Is the 4% Rule Folly?
(AdvisorOne, April 29, 2013)
Another excellent article by Michael Finke, professor and coordinator of
the doctoral program in personal financial planning at Texas Tech
University debunking the 4% Rule. Mr. Finke criticizes the "shortfall
analysis" used to develop the 4% Rule and concludes that use of this rule by
individuals or advisors has a tendency to result in a more conservative
spending strategy than necessary. Mr. Finke says, "That money in the bank
[at death] over and above the desired legacy is the money left on the table
in the game of retirement living."
Finke refers to a 2008 study by Olivia Mitchell and others which estimated,
"that the average retiree could improve expected happiness in retirement by
as much as 50% by adopting a blended annuitization and investment strategy."