Stone in Advisor Perspectives: Think Differently about Retirement Income
William Bengen’s 4% rule is approaching its 25th birthday. In the nearly three decades since his discovery of the safe withdrawal rate, much has happened. We’ve navigated the tech boom, and the housing bubble of the last decade, and are new riding a ten-year bull to new highs. Until last week!?
A recent survey from the American College of Financial Services revealed that 7 in 10 consumer respondents weren’t even aware of the 4% rule. 16% thought the safe withdrawal rate to be more like 6 or 8%. For RIAs charging a 1% fee, that 4% is more like 3. Given all of the above, it’s time to think differently about creating sustainable retirement income streams.
And since there’s a direct correlation between interest rates, and the value of these guaranteed withdrawal benefits, the math may be getting even better. As interest rates rise, these guarantees promise to grow more generous.
While your fixed income investments may be suffering in this rising rate environment, your ability to manage longevity risk and market risk may only improve. What today is a 5% guaranteed withdrawal could grow even higher—further outpacing a 4% withdrawal regime.