My associate Jeff Bloch forwarded me an article from US News and World Report that discusses the 4% withdrawal rule that has long dominated retirement income planning. I have long discussed with my clients the idea of using a 4-6% portfolio withdrawal rate as being indefinitely sustainable if used with a well-diversified portfolio. Over the past few years there has been a ton of noise on whether 4% is too much, too little, too hot… too cold…
The reality of retirement income planning is that we have to start somewhere and my telling a person that for every $100,000 they have in retirement investments that they can expect to withdraw $4-6,000 is a great starting point. It takes a vague idea and makes it very concrete which is what people have to have for peace of mind.
What I’ve seen is that people will spend less when the economy and stock markets are not doing well. They naturally put a brake on their spending. It simply happens. However, when things are going good I haven’t seen my retired clients spent more than planned. Most of this is because they are at a point where they are trying to get rid of “stuff” and are only interested in going on so many trips each year. It seems that spending money gets a bit more difficult as people age (although my dad might argue with that given his vast amount of what is known as “rolling stock” in our family).
Please take a look at this article and let me know what you think.