Monday, October 8, 2012

Safe Withdrawal Rates: What Do We Really Know?

Safe Withdrawal Rates: What Do We Really Know? 
(Michael E. Kitces, Journal of Financial Planning) 

The 4% Withdrawal Rule?  Really?  Is this the best advice the financial expert community has to offer?  Withdraw 4% (or some other "safe" withdrawal percentage) of your accumulated savings in your first year of retirement and then blindly increase that amount for inflation for the rest of your life (or until you spend all your savings, whichever comes first).  You do this without adjustment for actual investment experience,  actual price inflation, changes in heath or variations in amounts withdrawn.  Am I the only one who finds the 4% Withdrawal Rule crazy?  If you want to self-insure some or all of your retirement, you need to use an approach (such as the one described in this website) that adjusts for actual experience.

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