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

CFP Board hails record July exam turnout with 3,214 test-takers
CFP Board hails record July exam turnout with 3,214 test-takers

The historic summer sitting saw a roughly two-thirds pass rate, with most CFP hopefuls falling in the under-40 age group.

Founder of water vending machine company, portfolio manager, charged in $275M Ponzi scheme
Founder of water vending machine company, portfolio manager, charged in $275M Ponzi scheme

"The greed and deception of this Ponzi scheme has resulted in the same way they have throughout history," said Daniel Brubaker, U.S. Postal Inspection Service inspector in charge.

Advisor moves: Raymond James, Wells Fargo reel in billion dollar-plus advisor teams
Advisor moves: Raymond James, Wells Fargo reel in billion dollar-plus advisor teams

Elsewhere, an advisor formerly with a Commonwealth affiliate firm is launching her own independent practice with an Osaic OSJ.

At 90 years old, Social Security remains vital for most Americans' retirement
At 90 years old, Social Security remains vital for most Americans' retirement

A survey reveals seven in 10 expect it to be a source of income, while most non-retired respondents worry about its continued sustainability.

Intention.ly, AssetLink announce new AI to boost advisors' organic growth
Intention.ly, AssetLink announce new AI to boost advisors' organic growth

AI suite and patent for AI-driven financial matchmaking arrive amid growing importance of marketing and tech among advisory firms.

SPONSORED Delivering family office services critical to advisor success

Stan Gregor, Chairman & CEO of Summit Financial Holdings, explores how RIAs can meet growing demand for family office-style services among mass affluent clients through tax-first planning, technology, and collaboration—positioning firms for long-term success

SPONSORED Passing on more than wealth: why purpose should be part of every estate plan

Chris Vizzi, Co-Founder & Partner of South Coast Investment Advisors, LLC, shares how 2025 estate tax changes—$13.99M per person—offer more than tax savings. Learn how to pass on purpose, values, and vision to unite generations and give wealth lasting meaning