According to Daniel Ariely, professor of psychology and behavioral economics at Duke University, financial advisors are asking the wrong questions when they help their clients plan for retirement. Most retirement planning is based on the answers of two questions:
In my past posts covering retirement withdrawal rates, I addressed various issues relating to asset allocation, different time frames of retirement, and the impact of taxes, among others. In this piece, I would like to highlight how market conditions can affect retirement planning, focusing on an issue that has dominated the headlines -- interest rates.
Last month, I addressed tax diversification and how you can have flexibility to pull assets from a variety of locations to manage the income tax impact on spending during retirement. In addition, in my series on retirement withdrawal rates, I have weighed in on a number of issues impacting this subject matter.
In the series of posts I wrote on retirement withdrawal rates, my goal was to summarize various technical articles into actionable advice for pre-retirees and retirees. One of the top fears of retirees is the prospect of outliving their financial resources. By understanding withdrawal rates, people can have reassurance that their retirement is on track and they have the ability to maintain a specific lifestyle.
In past posts, I covered two issues relating to retirement withdrawal rates. My November post detailed William Bengen's "4 percent rule" for sustainable withdrawal rates, and my December piece focused on the relationship between beginning withdrawal rates and asset allocation -- both centering around a withdrawal time period of 30 years. In this post, I will discuss the appropriate level of change to withdrawal rates under longer and shorter time frames.
My last post on sustainable withdrawal rates was an overview of the initial research and assumptions used to determine the beginning withdrawal rate from retirement assets. In this post I will delve into how asset allocation impacts the rate of withdrawal.
Look at any advertisement from an investment company and you will see pictures of retirees happily walking down a beach, holding a golf club, or spending time with their family. These are the images our society uses to portray retirement. However, there is one big question that stands between the bliss of retirement and the financial resources intended to fund it: How much of my resources can I spend on a yearly basis and for how many years?