Bernstein Global Wealth Management calculates that at a 4% withdrawal rate, an inflation-adjusted portfolio that is 100% invested in bonds would have a 38% chance of running on empty in an investor’s lifetime. At a 3%$ withdrawal rate, the chances decrease to 14%.
According to a recent Federal Reserve Bank of New York study, increasing stock allocations to a portfolio can reduce the risk of outliving your savings, but the downside is an increased risk of higher losses.
ETF Investors, though, can take broad strokes with the equity markets to mitigate risks. For example, The SPDR S&P 500 (NYSEArca: SPY), PowerShares Nasdaq 100 (NasdaqGM: QQQ) and SPDR Dow Jones Industrial Average (NYSEArca: DIA) provide exposure to the major U.S. stock market indices. ETFs also provide access to a myriad of other broad asset classes, both in domestic and overseas markets.
Broad dividend-oriented ETFs also provide similar exposure but also come with extra income on the side. Some of the largest options include Vanguard Dividend Appreciation ETF (NYSEArca: VIG), iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY) and SPDR S&P Dividend ETF (NYSEArca: SDY).
Moreover, ETFs come with low annual fees, which help keep returns and income in the investors’ pockets. Specifically, U.S.-listed ETFs have an average annual expense ratio of 0.61%, and some of the cheapest broad index-based ETFs cost as little as 0.04%. In comparison, the average expense of all balanced mutual funds is around 1.26%, writes Scott Burns for Houston Chronicle.
For more information on saving toward retirement, visit our retirement category.
Max Chen contributed to this article.