Perpetual Withdrawal Rates
By CE Corner
One of the challenges of distribution planning is estimating the proper withdrawal level so that longevity, market and inflation risks are managed for a given time horizon.
But what if the time horizon is “forever,” such as required by a pension or foundation? Or maybe your retired client’s assets must cover expenses for a surviving disabled child.
When longevity risk must be covered in perpetuity, two risk factors remain: market risk and inflation risk. Assets must be large enough to finance not only distributions but also a sufficient cushion to overcome the impact of these two risk factors — in perpetuity. This course discusses this perpetual time horizon and how to manage these risks. Several practical examples are included.
After taking the course, financial advisors will know:
• the definition of perpetual withdrawal rate, and how it differs from sustainable withdrawal rate
• the methodology used to calculate a perpetual withdrawal rate
• the impact of asset allocation on a perpetual portfolio
• what to consider when withdrawing a perpetual portfolio’s growth
• what to consider when withdrawing a fraction of a perpetual portfolio
• the importance of reviewing a distribution plan, and the two types of reviews
Jim C. Otar is a retired financial planner and engineer, and founder of www.retirementoptimizer.com. He is also an author of investing-related books, including Advanced Retirement Income Planning (2023 update).
In the opinion of CE Corner, the content of this session aligns with FSRA’s requirements for Life and Accident & Sickness credits. However, it remains the responsibility of the individual license holder to check FSRA credits and confirm suitability.
Accreditation Details
Accreditation body
Competency
Credits
The Institute/IAFE
Practice Management
--
Financial Planning
1.00
Ethics
--
Product Knowledge
--
ICS
Life Insurance
1.00
ICM
Adjuster
--
General Insurance
--
Life Insurance
1.00
ICBC
Life Insurance
1.00
General Insurance
--
Accident and Sickness
--
FSRA
Life and/or A&S
1.00
CIRO Cycle 10
Professional Development
1.00
Compliance
--
MFDA (2023-2025)
Professional Development
1.00
Business Conduct - Non-Ethics
--
Business Conduct - Ethics
--
Alberta Insurance Council
General Insurance
--
Life Insurance
1.00
FP Canada
Professional Responsibility
--
Product Knowledge
--
Practice Management
--
Financial Planning
1.00
Course Type:
Passing Grade:
11/14 (79%)
