J.P. Morgan Releases "Breaking the 4% Rule," A Landmark Research Report That Lays the Groundwork For an Innovative Approach to Investing and Withdrawing Income in Retirement

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Feb 27, 2014, 06:00 ET

NEW YORK, Feb. 27, 2014 /PRNewswire/ -- In a groundbreaking new study, J.P. Morgan researchers have developed a revolutionary new method for investing and withdrawing funds that improves the likelihood that retirees will be able to maintain their living standards, reduce the risk of running out of money and optimize their overall satisfaction. By creating a smarter and more personalized way to invest and withdraw money in retirement, this study, "Breaking the 4% Rule," lays the foundation for a dramatic shift in how people think about their retirement income strategy.

To read the executive summary of the report, visit http://bit.ly/1dw8CT7.

As a first step, this study identifies the shortcomings of conventional and more rigid withdrawal methods, particularly the well-known "4% Rule," which could expose retirees to unnecessary risks that they will outlive their retirement assets or, conversely, leave too much wealth untapped. In particular, J.P. Morgan's new "Dynamic Withdrawal Strategy" shows retirees and their advisors how they can adjust their withdrawal rates and portfolio allocations in response to changes in personal circumstances and preferences, as well as market conditions.

"Beyond the inevitable comparisons to other methods, this research sets the stage for the first retirement income framework focused on the benefits of a dynamic approach to managing withdrawals and asset allocation in the context of maximizing retiree satisfaction," said Michael Falcon, Head of Retirement at J.P. Morgan Asset Management. "This unique strategy aims to incorporate the concept of 'lifetime utility' – or satisfaction – which defines retirement success as the fulfillment retirees gain from living life to the fullest while spending their retirement savings."

The Dynamic Withdrawal Strategy incorporates five distinct factors: (1) personal preferences for the amount and timing of withdrawals, (2) wealth and "lifetime retirement income," which the study defines as guaranteed income, such as social security, pensions and lifetime annuities, (3) age and life expectancy, (4) the randomness of markets and extreme events, and (5) the dynamic nature of each retiree's decision-making process.

"When all these factors are combined into a single, cohesive methodology, we can calculate an optimal withdrawal rate and asset allocation based on each retiree's unique profile," said Abdullah Sheikh, Vice President and Research Analyst for J.P. Morgan Asset Management's Asset Management Solutions-Global Multi-Asset Group.

This new research provides a framework that can be tailored to an individual's unique circumstances, preferences and appetite for risk.

"The research that has gone into this strategy is specifically designed to help optimize the drawdown of each retiree's assets, enabling them to adjust withdrawal amounts and asset allocations in response to changing market conditions, personal circumstances and preferences," said Katherine Roy, J.P. Morgan Asset Management's Chief Retirement Strategist.

By creating this new patent-pending methodology, J.P. Morgan seeks to help retirees smooth out the unpredictable nature of future expenses and personal circumstances. By periodically adjusting withdrawal rates and asset allocations to changes in age, wealth, life expectancy and personal preferences, this framework requires retirees and their advisors to closely monitor their unique withdrawal strategies at least once a year.

"This strategy offers retirees more confidence with respect to one of Americans' greatest financial needs and helps them make the most of their assets during their retirement years," Falcon added.

To read the executive summary of the report, visit http://bit.ly/1dw8CT7.

To read the full research report, visit http://bit.ly/NvrtaK.

About J.P. Morgan Asset Management – Retirement
J.P. Morgan Asset Management is a leading comprehensive retirement solutions provider dedicated to improving individual retirement outcomes. J.P. Morgan Retirement, with defined contribution assets under management of $109 billion, is a leading comprehensive retirement solutions provider dedicated to improving individual retirement outcomes. J.P. Morgan Retirement Plan Services provides bundled recordkeeping services to more than 2 million participants in more than 850 plans, representing more than $167 billion in retirement plan assets (as of December 31, 2013).

About J.P. Morgan Asset Management
J.P. Morgan Asset Management, with assets under management of $1.6 trillion, is a global leader in investment management. J.P. Morgan Asset Management's clients include institutions, retail investors and high-net worth individuals in every major market throughout the world. J.P. Morgan Asset Management offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity. JPMorgan Chase & Co. (NYSE: JPM), the parent company of J.P. Morgan Asset Management, is a leading global asset management firm with assets of approximately $2.4 trillion and operations in more than 60 countries. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

SOURCE J.P. Morgan Asset Management