The standard 4% withdrawal rate in retirement is a case in point that nothing is ever written in stone.

Advisors today are realizing they have to be more flexible, saying that they are just as apt to recommend a number lower or higher than 4% to clients as a more appropriate withdrawal rate. And some are using means completely different to set rates.

By no means, however, are advisors altogether dismissing the rule that was set in 1994 based on research done by William Bengen, only that they must take account of current economic realities, along with the individual client’s particular circumstances.

WITHDRAWAL STRATEGIES

“Most people don’t understand that whatever you earn you have to pay taxes on, and you have to reinvest back in to keep up with inflation,” explains wealth manager Lou Stanasolovich, chief executive and president of Legend Financial Advisors in Pittsburgh, Pa., “So if you’re already earning 3% and inflation is 2%, realistically there’s not too much you’re going to be able to take out without eating up your portfolio.

“We’re telling clients,” he says, “that a withdrawal rate of 2% to 3% today would be a safe rate for a portfolio 60% to 70% in equities, 40% in fixed income, and probably 3% is aggressive if 70% is in fixed income and 30% in equities – 2% is probably the right number.”

Mark LaSpisa, principal of Vermillion Financial Advisors in South Barrington, Ill., is basing withdrawal recommendations to clients on the IRS required minimum distribution tables.

“I use it as a guide based on their ages assuming they are in good health, where the ballpark should be for each age,” says LaSpisa. “If I have a client that is exceeding that, then we talk about guardrails, safety nets, what we are going to do to make sure that money will last.”

On the other hand, Richard Kahler, president of the Kahler Financial Group based in Rapid City, S.D., says he uses a tailored withdrawal rate based on MoneyGuidePro software that is set at a 99% probability.

“While most of our peers, and MGP, feel this is being too conservative, our experience has been very positive,” says Kahler. “We have found we rarely suggest clients reduce their spending, even in the worst of times. In general, this equates to a 2.5% to 3.0% withdrawal rate.”

4% STILL RELEVANT?

For its part, T. Rowe Price believes that the standard 4% withdrawal rate still has relevance today.

Stuart Ritter, a T.Rowe senior financial planner, who has done considerable research on the rule, says, “If you’re age 65 and planning to withdraw 4% of your balance the first year, 4% is still a reasonable starting point for most people in most circumstances.”

However, he adds, “An advisor working with an individual would be able to gather more personal information about that individual, and can customize accordingly.”

Bruce W. Fraser, a New York financial writer, contributes on Financial Planning magazine.