Safe Savings Rates: A New Approach
to Retirement Planning over the Lifecycle
Wade Donald Pfau (National Graduate Institute for Policy Studies, February 11,
2011)
Take-away for retirees and those
close to retirement: If you saved
16.62% of pay each year for 30 years preceding retirement, are targeting a
30-year pay-out period, invested 60% equities/40% fixed income pre-retirement
(and intend to keep this investment mix post-retirement with annual
rebalancing), received pay increases each year equal to the increase in
inflation, then historical data shows that you can withdraw whatever you need
each year after retirement to have inflation adjusted income from accumulated
savings of 50% of your final year's pay. The 16.62% figure refers to what was
needed in the worst-case scenario from the historical data. If some of these
assumptions don't apply, you need to make necessary adjustments in your
withdrawal rate. Table 1 of Pfau's paper provides hints for adjusting for
experience different from base assumptions.
