Previews: “Slaying the Wrong Dragon,” a paper by Michael LaBrie and associates to be published in the next Retirement Management Journal® (RMJ®)

The critical Maximum Sustainable Withdrawal Rate question has been on the minds of retirement income planners and in the news.

Over more than two decades since its introduction, William Bengen’s “4% Rule” for setting expected maximum sustainable retirement withdrawal rates has been both praised and maligned. LaBrie and his co-authors make the historical case that no “one-size-fits-all” withdrawal rate solution - like the 4% Rule - will ever reliably inform retirees.  They believe a different question must be asked and a fresh perspective is needed.

LaBrie, owner of Compass Point Retirement Planning, suggests a new approach, called the “ValueGap Method” provides a much needed and potentially game changing additional step to Bengen’s ingenious start.  They show how significantly it has narrowed the gap between expected and actual sustainable withdrawal rates as they test their theory on over two centuries of historical data.  The authors find valuation error to be the predominant driver of failed withdrawal rate selection – and find that unfortunately corporate-earnings based valuation tools don’t work here.  They propose using a new valuation tool, the “ValueGap Ratio,” to identify and negate retirement date valuation error and show its profound impact in historically solving what they see as the greatest challenge facing modern retirees.

Read more in the upcoming issue of the RMJ® – due out in early July, 2016.

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