The 4% Rt What Price?
Journal Of Investment Management (JOIM), Third Quarter, 2009
Posted: 13 Oct 2009 Last revised: 2 Jun 2010
Date Written: October 7, 2009
The 4% rule is the advice many retirees follow for managing spending and investing. We examine this rule’s inefficiencies-the price paid for funding its unspent surpluses and the overpayments made to purchase its spending policy. We show that a typical rule allocates 10-20% of a retiree’s initial wealth to surpluses and an additional 2-4% to overpayments. Further, we argue that even if retirees were to recoup these costs, the 4% rule’s spending plan remains wasteful, since many retirees actually prefer a different, cheaper spending plan.
Keywords: Retirement economics, expected utility
JEL Classification: G00
Suggested Citation: Suggested Citation