets Wall Street Doesn't Want You to Know

balance between highs and lows) is $62,000. Since the decade of the
2000s, the accepted payout rule of thumb for lifetime income on these
accounts has dropped from 4% to 2.8%, according to Morningstar. That
means to get a payout like the pension mentioned previously, you
would have to have a 401(k) balance of:

$24,000 ÷ 2.8% = $857,142.86

That’s four times the average 401(k) balance, just to get to $2,000 per
month income.

If you go to your advisor and tell him or her you need more income,
chances are she will tell you to increase your risk profile to generate a
better rate of return. The problem with this approach is it doesn’t
address the problem; it only exacerbates it.

How so? The whole reason you are only supposed to withdraw, initially
4%, and now 2.8% a year from your 401(k) is because of something
called “reverse dollar-cost averaging.” That’s when you are forced to
sell shares every month or year in order to meet your expenses. This can
be devastating in a down market, because when you sell your reduced
value shares you increase your burn rate. Then, when the market

recovers, the shares you would have recovered with are gone, since you
had to sell more than planned for to meet your bills.

So now, your advisor is urging you to take on even more risk in order to
get more income? How would that work? You have depressed your
payout to almost nothing in order to reduce the impact of market losses,

and now you are going to increase the chance of even more losses? To
increase your income? It seems totally backwards to me.