Retiree Withdrawal Plans: Keep It Simple

Despite doubts previously expressed here, that group of retirees known as the Spend-Downs continue to attract the lion's share of attention. Ron Lieber looks at complicated efforts to justify higher withdrawal rates. One approach requires the investor's adviser to calculate the ten-year average earnings for the S&P, adjust for inflation, then create a P/E ratio which signals whether the investor's annual withdrawal should be 4.5%, 5% or 5.5%.

Another scheme allows a retiree's adviser to suggest a 6.5% withdrawal, or maybe 6% – sometimes made without inflation adjustment ( if stocks have a bad year) and sometimes reduced by one-tenth (when stocks have a really bad year).

Aren't we getting awfully complicated? Advisers who fail to keep things simple could face a backlash. Clients may realize there's an easy, "no cost" way to withdraw 5% instead of 4% each year: become a do-it-yourself investor. By disengaging their adviser, they can start spending the one percent or so they've been paying for his services.