Practical Applications of The Death of the 4% Rule: New Market Conditions and Retiree Needs Require Rethinking Retirement Spending

In <ext-link><bold><italic>The Death of the 4% Rule: New Market Conditions and Retiree Needs Require Rethinking Retirement Spending</italic></bold></ext-link>, from the Spring 2024 issue of <bold><italic>The Journal of Retirement</italic></bold>, <bold>Karyl Leggio</bold> of <bold>Loyola University Maryland</bold>, <bold>Donald Lien</bold> of the <bold>University of Texas at San Antonio,</bold> and <bold>Ya Dai</bold> of <bold>Western Carolina University</bold> find that annual retirement withdrawal strategies based on either 1) required minimum distributions (RMDs) plus interest and dividends or 2) 6% of remaining assets outperform the conventional 4% rule. The authors considered six decumulation strategies using Monte Carlo simulations and machine learning to model stock and bond returns for a conservative portfolio of 60% government bonds and 40% large company stocks. They found that dynamic decumulation strategies, whereby withdrawals are based on the remaining portfolio value, consistently outperformed strategies based on a fixed percentage of starting assets. The dynamic strategies reduced the risk of retirees depleting their savings prematurely. Of the six tested strategies, the strategy based on Internal Revenue Service (IRS) RMD tables performed the best at preventing fund depletion without unnecessary restraints on retirement spending.