Turn on more accessible mode
Turn off more accessible mode
Sign In
It looks like your browser does not have JavaScript enabled. Please turn on JavaScript and try again.
Join FPA
Renew
Partner with FPA
Press Room
About FPA
Login
Policies
Business Success
Advocacy
Community
Journal
Currently selected
Archives
Journal of Financial Planning, Articles & Information | FPA
October 2013 Online
Avoiding an Unpleasant Surprise
IRA Charitable Giving: Are You Using this Strategy Appropriately?
October 2013 Starting Thoughts
About
Contribute
Understanding and Dealing with Client Resistance to Change
Importance of Human Capital in Recovery from Divorce for Women
The Asset Location Decision Revisited
Got Stress Good Use It to Your Advantage
How to Avoid Misclassifying Employees
5 Steps to Kick Start Your Business
November 2013 Online
November 2013 Starting Thoughts
Guaranteed Free Money with ETFs
Lessons from Postage Meters
How Predictive Is the Month of January
Recent
2015 Compensation Study
Free Knowledge
Home
Membership
FPA Member Benefits
JoinFPA
My One Connection
Partnering with FPA
International | $59 annually
First Year Introductory Membership for CFP® Professionals | $199
2nd Year CFP® Professional | $299 annually
Allied Professional - Financial Services | $299 annually
Allied Professional - Non-Financial Services | $199 annually
CFP® Candidate | $149 annually
CFP® Certificant Student | $99 annually
CFP® Professional | $399 annually
Current FPA Group Membership Firms
Faculty| $149 annually
Full-time Student | $39 annually
FPA Group Membership
FPA Membership Monthly Payment Option
Member-Get-A-Member Program
Free Knowledge
Whitepaper Library
My One Connection
MyDiscounts
Home
ProDev
VLC
Home
(Members Only)
About the Journal
Contribute
OneFPA
>
Journal
>
A Dynamic and Adaptive Approach to Distribution Planning and Monitoring
Page Content
by David M. Blanchett, CFP
®
, CLU, AIFA
®
, QPA, CFA, and Larry R. Frank, Sr., CFP
®
Executive Summary
This paper advances the “second-generation approach” to the sustainable withdrawal rate question. The study evaluates the ongoing sustainability of the withdrawal rate that is revisited every year. The withdrawal rate itself (not the dollar value) is increased, decreased, or stays the same based on the probability of failure for the remaining target distribution period.
This adaptive approach recognizes that sustainability decisions do not occur just once at retirement, but should change as situations warrant throughout retirement. To support ongoing sustainability decisions, annual probability of failure of the current withdrawal rate is presented in this paper, summarized in five-year slices through the data.
As a person ages, this allows for slowly changing to higher withdrawal rates associated with those shorter remaining distribution periods. For example, a 15-year distribution period is more appropriate for an 80-year-old than for a 60-year-old retiree. Essentially, a person “ages through the data” from longer distribution periods to ever shorter distribution periods.
Revisiting the withdrawal annually allows for higher withdrawal rates if the portfolio performs well, for unplanned or unforeseen additional expenses, or for lowering withdrawal rates if the portfolio is underperforming. This is done through comparison of the current withdrawal rate to benchmark data to evaluate the associated probability of failure rates of a given portfolio mix and remaining distribution time.
The revisiting approach introduced in this paper is simpler than some of the complex decision rules that have been previously introduced, and is therefore easier to implement and change as the client ages and portfolio values change.
To read the entire article,
CLICK HERE
(PDF)
Member Access
Includes:
Current Issue
Digital Edition
CE Exams
Supplements
Podcasts
Subscribe
Change Address