Sunday, May 5, 2013

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."