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I have not discussed this with them in depth but I will get more info this afternoon..
They have always used 4 % of portfolio as a rough rule of thumb of how much
annual withdrawal to estimate without outliving retirement funds....
Everything I have read confirms that 4% is a common rule of thumb.
Example- 1 million portfolio can estimate 40K per year..
Suddenly one new guy to my team is using 2.5 %
Based on 2.5% I need to return to work...
Based on 4% I am where I need to be...
I am a skeptic and wondering if they just want
people to work longer and save more than needed so their
fee based on percentage of total portfolio is larger....
2.50% for what allocation ? for how many years ? that is crucial info . if mostly fixed income i agree . 4% is based on at least 35-40% equity's . today it may even take 40-50% . it is all based on allocation and number the of years in retirement figured .
The allocation is only one factor. Age of retirement is a huge factor. The 4% rule has worked well for someone retiring at an age of about 65 with a planned retirement of about 30 years. Any one who retires at say 55, needs to be more conservative. Many advisors are also recommending caution for anyone retiring now. Investment returns were poor last year and could remain so for the short term.
I think in terms of the OLD 4% rule but as you get closer to retirement and consider the current stock market and interest rates the 4% goes down. I would probably pick 3% but that could be on the high side so the 2.5% could be the current number. Remember this is to protect you against the worst out come.
Ask about using the IRS's MRD table. I think this has better outcomes (amount you can spend each year) than the 4% rule asset mix.
Remember you can take less than the MRD if you do not need it. (Of course if your money is in a tax deferred account and you are 70 1/2 you might have to take out more than you need due to the tax law, but you do not have to spend the excess.
They should also be recommending some type of a "cash" bucket so you are not forced to sell in a down market.
Maybe they are discounting for your portfolio expenses. And that is prudent. It should be 4% minus expenses. This is an excellent reason to watch your costs.
it doesn't really work that way since all you need is a 2% real return on stocks over the first 15 years of a retirement with a 2% dividend level for 4% to hold .
it really does not take much . only danger is not seeing that the first 15 years as an average . the y2k retiree has seen 2% dividends but not 2% real returns , they are still in the 1.80 range
following rmd's will not provide a consistent enough income to be used . take 2008 when your portfolio may have fallen 30% . folks can't take a 30% pay cut , most couldn't pay bills . the hits in income because of big down years make it really not a viable choice as is .
with rmd's the draw is based on age and each years balance . there are far better ways to use each years balance dynamically that make much more financial sense
Last edited by mathjak107; 05-12-2016 at 02:37 PM..
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