Using the 4% rule for retirement withdrawals has been a much studied approach and has produced some skeptics due to its lack of flexibility. There are several withdrawal strategies, which Morningstar compared in depth in a recent study.
But as ALM’s Tax Facts notes, “Some advisors find that the [required minimum distributions] method should be considered as a potential alternative to the 4% rule. … It may be, in many ways, more realistic than the 4% rule because it bases withdrawals on the current value of the taxpayer’s retirement assets.
“While this requires determining the account values each year, it also allows taxpayers to modify their consumption levels based on actual account performance. Because the percentages are based on life expectancy and vary with age, it is still unlikely that the taxpayer will outlive his assets.”
We asked three retirement specialists about this analysis, and here are their takes on using RMDs: