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What Everybody Ought To Know About “Safe” Portfolio Withdrawal Rates

Carl Ostenson

If you are fed up trying to figure out how much money you will be able to retire on, just sit down right now and read this critical material.

Are these situations familiar to you?

  • You keep your money in mutual funds, but you are really worried about losing money again
  • You are faced with the issue of needing income to supplement your Social Security after you retire
  • Are you grappling with having so many different decisions to make?

MORNINGSTAR has recently completed a comprehensive retirement income study. You need to read it, but I warn you. You may not like the results.  And I GUARANTEE your financial advisor will not like the results. But it’s your money and your well being we are talking about.  Not his.

The report is titled Low Bond Yields and Safe Portfolio Withdrawal Rates.”

It was done by David Blanchett, Head of Investment Research Morningstar Investment Management. Michael Finke, Professor of Personal Financial Planning at Texas Tech University and Wade Pfau Professor of Retirement Income at the American College.

You can access the full report here.  Read Morningstar Report

Here are some bullet points.

  • Using this model, we find a significant reduction in “safe” withdrawal rates, with a 4% initial real withdrawal rate having approximately a 50% probability of success over a 30 year period.
  • We find a retiree who wants a 90% probability of achieving a retirement income goal with a 30 year time horizon and 40% equity portfolio would only have an initial withdrawal rate of 2.8%.

Do you really want to base the success of your retirement income plan on the flip of a coin?

Yep. You read it. Starting at a 4% withdrawal rate, it’s a coin flip on running out of money.

You must start at a 2.8% initial withdrawal for a 90% chance of it working out.

Let’s put that in numbers.

Let’s say you are 65 with $500,000. You just retired, and you need income from your nest egg to maintain your lifestyle.

If you keep your money in a typical diversified portfolio and start today with a 4% withdrawal, or $20,000, you have a 50% chance of running out of money over a 30 year retirement.

You need to start at a 2.8% withdrawal or $14,000 to give yourself a 90% chance of not running out of money.

Here is the conclusion of their study.

“We find that a 4% initial withdrawal rate has approximately a 50% probability of success over a 30 year period. This success rate is much lower that past studies, which have typically noted a probability of success above 80%. This has significant implications on the likelihood of success for retirees today as well as how much those nearing retirement need to have saved to ensure a successful retirement.

For example, a retiree who wants a 90% probability of achieving a retirement income goal with a 30- year time horizon and a 40% equity portfolio would only have an initial withdrawal rate of 2.8%. Such a low withdrawal rate would require 42.9% more savings if the retiree wanted to pull the same dollar value out of the portfolio annually as he or she would get with a 4% withdrawal rate from a smaller portfolio.”

Why set up your own personal pension?

Look, your retirement income plan will have more value and you’ll be happier if you can remove the things that aren’t making you and safer, happier and successful.

More and more reports are being done about why it’s smart to use Annuities to set up your own personal pension and remove the risk of running out of income.

Here’s an article to read. Retirees Need Less Stocks and More Annuities Equities Should Be No More Than 25% of Your Portfolio.

The simple theme is this. Put a portion of your money into something that will guarantee the income you need. Then do whatever you want with what’s left over because you have your base living income covered.

How does it work?

One type of plan that is attracting Billions of retirement dollars is an Index Annuity with an Income Rider.

The insurance company guarantees you a withdrawal rate based on your age.

At 65 it could be 5.5%. At 70 it could be 6%.

This is a contractually guaranteed withdrawal rate, not a guess.

That means you can withdraw money every year, and even if your account runs out, they still guarantee you that income for life.

So in our example,  (Using a leading annuity provider’s illustration), the 65 year old who has $500,000 only needs to put $336,639 into an Indexed Annuity With an Income rider and they will get a Guaranteed $20,000 for as long as they live.

They will have as close to a 100% chance of it working as you can get, because it’s based on contractual guarantees.

That leaves them with $163,361 left over.

They can invest that however they want to because at least know they have their $20,000 coming in for life.

Learn More

To learn more about Personal Pensions and Index Annuities with Income Riders I invite you to watch this 8 minute video Paycheck For Life, because you will learn how they work and get a few examples.

Watch Paycheck For Life Video Here

If this is appealing to you, we should talk. We really do need to see if this all makes sense for you.

If you are skeptical, I understand. It’s natural to take a conservative position.

I invite you to call this number 847-376-8400 and set up a Personal Interview with me.

Even if we talk, and it doesn’t work out and we don’t have a fit, you are still going to learn something new.

Click here (Carl Ostenson) to see more of this author’s articles.

About the Author:

Carl Ostenson specializes in helping his clients use their IRA or 401k to set up their Retirement Income Plan for when they retire. He works with clients in the Chicagoland area and surrounding suburbs.

If you live in Chicagoland and want to talk about annuities with a local guy, give Carl a call at 847-376-8400… there’s never any pressure. To get more about Carl, visit:

Be sure to check out his Free IRA Guide titled “How to Get Secure and Predictable Income From Your IRA/401k When You Retire.”


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