paper on the same theme from Blanchett, Finke and Pfau (see "The 4
Percent Rule is Not Safe in a Low-Yield World). While I applaud the
work of these gentlemen in showing that using the 4% rule, or any
other "safe" withdrawal rate may be dangerous, I find that the authors
aresimply demonstrating the weaknesses of
relying on the Monte Carlo method to determine an initial withdrawal
rate that is subsequently increased by inflation. Yes, the
assumptions they use for expected future experience are more
sophisticated than those used in previous studies (they assume
expected interest rates will rise in the future rather than remain
constant). But, even this more sophisticated model makes no adjustment
for possible future experience that deviates from assumed experience
(or actual spending). In the Plan Sponsor article, Blanchett says, I
acknowledge that this [model] may not be relevant in five years when
bond yields are [assumed to be] higher." I also had to laugh when I
read, "the average person running these [Monte Carlo] simulations is
getting a falsely successful picture." No average retiree I know is
running Monte Carlo simulations in her spare time.
How Much Can You Withdraw From Your Savings (January/February 2013 Money magazine (page 116) -- No Link)
Recalculate your withdrawals every year to take into account your
current account balances and the fact that your nest egg doesn't have to
support you for as long."
"With a decision this big, you don't want to blindly stick to the 4% rule or any other rigid system..." "As a
practical matter, though, recalculating your withdrawal rate this way
can be quite complicated. So unless you're working with a financial
planner capable of doing the number crunching for you, your best bet is
to go to an online tool like T. Rowe Price's Retirement Income
Calculator every year, plug in your most up-to-date information, and
adjust your withdrawals up or down as necessary."
agree more with this advice from Money magazine. And the online tool
"like" T. Rowe Price's that you should use is located right here in this
website. See related link below for a discussion of some of the
weaknesses of the T. Rowe Price tool.