CHICAGO -- Have you been taking your clients' happiness into account when developing retirement spending plans?

A new withdrawal rate strategy from J.P. Morgan does just that, according to S. Katherine Roy, executive director and chief retirement strategist, who spoke about the firm's recent research paper, "Breaking the 4% Rule," at HighTower Apex, the first conference from the Chicago-based platform provider.

The strategy takes cues from real-life spending habits. People spend more when they are younger, less as they get older, and more again in old age because of health care costs, Roy said.  J.P. Morgan's data pointed to similar findings across generations and at various levels of wealth. The firm suggests that it may benefit clients to exceed the recommended 4% withdrawal rate at the start of retirement, since they will likely spend less later on, Roy argued.

"I don't want to see someone at 95 with $3 million wishing he'd taken the kids to Europe years ago," Roy said.

In other words, she said, it answers the question, "For a person who prefers to spend today, how high of a withdrawal rate can you have?"

The strategy determines asset allocations and withdrawal rates in an attempt to maximize a client’s happiness over time. The approach looks at life expectancies for people 60 and older, retiree spending preferences, and 10,000 simulations that account for non-normal markets.

With such an approach to withdrawal rates, clients can enjoy their money, "While they are healthy and have the desire," Roy said. "They can take out more today, but know what the reality is for the future."

Roy said the strategy allows for a more efficient use of capital over time. It seeks to prevent a client from running out of money, or accumulating excess wealth. "It's a much smoother ride," she said.

The strategy calls for yearly re-evaluation of withdrawal rates and asset allocations, as well as ongoing analysis and client engagement. It’s a more efficient and personalized approach, Roy said, than using the 4% rule blindly.


To read the paper click here.

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