WSJ: Say Goodbye to the 4% Rule

There are plenty of articles about shortcomings of the 4% rule - which  
is still a great *starting point* if not a real plan. The WSJ brings up  
a few alternatives to help overcome the problems with the 4% rule:

http://online.wsj.com/article/SB10001424127887324162304578304491492559684.html?mod=googlenews_wsj
 



Some of the adjustments/alternatives discussed:

(1) using annuities (SPIAs) instead of bonds
(2) tie withdrawals to the life expectancy tables rather than a the  
traditional 4% rule's inflation-adjusted 4% (of whatever your starting  
balance was) - using last year's end-of-year balance every year.
(3) Kitces' rule pegging withdrawals to market valuations  
(specifically, the PE10 of the S&P500)

Some really good food for thought here.  It seems most discussion of  
investing and portfolio construction is geared towards accumulation  
phase, not distribution phase.  The 4% rule caught on in a huge way  
because it was simple, understandable, and based on history, generally  
helpful.  The well known shortcomings - failure when there are early  
periods of poor returns, and having withdrawals entirely untied from  
performance of portfolios or valuation - are things that nobody's truly  
come up with a perfect solution for.  It's nice to see some discussion  
of this in the popular press.

In a similar vein, I've seen lots of articles about the "bucket method"  
but very few about the actual mechanics of *living* with the buckets -  
they describe how to set the buckets up in year one, but what do you do  
the next year and the year after - how do the buckets "evolve" and how  
do you modify it over the course of different potental performance? --  
living off a portfolio is just not that simple, and if it doesn't work  
out, it's not the same as deciding to work a few extra years, since it  
won't be clear that it's not worked out until years after you've  
stopped working.


--  
David S. Meyers, CFP(R)                                                  
        http://www.MeyersMoney.com  
disclaimer: for educational purposes only. This is not financial  
advice.