Don’t worry I am not asking for a place to stay.  The ROOM I am referring to is the acronym for Run out of Money risk (ROOM).   This is applicable to anyone who is no longer working and reliant on drawing an income from their savings.   The question is; do you have enough or more importantly are you drawing too much.

A US Financial Adviser by the name of William P. Bergen conducted extensive  research to identify a strategy that would allow his clients the best chance of enjoying real (inflation adjusted) growth for at least 30 years and he concluded the study with the following rules of thumb:

  • Draw an initial starting income yield of 4%
  • Increase the $ income amount annually by the official inflation rate only

The study assumed a very simple underlying investment of 50% in shares and 50% in cash, which was rebalanced annually.

Allan Gray did similar research for local investors and proved that if you followed the above rule of thumb, your income would have lasted for at least 30 years, 93% of the time.  So, no need for a financial adviser, simply apply the 4% rule and live happily ever after.   But what if I told you that a “proper” financial adviser, not an assurance salesman, could increase the 4% income yield by as much as 50%, would you then be interested in appointing a financial adviser?

In 2013 researchers Blanchett and Kaplan wrote a paper in which they defined a new financial planning term called Gamma.  Gamma is the value added though the use of financial planning tools by someone from making more informed financial planning decisions and techniques beyond the management of portfolio assets.

Blachett and Kaplan explored five types of gamma that impact financial outcomes experienced by retirees:  (1) using appropriate asset allocation strategies; (2) creating dynamic withdrawal strategies at retirement; (3) understanding the appropriate use of annuity products; (4) choosing between tax-efficient investing and withdrawal strategies; and (5) building portfolio that account for risks faced by retirees through liability relative portfolio optimization.   They quantified the above as adding nearly 2% annually, within the context of retirement planning.

Investors spend way too much time focussed on past fund performance and trying to pick the best asset manager, the key to a successful retirement outcome is the quality of advice you receive, which encompasses so much more than simply picking the best performing fund.


Mark Williams
Mcomm, CFP®, HdipTax
T. 021-851 3746



Do you have ROOM?