Time to Retire the 4% Rule, Retirement Pros Say
![four percent header written with a chalk on the blackboard](https://www.insurancenewsmag.com/wp-content/uploads/2022/10/Time-to-Retire-the-4-Rule-Retirement-Pros-Say.jpg)
According to Lau, Stone and Blanchett, the 4% withdrawal rule is about as likely to cause over-spending as it is to cause under-spending for any given retiree. The real sustainable spending level will depend on a myriad of factors, from the sequence of market returns to the anticipated retirement lifestyle.
The trio agrees that addressing a clients’ tolerance for income risk and their desire for safety needs to start well before retirement begins — with planning that takes into account both their financial and emotional needs. Something like the 4% rule, which relies on full market participation with no annuitization of assets, may very well work for a client that has excess assets and a strong stomach for risk.
“For clients who have sufficient assets and who can handle the market volatility without making trading mistakes based on fear or emotion, a probabilities-based total return strategy that draws retirement income directly from the portfolio may be the right approach,” Blanchett says.
On the other hand, for those who are uncomfortable riding out the markets, incorporating a guaranteed income component into the overall plan in the form of an annuity can help alleviate many of the fears clients express.
“This is going to be far more productive to a retirement income plan compared with just seeing the person move to cash,” Lau emphasizes.
According to Stone, Lau and Blanchett, recent developments in the annuity marketplace have completely reshaped the solution set that is available to advisors and their clients. While traditional single premium immediate annuities, or “SPIAs,” continue to generate income through true annuitization, it is now far more common for income to be generated through riders.
This means that many annuities products have far more flexibility than advisors and clients often assume, Lau says.
“This is important because clients are not turning over assets to the insurance company to generate income,” Lau explains. “When income is generated using a rider, cash value remains in the portfolio until it is depleted through distributions.”
Stone says this development is incredibly important for advisors to understand, because it addresses the most common point of hesitancy clients cite when refusing to consider annuities as part of their retirement income planning efforts. Additionally, Stone says, the broad move away from commission-based business towards fee-based fiduciary advisory work is also helping to remake the income landscape.
All in all, the panelists agree, it is time to retire the 4% withdrawal rule as an income plan. The data will remain useful, they agree, but advisors have to step up their game.