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- Title
A Phased-Income Approach to Retirement Withdrawals: A New Paradigm for a More Affluent Retirement.
- Authors
Robinson, Charles D.
- Abstract
• Traditional withdrawal planning starts at the beginning of retirement by identifying a "safe" withdrawal rate. The phased income approach discussed in this article takes a significantly different approach by starting its focus on risk-based issues at the end of retirement. It then works backward to create a wealth-distribution strategy that aligns retirees' income with their changing needs during retirement. • This phased approach estimates and funds income beyond age 95 to minimize the risk of outliving assets. It also addresses risk-based needs for health care, long term care (LTC), and legacies. • It estimates income for ages 85-95, then creates a contingency plan that defers the life annuity decision to age 85 to preserve flexibility and leverage the mortality premium to support higher income in the early years of retirement. • It then uses the remaining assets to fund twin ten-year income bridges for age 65-75 and 75-85. • Testing against historical data from 1926 to 2005, there was no phased income scenario in which a retiree ran out of money. • On average, the process generated the following outcomes: (1) It generated initial income at age 65 that was nearly twice the traditional 4 percent solution (2) It produced more cumulative income from age 65 to 95 than the traditional method, while leaving a residual value at age 95 to provide a legacy or to increase total income. (3) Because the tested model elected to retain residual values, it produced slightly less consumable income beyond age 95 than the traditional methods, but left income to help pay estimated health care and LTC premiums from 65 to 105, assuming 7 percent inflation.
- Subjects
EFFECT of inflation on income; RETIREMENT planning; RETIREMENT income; RETIREMENT policies; LIFE annuities; FINANCIAL planning
- Publication
Journal of Financial Planning, 2007, Vol 20, Issue 3, p44
- ISSN
1040-3981
- Publication type
Article