The 4% Rule Is Dead. What’s an Advisor to Do?
December 28, 2021 by Michael Finke
A new Morningstar report has resurrected debate about the safety of the 4% withdrawal rate in a world of low bond yields and high stock valuations. Plugging more realistic portfolio returns into a Monte Carlo simulator reduces the safe withdrawal rate (10% failure) to 3.3%.
The report makes the very important point that fixed withdrawal rates aren’t really that realistic. When faced with a bear market, most retirees will cut back. Likewise, if retirees get lucky, they should be able to spend more. Flexible spending, that allows spending a bit higher or lower than a fixed withdrawal rate guideline, seems like a much better approach.