Beyond the 4% Rule – Pension Decumulation

Before the investment industry tries to push us all down a new road that introduces a whole new set of ‘investment pathways’ for pension decumulation I think they, and all financial planners, should read Abraham Okusanya’s book, Beyond the 4% Rule.

There is already enough robust academic research to show how decumulation can be managed by financial advisers and in truth, there is little evidence that any particular ‘investment pathway’ is better than any other.

The ‘safe withdrawal rate is explored in-depth within Abraham’s book and I would recommend following up by reading the many sources referenced within it. There is also fairly clear evidence that a ‘natural dividend’ or an ‘income-focused’ portfolio (sorry investment pathway) is not the panacea of retirement income management.

Of course, robust cash flow modeling and ongoing reviews and support is a starting point but the assumption that an investment fund being managed for income needs to be managed differently than a fund in accumulation is well missing in action!

The investment industry has enjoyed nearly 10 years of increased inflows into their coffers and for the first time in a while this trend is reversing, causing quite dramatic reductions in some cases. So, funnily enough, they are now becoming pension decumulation investment experts!

My advice to any individual looking for decumulation advice (drawing an income from an investment or pension to me and you) is to ask your financial planner about their thoughts on safe withdrawal rates (if they say ‘ah, the 4% rule‘ or ‘we have an investment pathway specifically for that very thing‘ then run!).

For financial planners looking for technical help and assistance in advising on pension decumulation please feel free to get in touch.