“They understand that [the] withdrawal rate will change once they start the RMD [required minimum distribution] process at 70½, so in the meantime they want the assets to be growing as much as possible and drawing down at [a] lower rate of 4%.”
On the other hand, Hanson says he generally accepts that a 4% to 5% withdrawal rate is sustainable, with 4% as the preference. “But much depends on Social Security election decision. I try to tell clients (higher earning and older spouses) to delay Social Security until age 70. With this election, you are getting an 8% return, which can offset lower investment returns, thus sustain your 4% to 5% overall return,” he says.
Based on the responses, the stock market’s volatility in 2018 caused some jitters among financial advisors. Their actions ranged from rebalancing portfolios to increase equities (24%), selling off equities (13%), increasing allocations to cash (23%), purchasing annuities (19%), adding alternative investment positions (15%) and selling fixed income (8%).
A greater number, however, 37%, were not moved to do anything. They made no changes to their clients’ portfolios.
“What occurred in 2018, and the same for the 2008 market decline, should have zero effect on your overall financial plan, as these events are expected long term to happen,” notes Hanson. “If the market decline did matter, I tell clients, ‘You had the wrong plan, wrong strategy, wrong advisor. Time to get a new CFP.’”
Norby agrees. “I didn’t need to make any changes. We set long-term goals and stick with them. You’ve got to train clients from the beginning,” he says.