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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Rewriting The 4% Rule |
Seeking Alhpa - Oct. 6, 2011 - By Kevin Feldman
In my last post about spending in retirement, I talked about the ubiquitous 4% rule - a popular formula based on withdrawing 4% annually, plus inflation after the first year throughout your retirement years. Depending on your asset allocation, research has demonstrated a very high success rates (95-98%) in terms of not exhausting your retirement portfolio during your retirement. In fact, there have only been two years since 1929 - if you had retired in 1965 or 1966 - where the 4% rule would not have worked well given the long bear market of the 1970s combined with very high inflation. In most cases, the 4% rule achieves the opposite effect: leaving you with very high balances at death, which may also not be desirable unless you are planning a large legacy for your heirs.
In this blog, I wanted to review some of the ways financial planners and economists have proposed amending the 4% rule to optimize portfolio distributions.
Perhaps the most forceful criticism of the rule came in a 2009 paper, The 4% Rule — At What Price?, published in the Journal of Investment Management by Jason S. Scott, William F. Sharpe and John G. Watson. The problem with the 4% rule, these authors write, is that it financed a “constant, non-volatile spending plan using a risky, volatile investment strategy.” In other words, while your portfolio returns inevitably vary, the 4% rule mandates that your withdrawal rate stays the same. “As a result, retirees accumulate unspent surpluses when markets outperform and face spending shortfalls when markets underperform.” A more fluid, customized approach that factored in market fluctuation could help avoid both problems, the authors conclude.
These authors are not alone in questioning how well the 4% rule works based on market performance at the time of retirement. Other researchers have proposed rules-based frameworks that use the current vs. average P/E ratio - as well as other measures - to better forecast expected returns. Using these rules would have allowed sustainable withdrawal rates of 3.5% to 5.5% per year.
Finally, numerous authors have examined how retirement withdrawal rates are affected by when a person retires. What happens if, for example, you retired in January 2009 vs. in January 2008 when the stock market was about 30% higher? In a paper called “Sustainable Withdrawal Rates of Retirees: Is the Recent Economic Crisis a Cause for Concern?,” three authors from the University of Georgia find that if you get hit with a major market slide when or shortly after you retire you are more likely to burn through your savings at “conventional withdrawal rates." Their logical solution: Adjust your withdrawal rates. Economist Wade Donald Pfau comes to a similar conclusion in a paper looking at people who retired in the year 2000, when the tech bubble popped. His conclusion: They may “experience the worst retirement outcomes of any retiree since 1926.”
For the complete article.
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Income Security Recommendation January 2013 Issue.
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