Excerpts from the conclusion of Eilene Zimmerman’s excellent May 14 New York Times piece headlined 4% RULE FOR RETIREMENT WITHDRAWALS IS GOLDEN NO MORE-

“Many advisers recommend maximizing earnings by moving away from the 60 /40 portfolio allocation on which the 4 percent rule is based, says Jay Wertz, director of wealth advisory services at Johnson Investment Counsel, a wealth management firm in Cincinnati: As interest rates have fallen and stayed low, ‘earning 2 to 3 percent on 40 percent of your assets for the next several decades doesn’t really make sense’.

Steve Vernon, a retirement consultant with the Institutional Retirement Income Council and author of Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck, advises investing up to half of retirement savings in an immediate fixed annuity, which starts payouts when you retire. The annual income usually ranges from 5 to 6 percent of the amount paid for the annuity, and those payouts, together with Social Security, should be used to cover basic living expenses, he said, and ‘the remainder of savings should be invested and systematically withdrawn to cover everything else’. Another option is a managed payout fund, especially for people who do not want to actively manage their money. These funds, offered by Vanguard and Schwab among others, invest savings for you and send out a check each month that is a combination of investment income and a return of principal.

“Because it is based on how much the investments earn, the payout can vary, Mr. Vernon said. Some funds have target dates when they will end, and others aim to pay indefinitely. (They can even be inherited.) But none come with payment guarantees. If the market goes south, the money in a managed payout fund can run out prematurely. It also can be withdrawn at any time.

“[Bill] Bengen still feels his [4%] rule is a good benchmark, but advises clients to spend more conservatively. When he first came up with the 4 percent rule, “people said, ‘How can anyone live on so little?’ Now they are saying it’s too high. I think it’s a lot to ask people who have saved their whole lives to live on 3 percent.” But Mr. Wertz says the 4.5 percent withdrawal rate may really be too high, especially for those heavily invested in bonds. Those retirees ‘are likely to fail miserably using the 4 percent rule’, he says. ‘They aren’t generating the returns to fuel it’.”