The financial rules for retirement have changed. Consuelo Mack WealthTrack “Personal Retirement Paycheck”premiering nationwide beginning tomorrow, Friday, March 31 at 7:30 p.m. ET on public television (check local listings**) and on wealthtrack.com — features two retirement income specialists, Jamie Hopkins, Associate Professor of Taxation at The American College of Financial Services, and financial advisor Steven Earhart, owner of Devon Financial Partners, LLC, who explain the new realities.

Steven Earhart & Jamie Hopkins Personal Retirement Paycheck
Image source: YouTube Video Screenshot

Steven Earhart & Jamie Hopkins: Personal Retirement Paycheck

Interview preview transcript:

Consuelo Mack:

“The decumulation phase. Steve, four percent used to be the golden rule of withdrawal in order to maintain an income stream for a lifetime. If you went above that, you were in jeopardy. Is that still the case, four percent of whatever your nest egg is?”

Steven Earhart:

“No, that’s part of that traditional thinking and conventional thinking. Four percent really is pushing the envelope.”

Consuelo Mack:

“It’s too much.”

Steven Earhart:

“It’s too much.”

Consuelo Mack:

“Oh, man. OK.”

Steven Earhart:

“We try to look at it closer to three, and it also depends on what kind of income floor you have, what other guarantees you might have coming in, Social Security benefits, but you really have to be careful with anything north of three percent.”

Consuelo Mack:

“Why is that? Why can’t you take four percent anymore? Or, why it is pushing it?”

Steven Earhart:

“Well, people are living longer.”

Consuelo Mack:

“Living longer.”

Steven Earhart:

“That’s really the key.”

Consuelo Mack:

“That makes a big difference. Portfolio mix, people used to do the 60/40 thing, 60 percent in equities and 40 percent in bonds. What is it now, or is there any such animal?”

Jamie Hopkins:

“I wouldn’t really say there’s a perfect portfolio mix in general because it’s going to depend, as Steve just talked about, how long you want to make this money last for. Well, all of a sudden if we start testing this and a 50/50 split or 40 percent bonds, 60 percent stocks or then 70 percent stocks, 30 percent bonds, we’re going to have more potential up side as we move up that ladder and put more equities, more risk into our portfolio, but that’s exactly what we’re doing. We’re also increasing the risk, so there’s a higher likelihood that maybe the worst-case scenario happens and we lose our funds. So we have to balance that. Now what we have seen here, the old rule of thumb used to be that you want to have this constant decline in stocks to bonds. So you’re going to increase your bonds over time.”

Consuelo Mack:

“I remember Jack Bogle, the founder of Vanguard, telling me on this program that, ‘Consuelo, your bond position should equal your age.’ So if I’m 80, I should have 80 percent bonds in my portfolio.”

Jamie Hopkins:

“He’ll probably see this at some point and say, ‘Jamie, why are you talking about this?’ but what we’ve seen is a big change there. The research really doesn’t support that anymore. What we’ve seen is a much more steady allocation works better in the long run. So it means that we don’t use that old 100 minus your age to get your stock. We actually stay more level, so it’s going to be closer to maybe a 50/50 or 60/40 mix throughout retirement, except for there is a time when we’re going to lower it. The kind of five years right before and right after retirement, and that’s a big reason why you hear the four percent. You say, ‘Why can I only withdraw four percent of my assets?  I’m going to average eight percent through retirement.’ You might average eight percent, and you can still only draw four. Why? Because it’s the sequencing of your returns that really matters, and that’s a hard concept for people to grasp, initially.”

Consuelo Mack:

“Sequencing means what?”

Jamie Hopkins:

“Sequencing of returns means it matters where you get your returns. So if I have bad returns in the first five, six years of retirement, the first year the market drops 30 percent and I have to pull money out of that, all of a sudden…”

Consuelo Mack:

“Like 2009.”

Steven Earhart:

“Exactly.”

Jamie Hopkins:

“I’m pulling a large amount as a percentage, a very large withdrawal out, which makes it eight percent is not sustainable. Even though you might average eight percent through retirement, you can only withdraw four to make it sustainable, and it’s because of those bad returns early in retirement that causes that.”