# Will My Retirement Savings Run Out – Week In Review

## Will My Retirement Savings Run Out?

Will My Retirement Savings Run Out? I have been writing about retirement during my weekly articles for the past few weeks. Mostly it is because I am getting older. My kids never fail to remined me of that. “Dad is that another gray hair?” In any case, over the past month I have written about the core and satellite portfolio and the coffeehouse investor portfolio. Both are viable approaches for building a retirement portfolio for your 401(k) plan or IRA. But inevitably the question always arises will my retirement savings run out? That is a big fear for many people.

### Retirement Money Calculators

When the question of will my retirement savings run out comes about, we almost always turn to a retirement calculator. These retirement calculators usually run Monte Carlo simulations to determine the probability of a success rate. Further, most of these retirement calculators require some input and assumptions by the user including the number of years your retirement money should last, your balance at retirement, your amount of projected spending, and your asset allocation. So, let’s run some simulations on the retirement calculator from Vanguard.

First, let’s make some assumptions that make this simulation simpler. First, we assume that you will retire at 62, which is when you start taking social security. We assume you will live to 80, which is close to the median lifespan in most countries give or take a couple of years. This means that your money must last 18 years. We also assume that you have \$1 million in retirement savings and spend \$40,000 of your retirement savings annually. The asset allocation is 50% stocks, 30% bonds, and 20% cash. The retirement calculator says that you have an 99% chance of your money lasting. That is pretty good odds that your retirement savings will not run out.

### You Didn’t Save Enough

Life is not that simple. What happens if you saved much less in your retirement savings will your money run out? The power of these retirement calculators is that you can perform sensitivity analysis. What if you saved only half of your initial assumption or \$500,000? Now you only have a 48% chance of your retirement savings lasting. That is not good odds that your retirement savings will not run out.

### You Spend Too Much

Now what happens if you spend too much. Let’s assume here that you spend 50% more annually or \$60,000. Now you have an 87% chance of your retirement savings lasting. That is decent odds that your retirement savings will not run out.

### You Live Longer

What if you are in great health and live to 88 or even longer? If you reach 88, then you have an 83% chance of your retirement savings lasting. That is still decent odds that your retirement savings will not run out.

## Will You Outlive Your Retirement Money?

The above analyses look at the question of will my retirement savings run out from the perspective of whether you have money left when you die. But there are other ways to look at this as well namely will you outlive your retirement money?  This type of analysis accounts for average mortality rates. We can use a different retirement calculator at Engaging Data. We make the same assumptions but also assume that your average tax rate is 15% and investment fees are 0.3%. The simulator makes use of average social security mortality tables.

At age 80, the average person has a 43.4% chance of dying (gray), a 0% chance of going broke (red), a 34.2% chance having less than \$1,000,000 (light green), a 20.1% chance of having balance greater than \$1 million (green), a 2.3% chance of having a balance greater than 2X (dark green), and a 0% chance of having a balance greater than 5X (really dark green).

You can see in the table below that you chance of going broke rises to 5.1% at age 90. Your chance of going broke rises to 22% at age 80 if you spend 50% more or \$60,000 per year. Your chance of going broke rises to 51.9% at age 80 and you did not save enough, e.g., only \$500,000.

## Final Thoughts on Will My Retirement Savings Run Out?

Clearly, if you make it to \$1 million in retirement savings then you are in pretty good position assuming you have an average lifespan. This is especially true if you control your spending rate. It is clear though that saving less for your retirement places you at greater risk of running out money. You can always control your spending or adjust your spending downward if you are really healthy and are going to live longer. On the other hand, saving more at a younger age is a no brainer and reduces the probability that you run out of money or go broke before you die. It is still possible that you can start saving for retirement as a late starter or starting saving after the age of 50.

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## Chart or Table of the Week

Today I highlight Verizon (VZ) the telecommunications giant. Verizon is considered a blue chip stock and pretty relabel for dividends. The stock has been flat year-to-date with a total return of (-0.7%). The company is one the three largest mobile carriers in the US with over 94 million connections and one the largest broadband companies with over 7 million connections. The current dividend yield of ~4.45% is near the trailing 5-year average of ~4.46%. The company is also a Dividend Contender having raised the dividend for 17 years in a row. The stock is not undervalued but is probably fairly valued in an overvalued market. The screenshot below is from Stock Rover*.

## Dividend Increases and Reinstatements

I have created a searchable list of dividend increases and reinstatements. I update this list weekly. You can search for your stocks by company name, ticker, and date.

## Dividend Cuts and Suspensions List

I updated my dividend cuts and suspensions list at end of June. The number of companies on the list has risen to 526. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic.

There were three new companies to add to the list this past month. These three companies were DTE Energy (DTE), National Health Investors (NHI), and Gap (GPS).

## Market Indices

Dow Jones Industrial Averages (DJIA): 34,688 (-0.52%)

NASDAQ: 14,427 (-1.87%)

S&P 500: 4,327 (-0.97%)

## Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 46.0X and the Schiller P/E Ratio is at about 38.0X. These two metrics up down this past week. Note that the long-term means of these two ratios are 15.9X and 16.8X, respectively.

I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued based on historical data. Note that we are near or over 40X and valuation levels near the top of the dot-com era.

S&P 500 PE Ratio History

Shiller PE Ratio History

## Stock Market Volatility – CBOE VIX

The CBOE VIX measuring volatility was up over 2 point this past week to 18.45. The long-term average is approximately 19 to 20.

## Fear & Greed Index

I also track the Fear & Greed Index. The index is now in Fear at a value of 23. This is down 14 points this past week.

There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.

Junk Bond Demand is indicating Greed. Investors are accepting 2.01% yield over investment grade corporate bonds. The spread is down further from recent levels indicating that investors are taking on more risk.

Market Momentum is indicating Neutral. The S&P 500 is 6.17% over its 125-day average. This is typical above the average than normal over the past 2-years.

Market Volatility is set at Neutral. The CBOE VIX reading of 18.45 is a neutral reading.

Safe Haven Demand is in Extreme Fear. Stocks have performed similarly to bonds over the past 20 trading days. This is close to the weakest performance for stocks over the past 2-years as investors move back into bonds.

Put and Call Options are signaling Extreme Fear. In the last five trading days, put option volume has lagged call option volume by 49.33%. This is amongst the highest level of put buying in the past two years.

Stock Price Strength is signaling Extreme Fear. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the lower end of its range.

Stock Price Breadth is indicating Extreme Fear as declining volume is 13.54% more than advancing volume on the NYSE. This indicator is near the lower end of its range over the past two years.

## Economic News

The U.S. Bureau of Labor Statistics reported consumer prices increased a seasonally adjusted 0.9% in June, the largest 1-month increase since August 2008. The all items index increased 5.4%, the largest 12-month increase since August 2008. A third of the all items increase is attributed to a 10.5% increase in the index for used cars and trucks. In addition, indexes for new vehicles, airline fares, and apparel all increased. The food index gained 0.4%, up 2.4% over the past 12 months. Medical care and household furnishings and operations were among the few major component indexes which decreased. The energy index increased 1.5% in June, with the gasoline index increasing 2.5%, and natural gas rising 1.7%. The electricity index fell 0.3% after increasing 0.3% in May. The energy index is up 24.5% over the last 12-months. The gasoline index is up 45.1% since June 2020.

The US Energy Information Administration reported that US commercial crude oil stockpiles decreased by 7.9M barrels from the previous week to 437.6M barrels for the week ending July 9. U.S. crude oil inventories are running about 8% below the five-year average for this time of year. The EIA reported the gasoline supply increased by 1.0 M barrels and distillate inventories increased by 3.7M barrels, and are running about 1% below the five-year average for this time of year. Refineries operated at 91.8% of their operable capacity, as gasoline production declined to an average of 9.9M barrels per day. Crude oil imports came in at 6.2M barrels per day, an increase of 347,000 barrels per day as compared to the previous week.

The Commerce Department reported retail sales increased 0.6% to \$621.3B in June, following a revised 1.7% decrease in May. Retail sales are tracking some 18.0% higher than June 2020. Total sales for April 2021 through June 2021 were up 31.5% year over year. Sales increases were reported in department stores (+5.9%), electronics and appliance retails (+3.3%) and clothing outlets (+2.6%), as well as at gas stations (+2.5%), and food service and drinking places (+2.3%). Sales decreases were reported in furniture and home furnishings (-3.6%), building materials (-1.6%), and sporting goods (-1.7%). Sales by motor vehicle and parts dealers dropped 2.0% in June and follows a 4.6% decrease in May.

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##### Prakash Kolli
Website | + posts

Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

## 2 thoughts on “Will My Retirement Savings Run Out – Week In Review”

1. I’m going to live most of my retirement with less than a one percent withdrawal rate. But I honestly think most people will do fine even if they retire with only a few hundred thousand dollars. Of all the retired people I know, and I know a lot of them, I do not know of a single one who appears to be in distress over money. With a little incentive all of us could live on a very small amount of spending and still have a good life. I really think the financial independence advocates, including me, are going to die with a lot of money we never needed to save and invest.

1. Less than 1% withdrawal rate is really good. I do agree that most people will probably have more than they need in retirement. Once you add social security in and assume the mortgage is paid then there is a likely a good chance you will have enough. The other thing is the most people don’t take into account the mortality tables.