November 17, 2004 06:56 AM
Retirees Don't Have to Be So Frugal: A Case for Withdrawing Up to 6% a Year
Excerpt: Retirees may be able to withdraw as much as 6.2% initially, provided they follow three rules. "There's nothing radical to this," Mr. Guyton says. "It's just a matter of being street smart. These are things you would sensibly think about doing after a tough year."
Maybe you don't have to order the early-bird special after all.
Many retirees have trimmed their spending during recent years, and it isn't just because of plunging bond yields and tumbling stock prices. Instead, they have been reacting to dire warnings from Wall Street, cautioning them that their portfolios can't sustain the sort of withdrawal rates that used to be considered safe.
Feeling pinched? Don't resign yourself to a lifetime of scrimping and saving just yet.
Boosting income. When advising seniors about their spending, financial experts have grown increasingly conservative. For instance, one influential study found that, if retirees want to be confident their savings will last 30 years, they need to limit their initial withdrawal rate to 4.1%, or $4,100 for every $100,000 saved.
But a new study by Minneapolis certified financial planner Jonathan Guyton, which appeared in October's Journal of Financial Planning, suggests retirees don't have to be nearly so frugal. He analyzed how to generate 40 years of income while surviving brutal market conditions, such as high inflation and a steep market decline early in retirement.
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