Q. How not worry about the stock market's ups and downs in retirement time?
A. There are two ways in your retirement that you can not worry about the stock market's ups and downs.
Secure Income Approach
One way is to do a careful planning, decide your monthly needs and arrange secure income (such as social security payment, annuity payment, etc.) to meet those needs, then let the rest of your retirement assets go up and down with the stock market. In a good year, you take out more and enjoy your life more; in a bad year, you tighten your belt.
Live on Earnings Approach
Another simple way, assume you have accumulated a large sum of retirement assets at retirement time, for example, $1 million dollars, you invest that $1 million in the S&P 500 stocks, then you live on the portfolio's earnings.
How much is S&P 500's earnings? Historically, the average earnings on the S&P 500 index over a decade is around $78, that means if you invest your $1 million on S&P 500 which is around 2000 today, you can get $39,000 a year without dipping into capital.
If the market crashes, let's say $1 million becomes $500,000, but its earning power won't have that dramatic drop. For example, during the last stock market crash 2007-2009, S&P's earnings dropped 10%, which means you will live on $35,000, instead of $39,000, there is no need to sell at the bottom of the market.
If the market goes up, you keep spending your $39,000, no need to get too excited, because the earnings typically won't increase that dramatic either.
In reality, the 3.9% earning is realized through the S&P's yield which is around 1.8%, plus selling about 2.1% of your shares each year.
A. There are two ways in your retirement that you can not worry about the stock market's ups and downs.
Secure Income Approach
One way is to do a careful planning, decide your monthly needs and arrange secure income (such as social security payment, annuity payment, etc.) to meet those needs, then let the rest of your retirement assets go up and down with the stock market. In a good year, you take out more and enjoy your life more; in a bad year, you tighten your belt.
Live on Earnings Approach
Another simple way, assume you have accumulated a large sum of retirement assets at retirement time, for example, $1 million dollars, you invest that $1 million in the S&P 500 stocks, then you live on the portfolio's earnings.
How much is S&P 500's earnings? Historically, the average earnings on the S&P 500 index over a decade is around $78, that means if you invest your $1 million on S&P 500 which is around 2000 today, you can get $39,000 a year without dipping into capital.
If the market crashes, let's say $1 million becomes $500,000, but its earning power won't have that dramatic drop. For example, during the last stock market crash 2007-2009, S&P's earnings dropped 10%, which means you will live on $35,000, instead of $39,000, there is no need to sell at the bottom of the market.
If the market goes up, you keep spending your $39,000, no need to get too excited, because the earnings typically won't increase that dramatic either.
In reality, the 3.9% earning is realized through the S&P's yield which is around 1.8%, plus selling about 2.1% of your shares each year.
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