Why your retirement may be different than you expected

financialpost.com:

Most discussions around retirement focus on how much money you need to save to live comfortably in your post-work years, and how much you can withdraw annually from your investments without too much risk. These are questions that both aspiring retirees and their financial advisers strive to simplify. The problem is there is no universal method to determine the answers, and the guidelines may overlook other important considerations.

The well-known four per cent rule, credited to a 1994 paper by William Bengen, has some merit. Bengen’s rule of thumb suggests that a retiree can withdraw four per cent of their portfolio value in the first year of retirement, then increase the dollar amount of that withdrawal by inflation each year and likely not run out of money. While there are many factors that can make this rate too high, too low, or totally irrelevant, the rule provides an easy retirement-readiness barometer and it’s a simple starting point, so deserves some credit.

The four per cent rule has been challenged in recent years for being too high, especially with people living longer and spending more time in retirement. The initial research also ignored the impact of investment fees, and despite trying, few investors beat the market net of fees. It also does not factor for changes in expenses or pension income during retirement, nor does it account for the tax implications of withdrawals, asset sales or inheritances.

One interesting thing about the four per cent rule is the significant upside potential if the sequence of returns is strong in the early years of retirement. Research conducted by Michael Kitces in 2019 looked at the projected value of a traditional balanced portfolio (60 per cent in stocks and 40 per cent in