Since our very first post in 2010, our focus has been on helping households determine how much they can afford to spend each year in retirement (hence the title of our website). By contrast, the focus of most retirement experts has been, and continues to be, how much of your portfolio can you afford to withdraw each year in retirement. If you are looking for a Strategic Withdrawal Plan (SWP) that purports to be the best way to “tap” your retirement savings, you’ve come to the wrong website.
SWPs generally provide an algorithm for determining how much of your portfolio you can withdraw each year. This amount is determined without regard to the existence of other household assets and is generally the same real dollar amount each year with possible adjustments for deviations between actual and assumed investment experience or (in some instances) actual withdrawal experience.
The basic problem with SWPs is that many sources of income and many household expenses are not linear in the real world. They can and do vary from year to year.
If you have non-linear sources of income, such as
- Deferred Social Security benefits for one or both members of the household
- Fixed dollar immediate or deferred lifetime annuities
- Death benefits or other life insurance proceeds
- Personal loan repayments
- Rental income
- Employment income
- Non-lifetime distributions from defined contribution plans
- Proceeds from asset sales
Or you have non-linear planned or unplanned expenses, such as
- Mortgage repayments
- Pre-Medicare health insurance
- Planned vacations until a specified age
- New automobile purchases
- Assistance with grandchildren education
- Unexpected or expected medical or dental costs
- Long-term care costs
- Family support
- Home remodeling
Then
using SWPs like the 4% Rule (or one of its many variations) or the RMD
approach as a relatively constant source of “lifetime income” to
supplement your Social Security benefits will likely be inconsistent
with your spending goals. If instead, you are looking for a robust
Strategic Spending Plan that can handle these non-linear sources of
income and expenses and will help you manage your spending and your
risks during retirement, look no further than the Actuarial Approach.
