A reader recently pointed this excellent article out to me and I  took a few minutes to to read through it.  It addresses the significant issues with  traditional asset management approach to producing retirement income via systematic withdrawals from a portfolio.   In fact, the article is titled “Systematic Withdrawal Programs: Unsafe at Any Speed”

Unsafe at Any Speed
Systematic Withdrawals Unsafe at Any Speed (Photo credit: Wikipedia)

In a nutshell, a systematic withdrawal plan produces income by pulling a predetermined amount from a portfolio to live on.  A 5% withdrawal plan pulls $50K to live per year from your  $1M portfolio.  The idea is that increases to the assets will offset income withdrawals and preserve a portfolio.

The problem is, it doesn’t work.  There is no guarantee of success and in a bad year, if your portfolio drops you have to either reduce your income, or accept that your future income is unlikely. Running many scenarios, with various withdrawal rates and allocations to stocks, bonds, assets, etc, all come up with a probability for failure, where failure is defined as outliving your assets.

Longevity risk is the perhaps the most insidious in retirement. Investors may vastly underestimate how long they (or the last survivor of a couple) may survive in retirement, but the financial impact of the underestimation could be most devastating.

As readers of this site know, I  don’t feel like this approach offers the necessary security to consider this a solid plan.  I ‘d call it continued gambling, and without a safety net seems like a very stupid idea.  Here is a link to the article:

Systematic Withdrawal- Unsafe At Any Speed

Here are some excellent excerpts of the article.  SWP means Systematic Withdrawal Program:

This paper demonstrates that the SWP exposes retired investors to an unacceptable trade-off between generating adequate income for the potential retirement horizon and the risk of fully (or substantially) depleting those assets over that horizon—that these programs are “unsafe at any speed.”


According to a LIMRA survey, almost 80% of advisors establish SWPs to create retirement income for their clients. Unfortunately, some advisors may be relying on their finely honed and even superior investment and risk management skills developed for the dynamics of accumulating assets. These wealth management skills alone may not be particularly effective when developing and managing periodic distributions from an asset portfolio particularly due to the paradoxes involved in distribution dynamics. Relying on wealth management skills may lead to serious misperceptions about distribution management and less-than-effective results for clients.


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“For all time periods and for all portfolios, the addition of the annuity leads to a decline in the portfolio failure rates.”

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