Today’s frequent market upheavals could spell trouble for retirees and those about to retire.

Increasingly, financial advisors are rethinking the traditional 4% withdrawal model.” George Politarhos.


By George Politarhos


Pandemic lockdown measures, profligate printing, geopolitical unrest, and the inevitable march of history have collided in 2022, making financial planning more challenging than ever.


If you are within ten years of retirement and count on traditional rules of thumb, such as having 60% of your cash in equities and 40% in safe money,

you may have to rethink those ideas.

Similarly, if you believe you can still draw down 4% of your savings without running out of money, you may be in for a rude awakening.


The economy has evolved in unexpected ways, forcing many retirees to scale back their distribution target from 4% to 3%. In some cases, your withdrawal percentage could be as low as 2.5%, which in most cases will not buy you the kind of retirement of which you’ve always dreamed.

There’s some good news, though. You and your retirement income advisor can create a volatility buffer to safeguard your money using specific methodologies, tools, and products.


Make sure you don’t have too many assets correlated to the market.

To create your volatility buffer, you must first examine your current asset mix. You’ll want to figure out how much of that money to expose to stock market risk. If you invest too many of your assets in the market, you’re constrained to what the stock market’s distribution rate and volatility will allow. Having too high a percentage of your money at risk makes buffering against volatility almost impossible For most people, it’s wise to have a substantial portion of their investment matrix in assets with no correlation to the market.


The market’s ups and downs don’t typically impact a properly designed and balanced portfolio when the portfolio contains enough “safe money.” Safe money consists of those assets not linked to the market, including life insurance and annuities. The safe money section of a portfolio may contain other conservative products such as bonds and certificates of deposit(CDs).


Old school planners often advocate the 60% safe money and 40% equities mix. It’s a planning metric that doesn’t apply to everyone, however. Your matrix might have more safe money depending on how skillful your advisor is at portfolio design. Depending on your individual goals and risk tolerance, you could also have more market-correlated investments.


However you approach planning, your number one need is income, such as the streams created with a pool of uncorrelated capital in insurance or an annuity. With an income plan in place, you will be better able to predict how much money you’ll need every year. Once you determine that critical metric, you can then search for tools that will allow you to accumulate a pool of funds “buffered” against market downturns.


Depending on where you are currently in the financial life cycle, specially-designed permanent life that accumulates cash value or annuities may meet your needs. You can pull money from your market-correlated assets when the market is on an upswing. During a dip, you’ll generate income from your safe money accounts.


The bottom line: Income is vital if you want a successful, stress-free retirement. No one can be sure how long retirement will last, so the 4% rule may not be the best withdrawal option for everyone. Failing to plan for income and have enough safe money products to help protect your wealth means you’l find yourself short of cash when you most need it. It’s wise to seek the advice of a qualified retirement specialist who will design a spend-down plan aligned with your needs and goals.