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).

Perpetual Withdrawal Rates

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:

PDF

Passing Grade:

11/14 (79%)

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