The Biggest Wakeup Call Of All

Financial advisors know better than anyone else that for clients facing retirement, there is nothing more frightening than the thought of running out of money. Many of you are accustomed to meeting confident, middle-aged prospective clients in their early to mid-fifties with portfolios approaching $1 million who think they can retire in five years and easily support their $120,000-a-year lifestyle in perpetuity, and have mucho dinero left to bequeath their heirs.


We should all be so lucky. As contributing writer Nick Murray told attendees at the Financial Advisor Symposium in September 2003, he personally experienced this mother of all wake-up calls when he was in his early fifties. Some advisors have told me that it's really only possible to have this discussion with individuals who have displayed discipline as serious savers. Which means what? For everyone else, there are annuities. I guess so.

As rates of return on financial assets remain modest and long-term interest rates so far refuse to go up the way many market savants expected at this stage of the economic cycle, the task of generating an income stream that a retiree can survive on without draining all their assets grows more challenging each year. And it doesn't look like it's going to get a lot better any time soon.

The same financial economist types now worry that the reason long-term interest rates remain so low is that investors are willing to accept lower rates of return which, they claim, will keep returns on other financial assets lower as well. The real picture, of course, is rarely as clear as they would like.

Reading Jeff Schlegel's cover story on page 56 about retirement withdrawal rates served as a reminder for me of how lucky we all are to be a part of this profession, or in my case an observer. It also provides evidence of how gifted some of the people in this business are.

A 25-year-old reading the article might ask: Who is this Bill Bengen and why would he ever have the temerity to second-guess the great Peter Lynch's claim that retirees could use a 7% withdrawal rate without fear of exhausting their retirement?

Well, as many of you know, Bengen authored a series of trailblazing articles in The Journal of Financial Planning in the early 1990s on the implications of different withdrawal rates. He's also a former president of the M.I.T. Bridge Club, the alma mater where he earned bachelor's and master's degrees in mechanical engineering before learning that massive budget cuts meant it was unlikely he could get his childhood dream job as a NASA engineer.

Last year, another advisor, Jonathan Guyton of Minneapolis, authored another article on the same subject, using slightly different assumptions. He concluded that rates in the 5% area, slightly higher than what Bengen proposed, were likely to be safe.

I would urge all of you to read Jeff's article. And for those of you who can make it, we're happy to invite you to the Retirement Planning Symposium in Las Vegas in April where, among other sessions, Bill and Jonathan will discuss this subject in detail in a session moderated by Dan Moisand, who counts more than a few real NASA rocket scientists among his clientele. The conference is a new one for us, but we're excited about these speakers as well as the others who will be there.

Evan Simonoff
[email protected]

P.S. We've introduced CE credits this month. To earn them on articles in this magazine, you can take the test by visiting our Web site at or by turning to page 126 of this issue.