In a 2001 article, William Bengen offered a new balance between the constant amount and fixed percentage strategies with his “floor and ceiling” spending approach.
The 4% rule has a planning horizon of thirty years. But is that a long enough horizon?
In August 2015, J.P. Morgan Asset Management released a study about retirement spending by Katherine Roy and Sharon Carson. In analyzing the expenditures for their diverse consumer base, they identified four retirement spending profiles and an additional category of miscellaneous individuals.
Another important contribution in the area of retirement spending patterns is Somnath Basu’s 2005 article “Age Banding: A Model for Planning Retirement Needs.” Though it provided a comprehensive retirement planning framework, I want to focus specifically on the findings that covered post-retirement spending patterns.
Traditional safe withdrawal rate literature regularly makes the assumption that retirees will choose a withdrawal rate that will leave precisely no wealth after the final withdrawal in the thirtieth year of retirement. This can leave them playing a game of chicken as their wealth plummets toward zero.
David Blanchett and Paul Kaplan at Morningstar created a similar study about the value of good decision making. Their results and approach are different from those of Vanguard, but the goal is the same: to quantify the costs of poor and good decision making. Naturally, many assumptions must be made regarding good financial decisions and the impact of poor financial decisions.
Of the two main schools of thought in retirement income planning, the probability-based school of thought is probably most familiar to the public and financial professionals.
A lot of retirement withdrawal rate studies are very repetitive and do not really offer anything new. This article offers a very nice graphical way of presenting its results.
I’m now in the process of re-reading some of the classic studies on retirement planning. As I am more involved in the research side of it now, doing this allows me to see points that I missed before or otherwise had just forgotten about. Yesterday I discussed the Terry (2003) article and found that it […]