Most have probably heard the idiom “to kill the goose that laid the golden eggs”. A saying derived from Aesop’s Fables tells the story of a goose that laid a golden egg each day. After the owner became rich from selling the daily laid golden egg, he decided to kill the goose – assuming there must be a large quantity of gold inside the goose. To his dismay, he found that his goose was no different from any other goose on the inside. It’s a story of unprofitable actions and greed.
This fable can be tied directly to retirement planning. Investors spend their working years building a flock of geese (also referred to as a “nest egg”). Sometimes the flock falls upon hard times and the number of geese declines. Sometimes they will lay golden eggs that can be used to buy more geese. Overall, the goal during these years is to build the flock (nest egg).
Once retirement begins, goals usually shift to enjoying the golden eggs without harming the geese. Retirees that withdraw 4% or less from their portfolio each year are essentially collecting their golden egg daily. Additional eggs that are laid (in the form of excess returns) but not consumed are used to continue building the flock in preparation for less prosperous times.
Retirees may find themselves in trouble when they kill some of their geese to get the short-term benefit of additional funds. Ultimately, this can result in the long-term cost of reduced potential income. The reasons for additional withdrawals are quite understandable; traveling during earlier years of retirement, home improvements or providing assistance to children or grandchildren. However, the laws of finance dictate that excessive withdrawals can and will be harmful to future income when the amount of principal assets is being spent down. It’s important to know when you have crossed the line between enjoying the fruits of your savings and risking the long-term sustainability of your portfolio. Working with a trusted financial adviser can help prevent you from killing the goose that lays the golden eggs.