Clients naturally have anxieties about having enough money in retirement, but they probably shouldn't worry so much.
For example, some believe that Social Security won't survive, but that's simply not the case, according to top experts who spoke at the AICPA Engage conference Tuesday in Las Vegas.
“Social Security is not going away,” said Michael Finke, professor of wealth management at the American College.
The solution to funding shortfalls will probably be a combination of higher taxes, lower cost-of-living adjustments and extending the age of eligibility, he said.
Even with no fix, “you actually still get more than 70 percent of your checks for the next 100 years,” said Michael Kitces, director of wealth management at Pinnacle Advisory Group. “That's the worst-case scenario. … For a lot of clients, the media has so overhyped the peril of Social Security that people don't fully understand” that fact.
“For younger people, [assuming] they're going to get 70 percent of their [Social Security] benefits [is] probably a reasonably conservative assumption,” said Wade Pfau, professor of retirement income at the American College.
Then there's the question of a safe withdrawal rate, given lower investment returns and longer life spans.
Kitces noted that the widely used 4 percent withdrawal rate is based on a portfolio with just large-cap U.S. stocks and intermediate government bonds. Adding more diversification has been shown to support higher withdrawal rates, he said.
“The other thing people forget about is how horrifically bad some of those scenarios were, where the 4 percent rule survives,” Kitces added. “The 4 percent rule works if you retire in 1929” thanks to the allocation to Treasurys.
Adjusting spending in retirement can also help save a portfolio.