Resolving the Conflicting Demands of the Optimistic Pessimist

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How can advisors help clients who lack sufficient savings for retirement – those who accept the need to take on risk to achieve capital growth, but insist on a minimum income to fund essential expenses?

In my two previous articles (here and here), I endeavored to frame the use of the systematic withdrawal plan (SWP) in the context of the needs of “constrained” investors. I asserted that an SWP works well for certain investors, i.e., “overfunded” investors.

After he read my articles, Bill Bengen, the inventor of the 4% rule, commented on my thesis. We exchanged a few additional comments. I believe Bill and I agree on an essential truth: An investor must remain consistent with the SWP strategy through every market condition that unfolds over a long period of time. If clients can remain invested, an SWP works well.

I’ve often said to advisors, “The best retirement income strategy is the one you can live with.”

My sole objection to an SWP, therefore, centers on the behavior dynamics of certain types of investors. My previous articles made several references to constrained investors. Now, I’d like to provide a framework that will help you identify those among your clients who fit the definition of constrained.