4% Constant Withdrawal Approach Leaves Much to be Desired (and Probably Too Much to Heirs at Death)

In his September 23 post, Neal Frankle touts the benefits of the 4% Constant Withdrawal Approach (together with increased investment in equities) as a way to easily and significantly increase income in retirement.

To use the favorite phrase of perhaps the most famous actuary of the 20th Century, Robert J. Myers, I am constrained to disagree.  I outline the shortcomings of the 4% Constant Withdrawal Approach in my February, 2014 article (published in Volume 13 Issue 2 of the Journal of Personal Finance, p. 51).  In summary, the method: 

• Doesn't coordinate well with other sources of retirement income,
• Doesn't smooth results from year to year,
• Doesn't attempt to provide constant real dollar income from year to year, and
• Produces far too low withdrawals in later years of retirement, resulting in under spending and larger than intended amounts left to heirs at death.

As an example of the last bullet, under the recommended assumptions for the Actuarial Approach (and assuming no other retirement income), the withdrawal rate for a 30-year expected payout period is 4.34%, for a 20-year period is 5.97% and for a 10-year period is 10.89%.  Therefore, a constant 4% withdrawal approach would not be expected to significantly boost retirement income as a retiree ages when compared with withdrawals expected under the Actuarial Approach.