Enlightened Capital Blog

Building wealth in today's challenging environment

Building wealth in today's challenging environment

Investors only have a few options available to build wealth in this challenging environment with lower expected returns for most asset classes. Additionally, there is a ton of uncertainty related to the economic impacts of COVID-19. As I talked about in 3% is the new 4% for Retirement Planning, to safely withdraw $100,000 per year in retirement you need a $3.33 million portfolio using a 3% withdrawal rate compared with a $2.5 million portfolio using a 4% withdrawal rate. Unfortunately, a larger investment portfolio is now needed to comfortably retire, compared to the recent past. This is due to historically low interest rates and elevated equity multiples, reducing the expected returns for bonds, stocks and real estate, going forward. Life expectancy continues to increase, so you should expect to spend more time in retirement than previous generations, which further increases your need for a larger investment portfolio.


3% is the new 4% for Retirement Planning

3% is the new 4% for Retirement Planning

In retirement planning, a 4% safe withdrawal rate (SWR) has been considered the standard for many years. Introduced by the Trinity Study1 in 1998, the study states that investors can safely withdraw 4% of their portfolio annually in retirement, with a very low probability of running out of money. For example, an investor with annual expenses of $100,000 would aim to save $2.5mn for retirement. However, the Trinity Study focused on the 1925-1995 time period when interest rates were much higher than they are today, equity multiples were mostly lower than they are currently and life expectancies were shorter. As a result a 4% SWR is too aggressive for long-term planning given current market conditions. Let’s dive in to some of the changes since the study was conducted.


Will Social Security be available when I retire?

Will Social Security be available when I retire?

Many Americans worry that the social security trust fund will run out of money soon and that they won’t receive their expected benefits when they retire. Americans also are concerned that benefits will be dramatically reduced in the future, or that the full retirement age will be increased substantially. However, I strongly believe that social security will exist in its present form for many years to come. In this post we’ll explain how Social Security works, the major reasons why I expect social security to continue for a long time and some simple changes that could be legislated to fix the funding gap. Additionally, we’ll discuss how you can use this information to make your retirement planning more robust.


A Call to Action

A Call to Action

Do you also find that you are over consuming information? On reflection, I've noticed that a lot of what I read these days on Twitter or on the many blogs I frequent, is useless commentary on that day’s news or criticism and critiques of individuals, political parties, ideas, etc. While this analysis and commentary is interesting and feeds the dopamine receptors in the brain, at the end of the day what improvements do we notice in our lives from this massive investment of time? As far as I can tell, this over consumption of information has minimal benefits unless it leads you to take action to improve your life or the lives of others in a concrete way. That is why Enlightened Capital is focused on recommending specific actions you can take to improve your financial situation, or helping you reexamine your current financial situation and affirm that you are on the right track. Sometimes doing nothing is the right action to take!


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