Seeking A Fixed Percentage Approach To Retirement Spending

The fixed percentage withdrawal strategy is the polar opposite of constant inflation-adjusted spending. Subsequent strategies we consider will strive to strike a balance between these two. This fixed percentage strategy calls for retirees to spend a constant percentage of the remaining portfolio balance in each year of retirement.

Read More

Retirement Income Planning Is As Easy As PAY

As an alternative to failure rates, I suggest calibrating the downside risk across strategies in order to match them for a level of risk the retiree is comfortable taking. This calibration is done with a customized “XYZ formula” that I first outlined in my article, “Making Sense Out of Variable Strategies for Retirees” in the Journal of Financial Planning.

Read More

Does Asset Allocation Affect Withdrawal Rates?

One other important factor from William Bengen’s original study is asset allocation. In particular, he recommended that retirees maintain a stock allocation of 50-75%, writing, “I think it is appropriate to advise the client to accept a stock allocation as close to 75 percent as possible, and in no cases less than 50 percent.”

Read More

It is Optimal for Retirees to Plan for Reduced Spending with Age

A general assumption is that people plan to spend a constant inflation-adjusted amount for as long as they live. However, this spending plan is actually not optimal for any reasonable set of preferences about the tradeoff between spending now and later, even if we assume that future market returns are known in advance.

Read More