Massy Williams: So we have Christina in New York, who is a newer investor, Randy in Pennsylvania, who is nearing retirement, and Clay, who is an 85-years-old retiree. All of them are wondering, What advice do we have for investors that are feeling still anxious about their portfolio?
Tim Buckley: So you're talking about investors that are saving for retirement, in retirement, and they've got different goals in there. So it’s tough to give them one strategy. But I think they can have one approach, okay: Control what you can control. In a time of volatility, markets are down, control what you can control.
Say, if somebody's saving for retirement, they're 35 years old, 40 years old. The markets are down. What should you do? If you're here at Vanguard, you already controlled one thing, which is the expenses in your funds, the cost of your funds.
So the next thing you could do is save more. People are, "Oh, the market's down." Well, that's an ideal time to start putting more in. That will improve your long-term outlook. If you want to improve your long-term outlook, save more, because as the market comes back, you'll have more principal to ride that market up.
How about if I'm in retirement? I'm done. Like, I don't have that income coming in. I was living off my investment. Now you control your expenses.
You may say, "Okay, well I know that I can pull $100,000 a year from my portfolio. Right, and I'll grow it for inflation." That's when you're going into your retirement, and the market tanks. Well, if you just continue to pull that, and maybe it's a 4 or 5% rate, from your portfolio, you actually, and you don't change your behavior, our studies have shown looking over eight bear markets, that you've increased your depletion rate, your depletion risk to about 30% chance—a 30% chance that you will outlive your assets, and nobody wants that.
So how do you control for that? Well, quite simply, you lower your expenses. Does it have to be a lot? Surprisingly, no. If you just take that $100,000 and you drop it down to 98 or ideally 95, just spend a little less. You don't have to drop it down to 50. You just drop it down to 98, 95, 90. The more you can drop it the better, in those tight times. But then when the market comes back, well, reward yourself. You increase your payout 5%. And then you can reward yourself. If you're dynamic in your spending as a retiree, you take that risk I mentioned, that depletion risk, back down to, if you set it the right way going in, and if we went through those past scenarios, your depletion rate goes back down close to zero, so, and gets you back on the path that you wanted. So those are the two strategies of control what you can control: Save more, spend less.