Unpacking the Research on Optimal Withdrawal Frequency in Retirement Planning

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edited December 13 in Financial Planners Professional Community

FINANCIAL PLANNING REVIEW  is a global, multidisciplinary journal sponsored by CFP Board of Standards disseminating research covering personal financial planning. Topics include portfolio choice; behavioral finance; tax and estate planning; psychology and human decision-making; financial therapy, literacy and wellness; consumer finance and regulation; and human sciences. The journal's goal is to help to better serve the public through competent and ethical financial planning.

Starting January 1 2025 all new articles published in the journal will be open access - available to read without subscriptions or other charges. This is a great resource for financial planners and students to learn about cutting edge research in financial planning. You can see the full journal at:

FINANCIAL PLANNING REVIEW - Wiley Online Library

Today, lets take a look at a recent paper on sustainable withdrawals. It is available now at:

Optimal withdrawal frequency for sustainable retirement withdrawals

Retirement planning is a cornerstone of financial advising, and for decades, advisors and academics alike have explored sustainable withdrawal strategies. The landmark 4% rule, introduced by Bengen in the 1990s, set the stage for understanding withdrawal rates, but new research challenges long-held assumptions about the frequency of withdrawals. A recent study by Stephen M. Horan provides critical insights into this overlooked aspect of retirement planning: the frequency of withdrawals.

Key Takeaways from Horan’s Study

  1. Withdrawal Frequency Does Not Impact Portfolio Sustainability
    Contrary to intuitive assumptions, the frequency of retirement withdrawals—whether monthly, quarterly, or annually—has no meaningful effect on the sustainability of a retirement portfolio. Horan’s Monte Carlo simulations, which analyzed 10,000 scenarios over 30 years, revealed that withdrawal patterns standardized for "time in market" yield statistically identical outcomes in terms of portfolio success rates.
  2. Why Frequency Is Inconsequential
    Withdrawal frequency irrelevance stems from the principle of "time in market." When funds are invested for equivalent durations, the impact of periodic withdrawal patterns diminishes. This finding is robust across simulated and historical market returns, including those with autocorrelation or random walk characteristics.
  3. Factors That Truly Matter
    While frequency does not influence sustainability, these factors play a crucial role:
    • Withdrawal Rates: Adhering to safe rates, such as the 4% rule, remains foundational.
    • Volatility Management: Lowering portfolio volatility can enhance sustainability.
    • Cash Flow Alignment: Matching withdrawal timing to spending needs increases utility and reduces transaction costs.
  4. Practical Implications for Financial Planners
    • Align withdrawal frequency with the retiree’s spending patterns. Monthly spenders may benefit from monthly withdrawals, minimizing cash flow mismatches.
    • Prioritize maximizing investment duration rather than attempting to optimize withdrawal frequency.

Implications for Financial Planning Practice

  • Debunking Myths About Withdrawal Timing
    Advisors often believe more frequent withdrawals might better mitigate risks like sequence of returns or volatility. This study shows that such strategies have negligible effects on portfolio longevity, shifting focus back to critical elements like asset allocation and dynamic withdrawal strategies.
  • Innovative Solutions: Retirement Account-Linked Debit Cards
    Horan’s findings indirectly support the idea of retirement-linked debit cards, which allow retirees to withdraw funds only as needed, maximizing the time assets remain invested.
  • Dynamic Spending Rules
    For clients open to adaptive strategies, more frequent withdrawals might provide flexibility to adjust for market fluctuations, enhancing portfolio efficiency during volatile periods.

A New Framework for Student Learning

For students studying financial planning, Horan’s study offers a valuable lesson: not all variables in retirement planning have equal weight. By focusing on impactful factors such as asset allocation, tax efficiency, and withdrawal rate management, future planners can provide clients with more effective and evidence-based advice.

Conclusion: A Simple Yet Transformative Insight

The irrelevance of withdrawal frequency underscores the need to simplify and refine retirement strategies. Advisors should shift their focus from withdrawal patterns to optimizing other dimensions of retirement planning. By aligning withdrawals with spending and emphasizing duration in the market, financial planners can deliver greater value to retirees while avoiding unnecessary complexity.

Horan’s study is a testament to the power of revisiting assumptions, reminding us that sometimes, the simplest findings can have the most profound implications for practice.

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