The ‘Tighten Your Belt, Happy Beneficiaries’ Retirement Strategy

Balancing Withdrawals and Preserving Assets

Karl Putnam, PhD, CPA

Along-term financial plan must address a number of interlocking issues and concerns. The author counsels clients to use a “tighten your belt, happy beneficiaries” strategy that entails an equal percentage withdrawal of the beginning of each period's assets. When the market goes down, withdrawals decrease, and when the market goes up, more can be spent. The strategy adjusts for inflation and fees with equal purchasing power deposits and, as affected by market fluctuations, an expectation of equal purchasing power withdrawals during retirement. Following it can calm investors' fears when markets decline and prevent panicked investors from getting out of good investments at exactly the wrong time. In down markets, a safety valve can be implemented by projecting the maximum lifetime withdrawal period and, correspondingly, increasing the withdrawal percentage. Implementation can be done with index funds to minimize costs while maximizing return and minimizing risk, compared to managed funds.