Spending Safely
Business Week has managed to recycle the sound bites of Bengen & Guyton into advocating a higher withdrawal rate. Let's just say that it makes for interesting reading:
So pack up your troubles in that old kit bag and [-]smile[/-] spend, spend, spend!
Once again I'm reminded that none of the Business Week writers have any actual ER experience. But it's entertaining to read their ruminations, as long as you apply their advice with extreme caution:
The 2008 Retirement Guide – BusinessWeek
Business Week has managed to recycle the sound bites of Bengen & Guyton into advocating a higher withdrawal rate. Let's just say that it makes for interesting reading:
... when valuations are low (with the 10-year p-e below 12), Kitces suggests that a retiree could start with a 5.7% withdrawal, since prices are more likely to trend upward. That rate might not seem appreciably larger, but it could yield real spending that is 10% to 20% higher each year over a multi-decade retirement.
Retirees who follow an inflexible schedule could feel deprived when the markets are flush and worry when the markets are getting pummeled, he says. Guyton believes initial withdrawals can be as high as 5.2% to 5.6% for portfolios that contain at least 65% stocks.
Flexibility is factored into Bengen's revised approach, which permits withdrawals to fluctuate within guidelines. His "floor-and-ceiling strategy" suggests that an initial withdrawal rate of 5.16% would be appropriate if a retiree pares back subsequent withdrawals by as much as 10% of the initial withdrawal during hard times (the floor). On the other hand, a retiree could withdraw extra cash equaling up to 25% of the first-year withdrawal (the ceiling) when the market is strong. The starting rate would vary depending on how much volatility a retiree could stomach.
So pack up your troubles in that old kit bag and [-]smile[/-] spend, spend, spend!
Once again I'm reminded that none of the Business Week writers have any actual ER experience. But it's entertaining to read their ruminations, as long as you apply their advice with extreme caution:
The 2008 Retirement Guide – BusinessWeek