Four-percent rule a relic, advisers say

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.