The 4% Rule Is Dead, Will You Outlive Your Money?

12882376_s (1)This week, David is joined by John Little to discuss an important topic. David and John talk about a recent published study titled “The 4 Percent Rule is Not Safe in a Low-Yield World.” The study argues that advisers make a grave mistake in basing their clients retirement plans on historical returns that may be an anomaly.

Some highlights from the study:
Investment companies often include in their disclosures that “past returns do not guarantee future results” but to the study’s co-author, Michael Finke, says that’s not just rhetoric. “We’re trying to acknowledge what present reality looks like and apply that reality to the retirement income plan”, Finke says. There is no reason to believe that the market for assets in the 21st century is going to look like the market for assets in the 20th century.

“Most planners take some comfort in knowing that the 4% inflation-adjusted withdraw rate wouldn’t cause a retiree to run out of money in a 30-year retirement. Previous studies that supported the 4% rate used historical yield data that don’t look anything like what new retirees are facing today.”

The study concludes that the probability of a retiree running out of money is very real and many financial planners are setting up their clients to run out of money.

Recomended Reading:
Advisor One: 4% Reitrement Rule is Dead
Marketwatch: Stocks dead, bonds deader till 2022: Pimco
Chicago Tribune: Study Urges Caution With Retirement Funds

If your adviser can not answer yes to the following two questions, then the answer is an automatic NO.

1. Can they tell you exactly how much money you will receive each and every month during retirement and;

2. Can they guarantee that you will not outlive your money?

To learn how to answer yes to both of these questions, you can reach David at: 501-218-8880 or online at: DavidLukasFinancial.com 

  • Bill

    I tell You, I’ve Been watching my portfolio as my principal has continued to be depleted. After reading that report, I am very concerned about the advice I have been given.