The 4% rule becomes the 3% rule (as if you needed this bad news)

Because of the risks facing a fully-valued stock market after a dramatic 13 year long rise from the March 2009 low, and due to the rise of inflation, and because bonds are getting hit due to rising interest rates, a couple of authoritative sources are saying that retirees should pare back their expectations for what stock & bond portfolio can deliver over the coming years.

Morningstar advises retirees use a 3.3% withdrawal rate. Wade Pfau is advising a 2.8% withdrawal rate. In other words, think of 3%, not 4%. I know, that’s not what people wanted to hear.

So if you have $100,000 in retirement accounts, those accounts can reliably only generate $3,000 per year or $250 per month in retirement income over a 30 year retirement, and giving yourself annual raises to match inflation.

Who is Wade Pfau, PhD? He is Professor of Retirement Income in the PhD in Financial and Retirement Planning program, Co-Director of the American College Center for Retirement Income, and RICP ® program director at The American College of Financial Services. Pfau is a co-editor of the Journal of Personal Finance.

And if you are taking RMDs from tax deferred accounts, the IRS sets withdrawal rates - currently 3.65% at age 72 and escalating each year thereafter.

I think if you use a 3%-ish rule to begin retirement, and make it to RMD age, you’re going to be fine. You can always push what you didn’t spend from your IRA back into a brokerage account, or I-Bonds. Or spend the 3% and for the 0.65% do a QCD to a charity, there’s your 3.65%.

The $25T retirement industry is facing tougher times in the road ahead. What has been a fairly lucrative way to make lots of money is becoming more competitive as industry newcomers to the scene are using newer technology and methods while the outlook for more restrictions seems a sure thing as people live longer and retirement lifestyles adjust to an ever-aging population center of gravity.

Wade Pfau and his employer, the American College Center for Retirement Income, will have to come up with creative ways to keep attracting new blood the keep the industry going. Suggesting that the customers of their industry prepare for a less attractive product is part of that process.

Oh I see. 3% SWR if you pay us to advise you, if you manage yourself with a simple portfolio that works well the 4% rule still works? but we don’t get paid :frowning: