Battle plans, cashflow projections and retirement income planning

Retirement planning is in some respects similar to preparing for battle. While in retirement planning, lives may not be in danger, both do have in common the goal of seeking to maintain independence and dignity. And in retirement the enemy isn’t military aggression, but aggressive inflation, poor sequences of returns and outliving your money.

Our previous story illustrates the problem with focusing on a single-line projection in retirement planning. The fundamental problem is that using straight-line projection creates an illusion of precision, and gives an impression that there is only one plausible outcome. In reality, the exact future outcome is unknown and unknowable. So it’s important that we consider a wide range of plausible scenarios.

In this article, we consider the reasons why straight-line-projections are woefully inadequate when illustrating sustainability of income in retirement.

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Illustrating Sustainable Withdrawal For Different Phases of Retirement

We're delighted to announce a new feature on Timeline which enables planners to illustrate the benefits of scaling up/down withdrawals at different phases of retirement 

The traditional assumption for sustainable withdrawal rate is that a client will spend the same amount of inflation adjusted income throughout their retirement. This assumption is not supported by cold hard data on spending pattern of retirees.

Research in the UK shows spending in retirement declines progressively in real terms. From age 65, spending typically declines progressively and is about 35% lower at age 80.

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