Tags: spending | strategies | retirement | withdrawals

There Are More Strategies for Retirement Withdrawals Than You Might Think

By    |   Tuesday, 21 April 2015 07:40 AM

Most of us are familiar with two retirement withdrawal strategies. One entails spending a constant dollar amount of your portfolio each year, and the other calls for spending a fixed percentage of your portfolio each year.

But, "variable spending strategies seek compromise between these extremes by avoiding too many spending cuts while also protecting against the risk that spending must subsequently fall to uncomfortably low levels," Wade Pfau, a retirement income professor at The American College, writes in a study published by Social Science Research Network.

He compares 10 variable spending strategies. If you want a summary of them have a look at this MarketWatch column by retirement expert Robert Powell.

Pfau provides a "framework to think about the important issues, such as spending flexibility, feelings about upside spending growth vs. downside spending risks and a minimum spending threshold to be protected, desired direction of spending (for instance, whether to decrease spending over time), the appropriate planning horizon and any legacy goals."

According to Powell, Pfau suggests considering the following questions to determine which strategy to deploy:
  • "Do you sleep well at night?
  • "Is maintaining your lifestyle more important than your end-of-life wealth?
  • "Are you particularly fearful about outliving your assets?
  • "How much flexibility do you have to reduce annual spending?
  • "Is with worth seeking greater upside potential when it exposes you to downside losses?"
Reinforcing Pfau's point, there is no single plan for retirement withdrawals, experts tell CNBC. "When you are saving for retirement, general guidelines can work pretty well," Judith Ward, a senior financial planner at T. Rowe Price, told the news service.

"When you are heading into retirement, you want something specific to your situation. There isn't really a good place to go for guidance around this issue."

For years, the field has been dominated by the 4 percent rule: withdraw 4 percent of your retirement nest egg each year. But some view the rule as too inflexible.

"Four percent is a conservative starting point, but people need to come back every year and look at what's going on," Ward said. "If the markets are doing great, you might want to take a little more. If they're not great, tighten the belt."

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Most of us are familiar with two retirement withdrawal strategies. One entails spending a constant dollar amount of your portfolio each year, and the other calls for spending a fixed percentage of your portfolio each year.
spending, strategies, retirement, withdrawals
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2015-40-21
Tuesday, 21 April 2015 07:40 AM
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