Three Strategies to Make Retirement Last

According to the Wall Street Journal, experts are criticizing the traditional 4% rule for retirement. The rule states that an individual can remove 4% from his savings his first year of retirement, and take that same amount with a little more added each year to counter inflation. The 4% rule does include both bond payments and dividends paid on stocks. The theory is dividends and bond payments are reinvested in the portfolio. Experts used to believe that following the old rule would likely yield roughly 30 years of living without running out of retirement money. Recently, Wall Street Journal's Investing in Funds offered these three alternatives to help make certain a person's retirement money lasts his entire life.

• Replacing the bonds in your portfolio with annuities.
• Using life-expectancy tables to determine each year's withdrawal amount.
• Pegging your initial withdrawal rate to stock valuations and withdrawing a lower percentage when stocks are pricey.

The ‘inflation adjusted annuity' is a basic annuity with a stipulation that provides an inflation protection offered through insurers. A head of retirement expert stated it is helpful to use the IRS life-expectancy tables versus other life-expectancy tables such as the Social Security of Administration table because you may run the risk of the necessary minimum withdrawals being low.

See Kelly Greene, Rethinking Retirement Withdrawal Rates, The Wall Street Journal, Mar. 6, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this to my attention.