For advisors, two worthwhile articles on the topic of sustainable annual withdrawal rates from total-return retirement portfolios appear in this April’s Journal of Financial Planning.
In one article, Jack DeLong Jr. and John H. Robinson, creators of Nest Egg Guru planning software, write that a “spend bonds first” or a “simple guardrail” strategy (spend down stocks and bonds proportionately, but never liquidate depressed stocks) produce much more median final wealth than either “spend stocks first” or the often-used “spend down stocks and bonds proportionately and maintain a constant asset allocation” strategy.
In the second article, Morningstar’s David Blanchett asserts that clients can spend 6% per year if 95% of their wealth is in guaranteed income, but only 2% if just 5% of their wealth is. He adds that targeting a 75% Monte Carlo portfolio success rate can be better than demanding a 95% success rate–especially for clients with ample guaranteed income.
Advisors who like teasing out the various variables inside the Rubik’s Cube of withdrawal rate strategies should find these articles rewarding.
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