Why The 4% Withdrawal Rule For Retirement Is History

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A recent article discusses a savings target based on 4% withdrawal vs 3.5%. According to John L. Smallwood, the target is the problem.

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The 4% Withdrawal Rule Is History

It is impossible to predict how much money you will need in retirement since the all the variables of the equation are subject to change.

  • Life expectancy. You don't know if you will live 10 years into retirement—or 50.
  • When the 4% rule was created, the 10 year treasury was around 7% in 1992, 10 years earlier in 1982 it was 15.8%, in 1972 it was around 7%. Today it is .69%
  • You don't know what the tax rates will be.
  • And you don't know what the inflation rate will be.
  • You don't know if LTC will strike you or your partner.

"The target savings rate limits your ability to accumulate and can potentially create an over spending problem. The 4% withdrawal rule looks at historical information which is just that...history! History does not repeat itself, although many things that happen seem similar. In using this historical info, it focuses on one type of product to rely on for financial success, when in fact the only way to have a successful retirement is to have a blend of many different types of financial products that by nature, give you flexibility," says Smallwood.

"So many people have to draw income from all sources of savings. They don't have a source of funds available for emergency to draw on when markets are down. By using a combination of financial products, you can structure increased income and protect your wealth from the ravages of inflation, heath care, etc. Perfect balance, which consist of cash, life insurance cash value, guaranteed income products and stocks and bonds—combined in a manner to reduce risk—reduces taxes, reduces fees, increases income and allows you to pass more to on to your family."


About the Author

John L. Smallwood is a senior wealth advisor and president of Smallwood Wealth Management and affiliated companies, providing investment consulting and financial plan design for corporate executives, entrepreneurs, and professionals. He is the author of It’s Your Wealth – Keep It: The Definitive Guide To Growing, Protecting, Enjoying, And Passing On Your Wealth, and a previous book, Five Ways Your Wealth is Under Attack.

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