High Income, Or Stable Income, In Retirement? (Podcast)

by: SA For FAs
Summary

Nobel Prize winning economist Bill Sharpe has been simulating various income paths through a variety of strategies, including fixed withdrawal rates and annuity approaches.

He calls approaches like the 4% rule inefficient because you either spend too much and go bust or spend too little and leave too much to heirs.

Sharpe thinks annuities increase efficiency by letting you spend more.

Noting that a period-certain annuity is like a bond ladder, he suggests that retirees can see which is cheaper, net of fees, buy that and tack a deferred annuity at the end.

Nobel Prize winning economist Bill Sharpe has been simulating various income paths through a variety of strategies, telling Investment Advisor magazine that fixed withdrawal approaches, like the 4% rule, are inefficient because you either spend too much and go bust or spend too little and leave more to heirs than you planned. Sharpe thinks annuities increase efficiency, by letting you spend more. Noting that a period-certain annuity is like a bond ladder, he suggests that retirees can see which is cheaper, net of fees, buy that and tack a deferred annuity at the end.

This brief podcast (4:38) argues that, given all the uncertainties in retirement planning, ruling out the outcome you least want (i.e., financial ruin) while injecting your own Plan B at the outset can give you the confidence to take on a bit more risk.

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