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:
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
David S. Meyers, CFP(R)
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