Is Your Nest Egg Holding Up?; These techniques can help you gauge how your portfolio is doing in retirement
When you're saving for retirement, it's fairly easy to measure your progress. You compare your actual return with your expected rate of return and look at the total value of the portfolio. If you aren't getting your expected rate of return--and if your portfolio's projected value falls short of your target--well, your plan is failing.</br></br>But what happens when you're living in retirement? How do you measure success or failure then? There are, of course, several methods for doing so. But a recent survey by Russell Investments, a Seattle-based asset manager, shows that financial advisers don't agree on the best approach--and that some could be flying blind when assessing your nest egg. Here are a few techniques to consider:</br></br>It's a simple approach, says Rod Greenshields, a chartered financial analyst and consulting director for Russell. You're trying to preserve principal and only spend interest and dividends. So unless your plan calls for dipping into principal, having less money in your portfolio at year-end than you did on Jan. 1 suggests your plan isn't working.</br></br>In Russell's survey, 34% of advisers--the largest group--favor this approach.</br></br>But it has its shortcomings. For one, investors and advisers develop an "unhealthy focus on chasing yield at all costs to get the income stream they need," Mr. Greenshields says. What's more, this method may not necessarily match an investor's actual spending needs very well, nor does it address the risk of possibly outliving your assets; odds are high that you will have to spend down principal over the course of your retirement--especially if you live past your life expectancy.