The four percent rule, used to determine how much in savings a retiree can safely withdraw annually while ensuring an adequate nest egg throughout retirement, remains a “reasonable” starting benchmark for guiding retirement income planning strategies.
So concludes the American Institute for Economic Research in a new report, “From Savings to Income: Retirement Drawdown Strategies.” The report examines the performance of 8 retirement income drawdown strategies when applied to actual market returns achieved from 1928 and 2013.
The study measures the drawdown strategies based on a “utility score” that reflects average annual spending and minimum annual spending. The strategies include constant dollar/inflation-adjusted, constant percentage, smooth percentage, constant-percentage floor, inflation-adjusted percentage, increasing percentage and required minimum distribution (RMD) percentage.
“Although the average utility score for a constant dollar strategy is highest at a 4.5 percent withdrawal rate,” the best strategy for poor outcomes was found at a lesser rate of 3.5 percent,” the report states.