Four-percent rule a relic, advisers say

Four-percent rule a relic, advisers say
More flexibility with withdrawal rate needed; emerging-markets investments change assumptions
MAY 16, 2012
Advisers are looking for some alternatives to the old rule of 4% annual withdrawals from a retirement portfolio. Given the market crash of 2008 and the economic downturn that followed, sticking to a decades-old strategy doesn't seem all that safe anymore — to investors or their advisers — panel members said in discussion at the Investment News Retirement Income Summit in Chicago on Monday. “Which 30-year scenario was the one that caused it to be 4%?” asked Jonathan T. Guyton, a principal with Cornerstone Wealth Advisors. Some of his clients agree that the 4% rule is too inflexible — especially in years when the market does extremely well, or when it doesn't do well at all. “If a client is willing to adjust what he is taking out by 10%, the safe withdrawal rate rises about 100 basis points” in his calculations, Mr. Guyton said. “The trade-off for being conservative is, you don't have as nice a retirement.” Another fear is that the 4% rule came about when asset allocations didn't include as much developing- and emerging-markets equities, Mr. Guyton said. “U.S. stocks did better than other countries, so if you add other countries in, that changes the calculation. The safe withdrawal rate might be 2% instead of 4%,” he said. Annuities can be a solution for some clients. The problem is that even though investors see the value of annuities these days, they still don't want to buy them because of the “historically low interest rates,” said Michael S. Finke, an associate professor at Texas Tech University's Department of Personal Financial Planning. Mr. Guyton said he expects interest rates to stay low for the long run, so waiting for annuity rates to rise is a loser's game. “I see it as more frustration with the market situation and reality than a reason not to annuitize,” he said.

Latest News

Investor accuses Canaras, U.S. Bank of hiding $50 million CLO loss
Investor accuses Canaras, U.S. Bank of hiding $50 million CLO loss

A trustee says it has no record of the investor now suing it for $50 million

New bill would let advisers unlock accredited investor status for clients
New bill would let advisers unlock accredited investor status for clients

Legislation seeks to loosen access to private markets to include professional advice from RIAs and broker-dealers, not just income or net worth.

More than a quarter of moms are planning to opt out of Trump accounts, survey finds
More than a quarter of moms are planning to opt out of Trump accounts, survey finds

"I just feel like I can get a lot further [by] opening a 529 account," said one respondent to the BabyCenter survey on Trump accounts.

IRA investors keep rushing toward lower-cost mutual funds
IRA investors keep rushing toward lower-cost mutual funds

New ICI research shows these retirement savers pay expense ratios nearly matching industrywide averages, extending years of fee declines

US household wealth grows more liquid than global peers
US household wealth grows more liquid than global peers

UBS data show American net worth is shifting from property to cash and funds faster than in seven other wealthy nations.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.