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Monday, April 23, 2012

A Closer Look at the Assumptions Behind Safe Withdrawal Rates (SWRs)

Table 2.4 A Closer Look at the Assumptions Behind Safe Withdrawal Rates (SWRs) Assumption Changing the Assumption Causes SWRs to be… 1 U.S. historical data is sufficiently representative Lower 2 Investors earn index returns: no fees or underperformance Lower 3 Financial portfolio is tax-deferred Lower 4 No desire to leave a bequest or safety margin Lower 5 Planning horizon for 4% rule is 30 years Could go either way 6 Retirees always spend a constant inflation-adjusted amount Higher 7 Only a few asset classes are available Higher 8 Retirees do not adjust withdrawals based on market returns Higher 9 Retirees maintain a fixed asset allocation throughout retirement Higher 10 Goal of retirement is to minimize failure probabilities Higher


Posted by Wade Pfau at 12:00 AM 2 comments:
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Wade Pfau
Wade D. Pfau, Ph.D., CFA, is a Professor of Retirement Income in the new Ph.D. program for Financial and Retirement Planning at The American College in Bryn Mawr, PA. He is a past selectee for the InvestmentNews Power 20 for people expected to shape the financial advisory industry, and is a recipient of Financial Planning magazine’s Influencer Awards. His research article on “safe savings rates” won the inaugural Journal of Financial Planning Montgomery-Warschauer Editor’s Award, and his work on evaluating the outcomes of different retirement income strategies received an Academic Thought Leadership Award from the Retirement Income Industry Association. He has also served as a past curriculum director for that organization’s Retirement Management Analyst (RMA) designation program, and he has contributed to the curriculum of The American College’s Retirement Income Certified Professional (RICP) designation. He holds a doctorate in economics from Princeton University, and he has published research on retirement planning in a wide variety of academic and practitioner research journals. He is also an active blogger on retirement research, maintains the educational Retirement Researcher website, and is a monthly columnist for Advisor Perspectives, a RetireMentor for MarketWatch, and an Expert Panelist for the Wall Street Journal. His research has been discussed in outlets including the print editions of The Economist, Wall Street Journal, Money Magazine, and SmartMoney. See his Google+ profile for contact information.
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