Retirees– Should you forget the 4% savings withdrawal rule?

On Behalf of | Mar 4, 2014 | Uncategorized

Based on studies of stock and bond returns since 1926, financial planners had settled on a benchmark for how much a retiree could spend each year without fear of running out of cash. It turned out that a person who invested half in stocks and half in bonds could spend 4% of his or her wealth in the first year, adjust that dollar amount for inflation in subsequent years, and still have money 30 years later. That worked in every historical 30-year period, as well as in most computer simulations based on the historical rate of return. Even drawing a hefty 5% worked more often than not.
When Wade Pfau, a professor of retirement income at the American College for Financial Services, says both stocks and bonds are expensive, he isn’t predicting an imminent crash — the Ph.D. economist is a number cruncher, not a tea-leaf-reading market forecaster. But he argues that basic math suggests asset prices have less room to rise, meaning the long-run outlook is for lower returns ahead.
“The probability that a 4% withdrawal rate will work in the future is much lower,” he says. His new safe starting point: a 3% drawdown. That means that if you’ve saved $1 million, you’re living on $30,000 a year before Social Security and any other sources of income you might have, not $40,000. Ouch. Remember that is just one man’s opinion.
Read more about in an article at CNN Money found at http://money.cnn.com/2014/02/26/retirement/retirement-income.moneymag/index.html?section=money_retirement
William Wombacher, your Central Illinois Certified Elder Law Attorney (CELA) and Social Security Disability Specialist. I’ll help you!   www.wombacherlaw.com
 
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