Retirement Income Takes Center Stage

Speaking at our Financial Advisor Symposium in Chicago in 2003, Nick Murray related a sudden change in outlook that he experienced shortly after he reached the half-century mark in years. It's an experience that millions of Americans are now going through.


Believe it or not, there are many people-most estimates peg them at 15% to 20% of the nation's baby boomers-who actually know they need to save for their retirement and are doing so. They've paid off most of their mortgages, they have sizeable 401(k) balances and taxable holdings of mutual funds and other securities.

Yet when it dawns on someone how much they will need to generate a retirement income to maintain their lifestyle, the realization is daunting. People who think they've come so far suddenly realize how far they still have to go.

The author of this month's cover story, Bill Bengen, has done more to open the eyes of the profession on the subject of retirement income than just about anyone. Today, the subject of retirement income has gone mainstream: Fidelity Investments alone spends millions each year spreading the word.

Bengen began his research in the late 1980s after becoming a financial advisor when he moved to the San Diego area and found many clients and prospects, including numerous retirees, all asking the same question: How much could they afford to live on?

Back in those days, retirees were folks who had grown up in the Depression and belonged to the World War II generation. They had no problem saving, although they weren't very good at raising children who could do likewise. Not only were they big savers earning 7% to 9% on money market funds; many also had enjoyed the benefits of generous pensions and rising Social Security benefits. So their questions about retirement income often involved more discretionary issues than their children's will entail.

After many months of painstaking research on his own, Bengen, who holds two degrees in mechanical engineering from MIT, arrived upon a number that earned him the nickname, Mr. 4%, in Lee Eisenberg's recent book, "The Number." This revelation came as a shock to many folks, including some people at Money Magazine who had suggested the amount of a portfolio an individual could withdraw was close to 7%. Wishful thinking.

In this month's cover story, Bengen takes a multidimensional look at retirement withdrawals, differentiating between taxable and qualified accounts, and provides an analysis that can be adjusted to solve client's real-life problems, which rarely fit into the straight-line projections basic financial planning lessons offer. We are privileged to present it to you.

For the current generation of prospective retirees, the issue of retirement income is one of survival or at least total lifestyle, not a choice over what kind of restaurant to go out to or what type of hotel to stay at when vacationing. A recent study by Fidelity Investments of 813 investors between 55 and 70 years old with over $250,000 in investable assets revealed that 85% who haven't built a retirement income plan with an advisor are in danger of drawing down their assets too fast or don't know how much to withdraw. And 87% of respondents who completed a retirement income plan with an advisor have or would be willing to provide a referral.

The day of reckoning is just around the corner.

Evan Simonoff