The new March 2012 issue of the Journal of Financial Planning is out.
A couple of noteworthy items...
In the letters to the editor, Dick Purcell has a letter included discussing the article I wrote for the January 2012 issue. That letter had its genesis as a comment at this blog! Making comments here is useful :)
Second, an article I wrote with Michael Finke and Duncan Williams of Texas Tech University appears in this issue. It is "Spending Flexibility and Safe Withdrawal Rates." Traditional safe withdrawal rate research focuses on finding the highest withdrawal rate possible with a sufficiently small probability of failure. This ignores the tradeoff that lower withdrawal rates means less spending and less enjoyment in retirement. The more you spend, the more you can enjoy your early retirement, but the higher is your chance of running out of funds later in retirement. We try to balance this tradeoff by considering retirees who have different amounts of external income floors (such as Social Security) and different degrees of personal flexibility about how much spending fluctuations they are willing to endure.
The findings we describe are starting to get discussed at internet discussion boards and personal finance blog sites. This is primarily because Glenn Ruffenach wrote a column at SmartMoney juxtaposing the findings of this approach with the 1.8% withdrawal rate I described last August in the Journal of Financial Planning. The comments are along the lines of: these moronic researchers can't figure out if the safe withdrawal rate is 1.8% or 7%. A think a lot of confusion stems from this throwaway line in the introduction of Mr. Ruffenach's column: "a safe withdrawal rate for some individuals could be as much as 7%."
That 7% appears in Figure 3 of our article. But it is not correctly described as a safe withdrawal rate. As we add in this article, this 7% withdrawal rate has a 57% chance of failure over a 30-year retirement. It's not safe. But what is does is maximize the overall expected lifetime satisfaction for a fairly flexible retired couple who has a secured income base of $20,000 from Social Security. This is how the couple best balances spending more early in retirement with the tradeoff that they may have to spend less later in retirement.
Third, though not a part of the journal issue, the journal website now includes a Podcast interview with me. The topic is mostly about my article that will be in the April issue next month, but I also talk about this article and all of the articles I've had in the JFP.