How to make your retirement savings last forever, according to MktwHulbert
Of course not. Yet many financial plans nevertheless assume that you will. The famous 4% rule, for example, grew out of research about what steady withdrawal rate you could maintain throughout retirement and never run out of money—even if the markets perform as terribly as they have in the worst periods in U.S. history.
In it, Estrada measured the success rates of various strategies that adjusted withdrawal rates depending on whether your portfolio in any given year is ahead or behind of what your retirement financial plan had assumed it should be. It will be ahead, needless to say, if your investments perform better than had been assumed by your financial plan—and behind if your investments have performed more poorly.
In fact, of course, that italicized assumption is unrealistic. Given the inevitable variability of yearly returns along the way—some good and some bad, it’s not unlikely that, at some point along the way, your portfolio’s performance would be insufficient to support that rate of steady withdrawals. You’d run out of money, in other words.
Thirdly, the dynamic strategies Estrada explored also allow for increased withdrawals following years in which your retirement portfolio is ahead of its targeted value. There is no requirement that you spend that extra amount, of course, and you could put it in a rainy-day fund to support you in those years in which withdrawals are lower.
This new study extends that conclusion, allowing us to conclude generally that being dynamic—a willingness to adjust investment or withdrawal amounts—increases your chances of reaching your goals.
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