Ultra-low interest rates and QE 'broke 4% drawdown rule'

4% withdrawal rule of thumb

clock • 2 min read

The 4% rule of thumb often used to define a sustainable approach for drawdown in retirement is no longer fit for purpose due to prevailing and sustained market conditions, according to Lane Clark & Peacock (LCP).

The "nastiest, hardest problem in finance" has become even tougher in a world of zero - or negative - real interest rates and quantitative easing (QE), the consultancy said, while the two-decade-old 4% rule "comes from a different world" and needs rethinking. The withdrawal rate is causing many to run out of money while cautionary approaches to asset allocation, weighted towards bonds, "could be working against them" and lead to "years of lost income". Overall, the 4% rule is now three times more likely to lead to failure than a decade ago, due to both market conditions and increased ...

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