Withdrawal Strategies: Should Clients Use Annuities?

Under the so-called 4% rule, a retiree can start by withdrawing 4% of accumulated savings, raise withdrawals to match inflation and, with certain assumptions (diversified portfolio, historic results for investments and inflation), be fairly confident the money will last for 30 years. The original research behind this approach dates back 20 years so it might be not surprising that advisors are evaluating alternatives.

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Comments (4)
"Recent studies indicate the 4% rule may have a high failure rate given today's low interest rates." Really? What recent studies actually indicate this. Whenever people start claiming that the 4% rule might not hold, it is almost always and indication that they do not understand the original Trinity Study. The 4% rule comes from WORST CASE analysis of all periods dating back into the late 1800s. We are not experiencing anything close to the cases of retirees starting retirement in the 1930's or 1970's today. A diversified portfolio today is earning a healthy return.
Posted by John G | Thursday, August 28 2014 at 2:23PM ET
I am sick to death of people who know nothing about annuities writing articles about annuities. " If they annuitize on Tuesday and get hit by a bus on Wednesday, the insurance company keeps their money." Clearly this person is ignorant about annuitizing and all the options. This is nothing short of perpetuating the same anti-annuity crap we agents have to deal with everyday. Mr. Korn you need to educate yourself because right now you have only proved to us that you have no credibility.
Posted by Tamara D | Thursday, August 28 2014 at 2:41PM ET
RIGHT ON......Tamara D.
Posted by Steve G | Friday, August 29 2014 at 9:22AM ET
Common sense says that the 4% rule may have a high failure rate given today's low interest rates coupled with high stock prices. I have also seen some papers that have tested this too and conclude that todays 4% is yesterdays 5.5% . Today we are experiencing conditions similar to the late 1920's and early 1970's - a richly valued stock market coupled with record high profit margins. However, making the current situation worse than the late 1920's and early 1970's is the fact that current interest rates are also significantly lower now as well which will certainly lower future returns of a diversified portfolio assuming it holds bonds or other interest bearing instruments. So yes, today a diversified portfolio is earning a health return, as were portfolios in the late 1920's and early 1970's, what's important is what happens to returns in the next 5 to 10 years.
Posted by Mark K | Sunday, August 31 2014 at 7:16PM ET
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