Jane Bryant Quinn is on the cover of the December 2010 AARP Bulletin. "Make YOUR SAVINGS Last a LIFETIME", it says.
Her article describes "Three smart ways to make your savings last as long as you do".
From this article, we learn several things:
1. "Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW".
2. Even though she is "a personal finance expert", she has a "personal planner".
3. Ms. Quinn, a "personal finance expert" (with her own "personal planner", who I assume is also an "expert"), and her husband last year ran a "how are we doing" test "given the hit that the equity portion of our investments has taken in the past decade".
4. COMMENT: I am not a nationally recognized "personal finance expert", and I do not have a "personal planner", but I can assure you that my investments - equity or otherwise - have not taken a "hit" in the past two decades. I retired 20 years ago and my net worth has increased every year.
5. Ms. Quinn describes three "different ways of creating a life-long stream of income". First, there is the "total return strategy" in which you diversify your investments over stocks and bonds in the usual way". Second, there is the "bucket strategy" in which you diversify your investments into cash, certificates of deposit, or an annuity, bonds, and stocks. Third, there is the "income floor strategy" in which you invest in an annuity, bonds, and stocks.
6. COMMENT: Ms. Quinn does not explain why she still likes stocks, even after the "hit" she "has taken in the past decade". The Nikkei average is 74% lower now than it was in December 1989. The NASDAQ average is 49% lower than it was in March 2000. These numbers are not adjusted for inflation; that only makes things worse.
7. Regardless of which of the three "different ways of creating a life-long stream of income" you employ, Ms. Quinn says that you can withdraw 4% per year, adjusted for inflation, from your portfolio. "The magic number is 4 percent. You should plan on withdrawing no more than 4 percent of your total savings in the first year, ... In the following year, raise your take by the percentage increase in inflation. This way your money should last for 30 years, assuming you start with a portfolio invested half in diversified stocks or stock mutual funds and half in diversified bonds, with dividends reinvested".
8. She goes on to say, in the last paragraph of her essay: "What if you realize that your money won't last? There are other options - working longer or returning to work, cashing in the house, adding an apartment over your kid's garage".
9. COMMENT: From "Make YOUR SAVINGS Last a LIFETIME" and "Three smart ways to make your savings last as long as you do", then to "should last for 30 years", then to living in an apartment over my kid's garage"?
In a 977 word essay she has taken me from guaranteed financial independence then to maybe-30-years and then all the way to living over my kid's garage? What the hell happened?
PS: If Ms. Quinn, "a personal finance expert", with her own personal financial planner, can't avoid a major "hit", what chance do you have? Well, you can stay away from stocks, for one thing. My money is in I bonds, TIPs, and bank CDs (just two years ago you could get five year CDs paying 5.25%).