The reason why purely investment thinking (and investment mathematics) won’t supply answers to these retirement income questions is simple. Retirement income planning isn’t really an investment problem; it’s a risk management problem. The risk is that you won’t have enough income in retirement (or that you will, for a while, but that you’ll run out of money if you live long enough). If the annual income that you need in retirement exceeds the income from your investments (e.g.: bond coupon income, stock dividends), you’ll have to tap principal for the difference. If your investments grow, each year, by at least that amount, you’ll be fine. But if they don’t, you could run out of money.
The Retirement Savings Dilemna
