The problem with the 4% retirement income rule

[mickeyd]

Not much new here and there is a lot of "volatility could intensify" and "can have a dramatic effect" as well as "should ensure they participate". Articles with these "can and could" qualifiers abound on the internet, don't they?

Although sticking to the 4% retirement income rule offers a layer of protection for retirees, it does not guarantee that seniors will outlive their savings, a Forbes contributor writes. While there are strategies to help reduce risk, clients should realize that the order of investment returns is crucially important, according to the expert. "Creating a safe retirement income distribution plan is not as simple as following the 4% rule."

https://www.financial-planning.com/...mqKPseJ05Q2v2sK0Zo2XeiNv3&bt_ts=1579863348844

 

[pb4uski]

Although sticking to the 4% retirement income rule offers a layer of protection for retirees, it does not guarantee that seniors will outlive their savings ...

Well, it never did to begin with so no news there.

 

[24601NoMore]

Although sticking to the 4% retirement income rule offers a layer of protection for retirees, it does not guarantee that seniors will outlive their savings ...

Whew! Sure am glad I'm not following the 4% rule, as I definitely don't want to outlive my savings ...

Someone get these guys a good editor!

 

[ShokWaveRider]

It is all relative, some "Could" take 5, 6 or even more % and still never outlive their stash as they could not spend it all. So it is all relative.

 

[USGrant1962]

It is all relative, [-]some[/-] most "Could" take 5, 6 or even more % and still never outlive their stash as they could not spend it all. So it is all relative.

Fixed your post

 

[ShokWaveRider]

Fixed your post

Maybe it should be "Most Here"?

 

[karen1972]

ok that article is bizarre or should I say so wishy washy it wasn't really an article but some ramblings about should/could/would/maybe.

 

[Spock]

Maybe it should be "Most Here"?

Fixed it some more: Maybe it should be "Most fat FIREs Here"

We lean FIREs can't be as sloppy as others.

 

[Chuckanut]

Whew! Sure am glad I'm not following the 4% rule, as I definitely don't want to outlive my savings ...

Someone get these guys a good editor!

Alas, more proof that modern journalism standards have gone down, Down and DOWN.

But, allow me to be the Devil's Advocate for a while when It comes to the 4% rule. Yes, it's not perfect. Yes, things such as the order of investment returns can sink it. But, for many people who do not have the financial maturity of this group at least it gives them a somewhat realistic idea of how much money they will need to have by retirement. Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.

 

[CRLLS]

I consider the source, a site for Financial planners.

Clients shouldn’t let bad timing be their biggest retirement mistake
Retirees are advised to not rely heavily on their stock investments to develop an income strategy in retirement

If not relying on stock investments, then what? Annuities or CDs?

On another page from that site:

until recently. Traditional methods of adding clients, increasing AUM and boosting productivity are increasingly in flux. Instead, advisors are exploring new ways to curate client experiences, let technology lighten their loads and hang on to second-generation clients.

For me, info from this site is self-serving and not for the likes of most of us here.

 

[pb4uski]

.... Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.

Whoa! Tha would be fine as long as their fun, carefree retirement spending is less than SS + $4,000/$8,000 a year!

 

[Markola]

...Which kind of makes a point: “Outliving one’s savings”, should it happen, is not the same thing as “dying broke”. Our plan has us living on savings fully between FIRE until age 70 Social Security for each of us, which will be north of $70k FOR LIFE. Our SWR will then drop at age 70, reducing pressure on whatever is left of the portfolio. Plus there will be big home equity to monetize, if even needed.

So, the 4% Rule becomes less meaningful once other levers are considered.

 

[Jeffman52]

Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.

Have you been speaking to some of my extended family?

They inherited some money a couple of years ago. Enough that if they invested it, even conservatively, it would be a nice add to their SS income in retirement. Some new cars, new clothes, sweet vacations, and its all gone. Poof!

 

[Dtail]

It is all relative, some "Could" take 5, 6 or even more % and still never outlive their stash as they could not spend it all. So it is all relative.

Actually IIRC, the SWR for most retirement sequences for lasting 30 years is ~6.50% except for the few worst beginning retirement years such as 1966, 1929, 1937, etc.

 

[Dtail]

The sequence of risk return example in the article showing portfolio losses of 25/20/15/10/5% in the first 5 years of retirement is not a realistic scenario from a historical perspective.

 

[Montecfo]

Alas, more proof that modern journalism standards have gone down, Down and DOWN.

But, allow me to be the Devil's Advocate for a while when It comes to the 4% rule. Yes, it's not perfect. Yes, things such as the order of investment returns can sink it. But, for many people who do not have the financial maturity of this group at least it gives them a somewhat realistic idea of how much money they will need to have by retirement. Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.

SORR is contemplated by the 4% rule. The "trouble" with the 4% rule is it is very conservative. Of course that is also what is right with it.

But you are certainly right about peoples' unfamiliarity with numbers.

 

[Lawrencewendall]

FIRECalc says I can spend 13% and still have a 100% success. I do have other sources of income though. YMMV

 

[GenXguy]

Mehh... I don't see any trouble with the 4% rule. I won't spend exactly that (adjusted for inflation), anyway, and I bet I'll have trouble getting myself to spend that much most years due to my frugal nature since I could get by on less than half of what 4% provides. Plus, when other retirement income kicks in, I can reduce my drawdown spending to 2% of my stash while maintaining the same spending level. And as the years pass, I can make spending adjustments in either direction based on stash levels. No worries.

 

[Sunset]

Have you been speaking to some of my extended family?

They inherited some money a couple of years ago. Enough that if they invested it, even conservatively, it would be a nice add to their SS income in retirement. Some new cars, new clothes, sweet vacations, and its all gone. Poof!

Hey, we must be related... My sister blew through 2 inheritances.
When I asked her why did she spend all the money (which I had helped her put in a laddered CD).
She said because it was SO EASY...

 

[BeachOrCity]

https://www.financial-planning.com/...mqKPseJ05Q2v2sK0Zo2XeiNv3&bt_ts=1579863348844

I read the quoted article earlier this week. The author touts himself as a fee only financial planner and then goes on to show a SORR based scenario where everything fails early on. The problem with his scenario?.... it was based on a 100% stock portfolio. If one changed it to some reasonable AA it would have done much better. He also had the market basically not having even one good year for like the first 25 years.

It read more like an ad saying “if you want to be safe, call me for an appointment”.

Thinking about it, maybe I should call his office and try to waste some of his time like his article wasted our time.

 

[Dtail]

I read the quoted article earlier this week. The author touts himself as a fee only financial planner and then goes on to show a SORR based scenario where everything fails early on. The problem with his scenario?.... it was based on a 100% stock portfolio. If one changed it to some reasonable AA it would have done much better. He also had the market basically not having even one good year for like the first 25 years.

It read more like an ad saying “if you want to be safe, call me for an appointment”.

Thinking about it, maybe I should call his office and try to waste some of his time like his article wasted our time.

Yeah but then you would be wasting even more of your time.

 

[FREE866]

It read more like an ad saying “if you want to be safe, call me for an appointment”.

so true. so many articles today are just that.

 

[GenXguy]

I posted this in another thread, but it's fitting here also:


Bengen later changed the 4% rule to the 4.5% rule.

https://www.reddit.com/r/financiali...ngen_and_i_first_proposed_the_4_safe/dlz1l6r/

 

[ShokWaveRider]

I think we should look at it a different way. Just take what you need, but do not exceed whatever percentage YOUR individual portfolio allows. When we add what we could get in SS, Pensions etc., if we took 4% (or 4.5%) of our Cash or Equivalent Stash, the resulting number will be more than 4 x what we currently spend.

In our WR Calculation, EG, Cars, Home remodeling etc., it all seems to work out in the wash.

Disclosure: We are not taking SS yet unless something changes with the ACA & subsidies for the worse.