For decades, the returns that one can expect from the stock and bond market have dictated how much a retired person can withdraw from their retirement savings without fear of running out later. That rule of thumb has been 4% per year. That is, a person with $400,000 in retirement savings could withdraw $16,000 per year and be comfortable knowing that their nest egg would last for the rest of your life (well, at least 30 years, which for most of us is the same thing).
Not anymore. The lower performance of the market has reduced that rule of thumb to 3.3%. This means that every retired person in the country just saw their retirement income drop by nearly 18%. That person with the $400,000 retirement fund can now only afford to withdraw $13,200.
Now couple that with inflation, officially at 6.22% for the 12 month period ending October 2021, and you see that the retired person with the $400,000 retirement savings now has seen the $16,000 they had to spend last October only able to buy $12,400 worth of stuff. That’s right, retired people have just lost a quarter of real purchasing power in just a year.