ICR315: Beyond the 4% rule, with Abraham Okusanya
In this episode, I’m joined by Abraham Okusanya, author of a new book called Beyond The 4% Rule: The science of retirement portfolios that last a lifetime.
Regular (and loyal) listeners to this podcast will remember Abraham from episode 11, back in February 2015, and more recently in episode 114, in September 2016, when we spoke about ‘brainless portfolios’.
Abraham is hosting a conference in London next week called The Science of Retirement, and he’s just published a new book called Beyond The 4% Rule: The science of retirement portfolios that last a lifetime.
Before I share our conversation with you, here’s the blurb from the book, to give you some context:
“Retirement income planning used to be so simple. Most people never had to worry about how to convert their retirement savings into income for the rest of their lives. Today’s low annuity rates, closure of increasing numbers of defined benefit schemes and the Pension Freedoms, introduced by the UK Government in 2015, ripped up the retirement income planning rulebook.
“The book confronts the challenge of how to secure a sustainable income that lasts a lifetime from your portfolio. It delves into the detail of the various withdrawal strategies, asset allocation and the unavoidable question of how long before you pop your clogs. This book helps retirees and their advisers navigate the treacherous retirement income landscape, using sound empirical evidence and practical application.”
The reason I wanted to chat to Abraham about his book was because we often refer to the 4% rule and it’s become one of those throwaway financial rules of thumb, often mentioned without really digging into the details. As Abraham will explain in a moment, the rule is based on really robust science, but there’s more to consider for individuals – in particular, the impact of fees, the underlying asset allocation and the assumption that retirement income will stay at the same level for the rest of life – spoiler alert, it doesn’t!
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Personal finance news
-The proposed ban on pension cold calling might come into force in June, following a government amendment to the Financial Guidance and Claims Bill. The new clause would introduce a ban on pensions cold calling by June.
-International Women’s Day is a call to action to make further progress towards gender equality. While much progress has been made more work needs to be done to improve the financial resilience of women in Britain today. This is according to insurer Royal London who have put together a five point plan to improving women’s long term financial position.
-Chancellor Philip Hammond is expected to reveal an £11bn improvement in public finances during his Spring Statement next Tuesday. Analysis of official figures by the Resolution Foundation think tank has found improving productivity and higher tax revenues contributing to the improvement.
-UK house price growth slowed to 1.8% in February, according to the latest survey from lender Halifax. It represents the slowest rate of annual house price growth recorded since March 2013.
-Energy regulator Ofgem is proposing new rules which would result in £5bn of savings for energy customers during the next five years. The regulator wants to reduce the amount consumers contribute towards investment in energy networks.
Useful links
–Science of Retirement Conference
–CII Radio from the Chartered Insurance Institute
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