In the December 2018 issue of the AARP Bulletin Jane Bryant Quinn writes about “Money for Life” Part of her formula includes the following:
Sorry Jane, while I have great respect for your expertise, I think you missed the boat on this one.
Her assumption regarding what is taken from savings is use of the 4% rule which says you can take 4% from your savings plus inflation each year and not run out of money or at least have it last thirty years.
In recent years that rule has come under question. Some experts say it’s too little at least in early years, others say it’s too inflexible and doesn’t recognize that during severe down stock markets it may be risky taking that much. And then there is the fact that when qualified plans (IRAs/401(k)) are involved the IRS dictates your withdrawals after age 70 starting around 4% but increasing each year thereafter.
I can tell you seniors are very worried about inflation and each year are convinced that the Social Security COLA is woefully inadequate. The Federal Reserve Bank of Atlanta allows you to enter personal data and they compare your personal CPI with the national CPI. MyCPI has frequently outpaced the national CPI.
The experts tend to overlook the human aspect of their advice. Average people are frequently not equipped to deal with the ups and downs of the markets, nor are they sophisticated investors and they worry. And they tend to be conservative investors, perhaps too conservative … too conservative to rely on the 4% rule.