The Actuarial Approach Addresses the “Big Flaw” in Most Decumulation Approaches

Recently, in her Motley Fool article, A Big Reason the Famous 4% Rule May Not Work for Your Retirement,
Maurie Backman confirmed what we have been telling our readers for
years—you aren’t going to solve the decumulation problem in retirement
by assuming you (or your client) will spend the same real dollar amount
each year in the future. While Ms. Backman focuses on the 4% Rule, her
criticism applies to most different types of Strategic Withdrawal Plans
(SWPs) and even many Monte Carlo simulation approaches typically used by
financial advisors today.According to Ms. Backman,“… the 4% rule has a big flaw that could make it unsuitable for you. And it has to do with how you spend your money.Retirement spending isn’t always linear”If you want to front-load your spending in retirement or you simply have non-linear planned or unplanned expenses, such asMortgage repaymentsPre-Medicare health insurancePlanned vacations until a specified ageNew automobile purchasesAssistance with grandchildren educationUnexpected or expected medical or dental costsLong-term care costsFamily supportHome remodelingThen using a SWP to supplement your Social Security benefits will likely be inconsistent with your spending goals.In response, Ms. Backman advises:“But
all told, there’s no reason to stick to the 4% rule if you find it too
limiting. If that’s the case, figure out your income needs early on in
retirement versus later, and run some calculations to make sure your
nest egg can support your plans. If it can, then there’s no need to
follow a withdrawal rule that doesn’t result in the retirement you’ve
been dreaming of.”Thank you, Ms. Backman. We couldn’t have said it any better. So, if you are looking for a robust Strategic Spending Plan that
can handle these non-linear expenses (and non-linear sources of income
as well) and can help you manage your spending and your risks during
retirement, you have found it here with the Actuarial Approach.