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A better approach to the 4% rule for clients' retirement

A better approach to the 4% rule for clients' retirement

February 24, 2021
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*Originally published on Financial Planning.

Since I entered this profession almost 40 years ago, I have noticed that the distribution recommendations financial advisors make to clients in retirement fall into one of five approaches — ones that, taken on their own, risk not meeting client expectations.

They are:

4% rule: Withdraw 4% of your account balance initially and adjust that dollar amount for inflation annually. (Given low-interest rates these days, it is questionable if this rate is even sustainable.)

Fixed percentage: Withdraw the same rate annually based on prior year-end values.

Fixed-dollar amount: Withdraw a set dollar amount every month or year.

Systematic withdrawals: Withdraw only interest and dividend income leaving principal intact.

Bucket plan: Hold some assets in cash equivalents, some in fixed-income, and some in equities filling the cash bucket when low from the fixed-income bucket or the equities bucket, depending on which is appropriate.

Read more on the Financial Planning site.