Retirement Income: Repairing the Damage to Assure the Flow


Having suffered severe losses in their retirement nest eggs last year, many retirees living off of their savings are reviewing their investment and spending plans, searching for new plans of action to ensure their savings can sustain them throughout their lifetime.

There is no question that bear markets can be devastating—particularly for new retirees—if action is not taken to compensate for the loss. The sooner you adjust, the better.

But what is your best course of action?

While the instinct may be to flee the risk of equity markets, postpone retirement or go back to work, an alternative strategy would be to consider temporarily reducing annual withdrawals from your nest egg.

A new T. Rowe Price retirement income study compared various withdrawal adjustment strategies for new retirees who suffered a 30% decline in their portfolios in their first year of retirement, under two different assumptions of future stock market performance, and compared to a switch to a 100% bond portfolio.

Our study found retirees can boost their chances of not outliving their assets over a full 30-year retirement period by simply holding their withdrawals constant for the next five years. In fact, simply holding withdrawals steady over the next five years provides a much more secure solution than switching to a 100% bond portfolio allocation in the second year.

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