5/31/2015 – A Better Way to Tap Your Retirement Savings (The Wall Street Journal)

May 31, 2015 Comments Off by

Dynamic withdrawal strategies have attracted attention as financial advisers have sought to refine and move beyond the so-called 4% rule. Widely used since now-retired financial planner Bill Bengen published groundbreaking research on safe withdrawal rates in 1994, the 4% rule calls for retirees to spend no more than 4% from their portfolios in the first year of retirement—and then adjust that amount annually to keep up with inflation.

For someone with a $1 million portfolio, the formula produces an initial income of $40,000 and—assuming inflation of 2.5%—an increase to $41,000 in year two.In contrast with that relatively rigid approach, a dynamic strategy takes into account how financial markets—and, as a consequence, retirees’ nest eggs—perform from year to year. Annual withdrawals may be adjusted accordingly. Those adjustments, according to financial advisers, give dynamic withdrawal strategies two advantages over the 4% rule. First they allow for a larger withdrawal rate at the start of retirement, when people generally are most active, says Michael Finke, a professor of personal financial planning at Texas Tech University.

Read the full article at The Wall Street Journal.

Financial Landing 2015

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