Variable Withdrawal Rates Better For Retirees, Morningstar Says

Other discussions not related to the Permanent Portfolio

Moderator: Global Moderator

Post Reply
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Variable Withdrawal Rates Better For Retirees, Morningstar Says

Post by vnatale » Sat May 13, 2023 8:45 pm

Variable Withdrawal Rates Better For Retirees, Morningstar Says

https://www.fa-mag.com/news/variable-wi ... -222662257

For retirees who want to squeeze more from their portfolios, especially in early years, a dynamic retirement withdrawal strategy that varies cash flows based on portfolio performance may work better than stratgies that produce the same static withdrawal rates year after year, Christine Benz, Morningstar's director of personal finance and retirement planning, says in a new blog.

In fact, in research looking at safe withdrawal rates performed late last year by Morningstar chief ratings officer Jeff Ptak, director of research John Rekenthaler and Benz, every one of the dynamic strategies the three tested created a higher starting safe withdrawal rate than a static withdrawal system.


“Whereas our ‘base case’ system of fixed real withdrawals pointed to a 3.8% starting withdrawal percentage as sustainable for a balanced portfolio over a 30-year horizon, the starting safe withdrawal rates for variable strategies ranged from 4% to 5.3%,” Benz says.

Which dynamic strategy created the highest initial withdrawal rate?

The winner is the guardrails strategy, developed by financial planner Jonathan Guyton and computer scientist William Klinger. Guardrails not only offered the highest starting withdrawal rate, but also the second-highest lifetime withdrawal rate of any of the systems tested, Benz said.

“For a 50% equity/50% bond portfolio, the average safe starting withdrawal rate for a 30-year horizon with a 90% probability of success was 5.3%. In this context, we define 'success' as not running out of funds by year 30,” she added.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
Post Reply