Beware of old retirement rules of thumb—they may lead to poor planning practices.

So say some advisors, who caution that few advisors stop to consider that they may need to adjust their assumptions about income generation in retirement.

As a result, retirement strategies fall short because they underestimate the cost of generating retirement income, says Phil Murphy of S&P Dow Jones Indices. As investors and advisors attempt to juice their portfolio income, their plans become more prone to interest rate, duration and, most of all, sequence of returns risk, he says.

“The retirement industry has to do a better job of getting people’s awareness and mind-set refocused,” says Murphy. “You have to have a certain amount of wealth to buy income, but there are other factors. As we watch account values go up, interest rates are often going down, and the increased value of our accounts still don’t buy as much income as they did a year ago.”

Yet the industry still approaches retirement portfolio construction by first estimating a withdrawal rate during retirement, then calculating how much a person would need to save in order to generate that much income using current assumptions about interest rates and market returns.

Earl Schultz, founder and president of Allentown, Pa.-based Strategic Wealth Advisory, says that retirees are best served by rejecting hard-and-fast withdrawal estimates created by rules of thumb, like ones that estimate that the average retiree will spend between 3 percent and 5 percent of their nest egg each year in retirement.

The rule is most commonly stated as the 4 percent or the 4.5 percent rule, says Schultz, and was established in the mid-1990s, during a period when markets were averaging 12 percent to 15 percent returns each year.

“We’re in a totally different environment and economy right now,” says Schultz. “If advisors are still applying rules that held true in the 1990s, they might not be providing recommendations in the best interest of their clients.”

These withdrawal rules were also established without considering expanding lifespans throughout most of the developed world, notes David Blanchett, Morningstar’s head of retirement research.

Married couples aged 65 now have a 40 percent chance that one partner will live longer than 20 years in retirement, according to Blanchett.

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