Interesting article I came across in the Wall Street Journal this morning regarding the 4% rule; which is commonly prescribed in this sub as guidance for income in retirement. Many financial advisers are revisiting the age-old advice in the face of financial markets with inflated asset values, which may mean lower returns in the coming years.
Here's the article (paywall warning).
Instead, the article posits a couple of solutions. First is a 3% safe withdrawal rate. This is obviously much safer than the 4% threshold most of us are currently expecting. While safer, this would also mean that you'd need to save 33% more for retirement to achieve the same standard of living that you would need under a 4% withdrawal rate regime.
The second is a "guardrail approach" which provides more discretion in when/how much you withdraw from your retirement balances. From the article:
Say you retire with $1 million in a portfolio with 60% in U.S. and foreign stocks and 40% in bonds and withdraw 5%, or $50,000, in year one. At year-end, you must recalculate your withdrawal amount as a percentage of your new balance. Assuming your portfolio declines 20% to $800,000, your $50,000 withdrawal—plus an annual adjustment for inflation—now represents more than 6% of your new $800,000 balance.
Any time your withdrawal rate rises above 6%, the rule imposes a 10% pay cut for the next year, says Jonathan Guyton, a financial adviser and co-creator of this strategy. As a result, after adjusting the $50,000 initial withdrawal—to $51,000, assuming 2% inflation—the method imposes a 10% pay cut, of $5,100, to produce a $45,900 withdrawal in year two.
Submitted February 09, 2018 at 08:19AM by tdpdcpa http://ift.tt/2Eg93Ko
