Synergy Blog

Financial Settlement Planning Tip – Forget the 4% Withdrawal Rule

By Anthony F. Prieto, Jr., CFP

For the past 20 years, financial planners have been using the 4% withdrawal rule with clients.  The basic concept was a client could withdraw up to 4% of their funds each year and over time maintain a steady or growing principal balance.  However, the longevity of the low interest environment coupled with an erratic market has made the industry rethink this rule.  In the settlement planning market, you are creating a retirement plan for your clients.  The only difference is the length of time they need money and the additional costs of treatment.  Our clients are typically unable to work at a younger age than the general population.  Extra care needs to be placed on their plans.

If a client is withdrawing funds at a 4% spread from earnings to withdrawals, the funds will be gone in less than 20 years.  For example, John (Age 37) has been catastrophically injured in his accident.  His net recovery after fees, costs and liens is $1,000,000.  If Dan takes 7% ($70,000) a year but is only earning 3% in his account value will be zero in year 18.

Here is a link to an article in the WSJ.

TESTIMONIALS

“Synergy is our guiding light for deferring our contingent legal fees and planning for retirement. The lawyers at Panter Panter & Sampedro, myself included, have been working with them for over ten years using different methods to defer comp and plan for retirement.”

Brett Panter
Panter, Panter & Sampedro

"I don't think I've directly said "thank you" for helping us with Bridgett’s case. We sent the reduced payment to Medicaid and called Bridgett's mom to tell her approximately how much money was going to be left for Bridgett and she broke down over the telephone. Given only $25k of insurance and a $850k medical bill from the hospital she didn't think Bridgett would ever see a penny."

Tom L. Copeland
Jeffrey Meldon & Associates, P.A.

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