And of course the 70% of preretirement income rule of thumb always ignores people who live below their means.
The other elephant in the room is the assumption that Social Security will be there in its entirety which is not an assumption I am willing to make personally in my own planning. I continue to believe that there will be some serious means testing that comes along at some point and yes it will be unfair on multiple levels.
From an investment standpoint some will seek to stuff their portfolio with very high yielding vehicles; if you can get a 7% yield from a $600,000 portfolio then you should be in good shape goes the thinking. This is a point that I have tried to make before but lopsiding to a portfolio of nothing but yield payers takes the type of risk that goes with not having a properly diversified portfolio. There may never be a consequence for that risk and if there isn’t then it won’t have mattered but the bad event that doesn’t happen never matters.
About a year or so before the financial crisis hit, a friend from the fire department made the comment that you should only invest in real estate because it never goes down, “when has it ever gone down?” I believe some folks have a similar belief about yield investing, not that it can’t go down but more like nothing really bad can happen. If that is you; fair warning.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.