Tuesday, December 10, 2013

New Column: How Much Can Clients Spend in Retirement? A Test of the Two Most Prominent Approaches

My new column, "How Much Can Clients Spend in Retirement? A Test of the Two Most Prominent Approaches" is now available at Advisor Perspectives. In the column, I simulate and describe the spending paths created by two of the best known variable withdrawal strategies: Jonathan Guyton's Decision Rules and the actuarial approach developed by Larry Frank/John Mitchell/David Blanchett as it culminated in David's September article providing a spreadsheet to calculate sustainable withdrawal rates on a year-by-year basis throughout retirement.

In other news, yesterday's Wall Street Journal webcast panel discussion with Bill Bengen, David Blanchett, and I went well and has over 10,000 views already. The replay is available. I must say, 30 minutes is just not enough time to build any momentum for the discussion, but a lot was covered nonetheless. Hopefully there can be more of these in the future. 

Let me clarify one point, as I know some people will be confused about why Bill Bengen speaks of the 4.5% rule instead of the 4% rule. The answer is based, again, on worst-case scenarios in US history. When the historically much more volatile small-cap stock index is added (and overweighted as about 40% of the overall portfolio) to the investment mix along with large-cap stocks and intermediate term government bonds, the worst-case withdrawal rate in history was 4.58%. However, I am less confident than him about whether it is appropriate to consider this as a forward-looking safe withdrawal rate for today's retirees.
 
It's a snow day here in Philadelphia and please take care wherever you are.