Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, March 31, 2021

Here's Where The 4% Withdrawal Rate Fails

Estate planning"A 4% retirement asset withdrawal rate remains the standard for financial planning, but it doesn't hold up against every scenario." 

With longevity, volatility, and inflation, the usefulness of the 4% rule for retirement distributions. 

A new white paper that was released by the Alliance for Lifetime Income. The paper is called "Planning for Retirement Income Within a Increasingly Volatile and Uncertain World," and discusses common retirement planning income assumptions. 

The paper was written by Colin Devine and Ken Mungan who stated in the paper, “[t]he results provided by our research and models present substantial cause for concern, particularly within a world where increasing volatility has arguably become the norm.”

The authors of the paper found that, under normal conditions, the 4% rate is strong and "it poses a small 16% risk that retirees will run out of assets within the first 20 years of retirement." 

Devine and Munger found that the 4% rule could be faulty by extending their research beyond the 20-year point in retirement. "In each portfolio allocation assumption, the failure rate of the 4% rule crossed the 50% threshold somewhere between a person’s 30th and 40th year of retirement." 

The authors further mentioned that looking at a person's average life expectancy is not enough since "half of the population could be expected to exceed it. . .Extending the time horizon out to 25, 30, 35 or even 40 years suggests that for each of these time periods there is simply much too high a risk of outliving income.”

See Christopher Robbins, Here's Where The 4% Withdrawal Rate Fails, Financial Advisor, March 8, 2021. 

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.


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