{"id":5312,"date":"2015-10-26T23:38:00","date_gmt":"2015-10-26T23:38:00","guid":{"rendered":"https:\/\/www.annuityfyi.com\/?page_id=5312"},"modified":"2023-05-22T10:45:37","modified_gmt":"2023-05-22T10:45:37","slug":"personalize-non-annuity-withdrawal-rates-to-achieve-financial-comfort-in-retirement","status":"publish","type":"page","link":"https:\/\/www.annuityfyi.com\/retirement\/personalize-non-annuity-withdrawal-rates-to-achieve-financial-comfort-in-retirement\/","title":{"rendered":"Personalize Non-Annuity Withdrawal Rates to Achieve Financial Comfort in Retirement"},"content":{"rendered":"
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(EDITOR\u2019S NOTE:<\/strong> Most people who own annuities also have investments in stock and bond mutual funds. Just like annuities, these have to perform satisfactorily to achieve a financially successful retirement. Assuming they do, the conventional wisdom is that people can withdraw 4 percent of their non-annuity assets annually and not fret about trimming their wealth too quickly. Now that thinking is coming into question, and for good reason. For example, researcher Luke Delorme recently wrote in the Journal of Financial Planning that annual withdrawal rates can range from as low as 2 percent to as high as 10 percent. The right figure for an individual depends, among other things, on when you retire, how much guaranteed income you have, and whether you want to leave an inheritance. One size never fits all. Kerry Pechter explores this further in this story.)<\/em><\/p>\n\n\n\n

Whole forests have been pulped and supertanker-loads of ink spilled to produce articles about the various spending strategies that financial advisors can recommend. Some strategies emphasize safety, others emphasize \u201coptimization.\u201d Some roll Monte Carlo simulations to make the future seem less unknowable. Others rely on historical back-testing.<\/p>\n\n\n\n

But experienced financial advisors know that there is no single, sure-fire spending formula. Or rather, the right strategy is the one that satisfies their clients\u2019 fluctuating needs, keeps them solvent until they die, and achieves their legacy goals, if any. \u201cWhat arrow flies forever?\u201d asked Vladimir Nabokov. \u201cThe one that hits its mark.\u201d<\/p>\n\n\n\n

So how does the wise advisor, armed with six or seven different peer-reviewed spending formulas, match the right spending formula with the right client at the right time? How does he or she customize the research to each client\u2019s reality?<\/p>\n\n\n\n

Luke Delorme, a researcher at the American Institute for Economic Research in Great Barrington, MA, has come up with a \u201cblueprint\u201d that advisors can use to tackle this almost universal problem\u2014a problem complicated by the fact that many people don\u2019t know or can\u2019t describe what they want.<\/p>\n\n\n\n

In his article, \u201cA Blueprint for Retirement Spending,\u201d in the September issue of the Journal of Financial Planning, Delorme takes several of the withdrawal rates recommended by retirement specialists like David Blanchett, Michael Finke, Jonathan Guyton, Michael Kitces, and Wade Pfau, and shows how each can be fine-tuned depending on the preferences of each client.<\/p>\n\n\n\n

\u201cThere are some big withdrawal rules out there,\u201d Delorme told RIJ recently. \u201cI\u2019m trying to break the problem down into something more prescriptive\u2014based on household preferences\u2014and to come up with a structure that you can use to prepare for retirement. It\u2019s a starting point.\u201d<\/p>\n\n\n\n

Four spending preferences<\/strong><\/h4>\n\n\n\n

The first step toward determining a client-specific withdrawal strategy, Delorme writes, is to locate the client\u2019s position on two continuums. Listening to a client\u2019s comments during an interview, the adviser should be able to estimate how afraid they are (or aren\u2019t) of running out of money and how tolerant they are (or aren\u2019t) of a fluctuating cash flow. Overlaying the locations of two continuums, he arrives at four difference preferences:<\/p>\n\n\n\n