Last year Morningstar told us that the 4% Rule was really 3.3%. This year, based on revised assumptions about the future, they tell us that it is now 3.8% (The State of Retirement Income 2022). Of course, this new report has set off another flurry of discussions among financial advisors, financial academics and the retirement-focused media about:
- the 4% (or whatever %) Rule,
- Safe Withdrawal Rates and
- Spending under more-flexible spending strategies (dynamic vs. static spending strategies)
In this post, we will
- Discuss the results of the Morningstar 2022 Report,
- Briefly discuss the difference between static approaches like the 4% Rule and static Monte Carlo model projections and dynamic approaches like the Actuarial Financial Planner or dynamic Monte Carlo projections, and
- compare withdrawal rates developed in the 2022 Morningstar report with initial withdrawal rates developed from a simplified application of our Actuarial Financial Planner (AFP).
We conclude, once again, that the AFP is a much more robust planning tool than the 4% Rule or most Monte Carlo models.
