New Vanguard Research Examines Dynamic Retirement Spending Strategy

VALLEY FORGE, Pa., Sept. 20, 2016 /PRNewswire/ -- For many retirement-oriented investors, developing and overseeing a retirement spending strategy can be a complex undertaking, further complicated by increasing life expectancies, disappearing sources of guaranteed income, and historically low yields on bonds.

In a new paper, "From assets to income: A goals-based approach to retirement spending," Vanguard researchers provide a framework to help investors turn an investment portfolio into a sustainable and consistent source of income.

Vanguard's approach has three components:

• Developing a prudent spending rule. Vanguard researchers advocate for tailoring spending to a retiree's unique goals using a "dynamic spending" rule under which annual spending is allowed to fluctuate based on market performance, but "smoothed" by applying an annual ceiling and floor to the amount.
• Maintaining a broadly diversified retirement portfolio. Vanguard researchers recommend building a balanced, diversified investment portfolio that focuses on total return rather than income.
• Implementing tax-efficient withdrawal strategies. With many investors holding taxable, tax- deferred, and tax-free accounts, Vanguard researchers suggest a withdrawal order strategy designed to minimize taxes, as well as to potentially increase the spending amount and a portfolio's longevity.

"The stakes in retirement are high, and the impact of suboptimal decisions can be severe, particularly taking into account the unknowns, such as market returns, life span, and health issues. Vanguard's framework can help investors negotiate the inevitable trade-offs between spending sustainability and stability," said Colleen Jaconetti, CPA, CFP, a senior investment strategist at Vanguard and co-author of the paper.

About Vanguard
Vanguard is one of the world's largest investment management companies. As of August 31, 2016, Vanguard managed more than $3.8 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers more than 350 funds to its more than 20 million investors worldwide. For more information, visit vanguard.com.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

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