Why 4 Percent Annual Withdrawals are Still Safe
David Ning (US News, April 17, 2013)
"But with the original 4% annual withdrawal rate already too low for many
people to sustain a comfortable lifestyle, what is a future retiree to do?"
Ning argues that the 4% rule is still conservative and appropriate as long
as you are willing to adjust your future spending to reflect actual
investment experience and you are also willing to eliminate unnecessary
Since I have ranted against the 4% rule in previous posts, readers may be
somewhat surprised to know that I'm not in violent disagreement with Mr.
Ning's post. Using the spending calculator on my site (Version 2.0) and
inputting $500,000 of accumulated savings, $0 immediate or deferred annuity
income, 30 year payment period, 5% investment return, 3% inflation and no
amounts left to heirs, you get a spend rate for the first year of 4.34% of
the accumulated savings. Note, however, that if you change the immediate
annuity amount to $15,000, you get an initial spend rate of 3.45%.
The reason I'm not too upset with Mr. Ning's post is that he suggests that
you can't blindly follow the 4% rule as intended by its inventor. Of
course Mr. Ning does not provide any guidance as to how your spending
budget should be adjusted for actual investment experience.
So, I suggest rather than simply pulling a percentage out of the air, you
need to 1) do the math based on your personal situation and 2) make adjustments
in the future as outlined in the original March, 2010 article (actuarial
approach) on this site in order to keep your spending plan on track.