Here’s Why You Shouldn’t Blindly Follow Retirement “Rules of Thumb” 

If you’re like most women, your biggest fear is likely running out of money in retirement. Or maybe it’s living beneath your desired lifestyle because you are worried about running out of money. 

So, if this applies to you, we suggest you avoid using two longstanding rules of thumb – the 4% rule and the 60/40 portfolio. 

Why? Well, new research commissioned by the Alliance for Lifetime Income shows that retired Americans who use both a conservative 60/40 investment mix and a moderate 4% withdrawal rate indexed for inflation, risk running out of income based on today’s average life expectancy. 

The researchers further noted that the risk of running out of income was: 

• 11.0% during the first 19 years – that’s the average life expectancy for a male aged 65. 

• 20.0% over the first 22 years – that’s the average life expectancy for a female aged 65. 

• 34.6% within the first 27 years – that’s the combined average life expectancy for a male/female couple age 65. 

I’d say that’s not good enough.  I would never fly on an airline that crashed one out of every ten planes! In fact, that airline would be shut down by the FAA before the day was over. Yet, many people in the financial services industry tell us we can spend as much as 4% per year.  Current research shows that 25% of market outcomes could cause us to go broke – meaning 1 out of 4 scenarios lead to running out of money.   

Old Math Applied to a New Reality

 The gentleman who did the original study to determine how much you can safely spend in retirement won a Nobel prize for their conclusion and he told people back in 1998 that the safe withdrawal rate in retirement was 4-6%. 

 BUT … when the data from 1999-2023 is added to the research the conclusion is radically different.  A 4-6% withdrawal rate leads to failure in 25-75% of all market outcomes. That means going broke in 1 out of every 4 possible market scenarios.  Or at the higher end 3 out of every 4 market scenarios!  

Today, the experts are still trying to figure it out.  There is no conclusive answer to, “How much can I safely spend in retirement?”  I don’t know about you, but I don’t want to be the experiment. 

What can you do about it?

Educate yourself.  Are you being directed toward tired old strategies that should have been retired years ago? Learn about updated financial strategies for the world we find ourselves in today. 

The ultimate goal is to enter retirement with confidence that your income will last your entire life, a plan for taxes, the rise and fall of the markets, healthcare in your elder years, and a legacy plan for your future generations. 

In Summary

Retirement withdrawal planning is intricate but crucial. By developing a withdrawal strategy, you can maximize your retirement income and minimize tax stress. Do you have a solid retirement plan? Let’s chat about it.