“I almost lost everything by following this rule”
|
|
|
|
|
|
|
|
|
| “I almost lost everything by following this rule” |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| You might have heard that the 4-percent Rule, otherwise known as the “Prudent Man’s Rule,” is a safe way of determining your withdrawal rate from stock market accounts during retirement. Well, this may not be true. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| The 4-percent Rule suggests that you could take 4% to 5% out of your investment accounts per year without risk of depleting the account within your lifetime. Consider our current economic state. Now consider your retirement during this economy.
Where do you and your finances fit in this scenario?
Wade D. Pfau, Ph.D. wrote a paper entitled “Can We Predict the Sustainable Withdrawal Rate for New Retirees?” which illustrates a study that “attempts to predict sustainable withdrawal rates by quantifying whether a 4 percent withdrawal rate can still be considered safe for U.S. retirees in recent years when stock market valuations have been at historical highs and dividend yields have been at historical lows.”
Pfau states, “I find that a regression model using market fundamentals can explain historical MWRs [maximum sustainable withdrawal rates] fairly well, and that the 4 percent rule is likely to fail for recent retirees.”1 (Emphasis added.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| During the last years that you are an income-earning worker,the events that take place in financial markets become more significant. You might depend on these events for the health of your retirement.
If you recently retired, you’ll need to think about your rate of withdrawal from your accounts and whether you’ll be able to continue on that course without “paring back.” But retirees shouldn’t have to depend on this unpredictable strategy for income, because it will never be predictable!
The 4-percent Rule “cannot be considered safe in light of the unprecedented market conditions of recent years.”2 (Emphasis added.)A 3-year CD is yielding 1.35% and a 10-year treasury, 1.89%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| You don’t have to depend on an unpredictable vehicle for income in retirement when you can employ a very secure strategy to give you a guaranteed** income stream.
As Pfau states, “it would be a great pity if recent retirees scaled down their retirement expenditures and lived a more frugal lifestyle only to find at the end that a higher withdrawal rate could have been sustainable.”3 (Emphasis added.)
Find out what can work to your advantage.
If you are in your 60s, the right annuity could be structured with a 6% to 8% income stream and you would still have control of your money. Instead of taking a chance withdrawing less than four percent, where income is not guaranteed* for life, consider the alternative: a “hybrid” index annuity with 6% to 8% annual withdrawals and guaranteed* income for life, income you cannot outlive.
The graph below shows an index annuity return and the S&P 500™ return over a period of 7 years. Notice how the blue bars (index annuities) are never negative like the S&P 500 (purple bars). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| And if you are pulling money out of stocks while the market is going down, the consequences can be damaging. Not only do you lose the amount you withdraw, but when the market comes back up there is less capital upon which to build. Therefore, as you continue to take your 4%, the percentage of withdrawal actually becomes a higher and higher portion of your capital. And when your account declines right before you are about to retire, you may not have time to recover the loss.
Following the 4-percent Rule cannot compare to
guaranteed income you can’t outlive.
If you would like immediate assistance to go over your personal situation, talk to one of my licensed retirement income planners, whom I hand-picked to serve you! |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dedicated to your increased potential for confidence in retirement, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * Annuities are contracts between you and an insurance company. Annuity product guarantees rely on the financial strength and claims-paying ability of the issuing insurer.
**Annuity riders may be available for an additional annual premium that may provide additional benefits and income guarantees.
This article is meant to provide general information on issues that many people consider in making the decision as to whether or not they should buy annuities; and if they do decide to buy, which types of annuities and which annuity benefits and additional riders will best suit their goals and needs. This information is not designed to be a recommendation to buy any specific financial product or service.
Joshua Mellberg is an independent Registered Investment Advisor in the state of Arizona and insurance licensed in all 50 states. All employees of J.D. Mellberg Financial have the appropriate licenses for the products they offer.
Footnotes
- Pfau, Wade D. (October 2011). Can we predict the sustainable withdrawal rate for new retirees? Journal of Financial Planning. http://www.fpanet.org/journal/CurrentIssue/TableofContents/ CanWePredicttheSustainableWithdrawalsNewRetirees/
- Ibid.
- Ibid.
|
|
|
|
|
|
Get The Report Now!
This Offer is Absolutely FREE
In This "Hybrid" Indexed Annuity Report:
You'll discover what you want to know about the NEWEST type of annuity, the "Hybrid" Annuity, such as:
How to benefit from market upside, without having exposure to market downside.
Which ENHANCED BENEFITS this annuity offers, such as guaranteed* income which can increase every year.
