As discussed in our post of March 1, the JP Morgan withdrawal strategy produces a higher withdrawal rate than the withdrawal strategy recommended in this site when our recommended assumptions are used. Several readers commented that this was a big plus in the JP Morgan column, especially for individuals who want to front-load spendable income earlier in retirement or for others who have lifestyle spending goals that simply aren't achieved by using more conservative withdrawal strategies. We caution retirees against selecting a withdrawal strategy simply because it produces a higher initial withdrawal rate.
The withdrawal approach set forth in this website produces a total retirement spending budget that is designed to remain constant in inflation-adjusted dollars if all input assumptions are correct and the spending budget is actually spent each year. That part of our approach is just simple math. Our approach also gives the retiree a recommended process for dealing with the inevitability that the input assumptions will not be correct or actual spending will differ from the budget amounts. To make it a little easier for some to use our approach, we have recommended what we believe to be fairly conservative input assumptions: currently 5% nominal investment return, 3% desired increases/inflation and an expected payment period until age 95 (or life expectancy if later).
If the withdrawal rate using our approach with recommended assumptions is lower than desired, a retiree is free to change the recommended input assumptions to reach a higher withdrawal rate using any kind of rationale the retiree chooses (i.e., I can earn an annual investment return greater than 2% real, I won't live longer than my life expectancy, I can live with retirement income that decreases in inflation-adjusted dollars, etc.). The retiree can also simply choose to spend more than the budget amount and live with the consequences. Retirees should of course note that higher initial withdrawals will mean lower subsequent withdrawals, all things being equal, and there are no guarantees when you choose to fund some or all of your retirement through periodic withdrawals from accumulated savings, irrespective of the withdrawal strategy you use.
