Retirement researchers and advisors have long used fixed withdrawal strategies to demonstrate the viability and feasibility of this or that approach, and to suggest an optimal asset allocation.

Well, the problem with that research is this: no one in the real word uses a fixed withdrawal strategy. No one ever withdraws 4% per year on an inflation-adjusted basis. Instead, retirees use variable withdrawal strategies.

And the optimal asset allocations for variable withdrawal strategies are, according to research published by Joe Tomlinson in Advisor Perspectives, quite different from the research findings and rules of thumb based on fixed strategies.

What's more, Tomlinson suggested - heresy alert - that the implications of his research go beyond asset allocation and show, for example, that equity glide paths in retirement are relatively unimportant.

So, let's a take closer look at Tomlinson's research.

Asset allocation in practice

What's the optimal asset allocation for those in retirement? To be sure, it depends on many factors. But in the main, how much retirees should invest in stocks and bonds - in volatile risky assets - is all over the map.

For instance, investors who use the time-honored rule of thumb - 100 minus age - to determine their asset allocation will find themselves investing 40% of their portfolio in stocks and 60% in bonds at age 60, and 20% in stocks and 80% in bonds at age 80. For its part, Charles Schwab recommends a 60% stock allocation from ages 60 to 69, 40% for ages 70 to 79 and 20% for ages over 80. And Vanguard's Target Retirement Income fund uses a 30% stock allocation. Meanwhile, the original research using the fixed withdrawal strategy used stock allocations in the 50 to 75% range.

All told, Tomlinson noted that stock allocations range from 30% to 75% for retirees.

The use of variable withdrawal strategies

In his research, Tomlinson notes that the big difference between variable and fixed withdrawal strategies, though it might seem obvious enough, is this: with variable strategies, the withdrawals are adjusted each year during retirement to reflect underlying investment performance of the portfolio and with fixed strategies, the withdrawals - say 4% -- are mapped out at the start of the retirement.

There are two big disadvantages with a fixed strategy. One, bad markets, or what some refer to sequence-of-returns risk, and longer-than expected retirements can result in savings being depleted. In other words, plan failure. Meanwhile, good markets and a shorter-than-expected retirement would result in a large bequest, another type of plan failure.

The good news? Most financial advisors don't use a fixed withdrawal strategy. "Practitioners recognize that good planning cannot ignore what is happening with the investment portfolio; spending adjustments will need to be made during retirement," Tomlinson wrote.

"To be sure, there are many different types of variable withdrawal strategies to use," he added. "One might determine these adjustments informally or apply a more disciplined variable withdrawal strategy."

Plus, these strategies are not without there disadvantages. For one, you might have year-to-year changes in your standard of living. That's because you'll likely withdraw less money when the markets are down and more when the markets are up.

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In his research, Tomlinson sought to demonstrate how outcomes using the 4% rule differ from those based on a variable withdrawal strategy in which he took a 60% stocks/40% bonds portfolio at the start of each year during retirement and determined the withdrawal amount for that year that produced level real withdrawals over the remainder of retirement.

You can read more about his approach in the appendix to his paper, How Variable Withdrawals Improve Retirement Outcomes, but in essence he showed that the variable approach vs. the fixed approach lowered bequests, increased consumption (spending or withdrawals in layman's terms) and reduced plan failures. In short, variable strategies offer strong advantages that make them worth considering.

Optimal asset allocation

Tomlinson also sought to determine which asset allocation produced the best retirement outcomes. Again, you read the details about his methods in his paper (he introduced concepts such as average shortfall and average certainty equivalent), but the bottom line is that with variable withdrawals, you can invest more in stocks than with a fixed withdrawal strategy: the percent you can invest in stocks rises from a range of 30% to 75% to 50% to 110% (the 110 reflects borrowing at the bond return).

Include a SPIA

The math gets even better when you add a single premium income annuity (or SPIA) into the asset allocation. Testing revealed, for instance, that a 140% stock allocation produced the highest certainty equivalent (CE), a measure reflecting average consumption and consumption change. "It is clear that adding a SPIA improves things, both in terms of eliminating shortfall risk and increasing the CE," Tomlinson wrote.

Some takeaways

According to Tomlinson, the fuss over glide paths -- how much a portfolio reduces or increases its allocation to stocks over time -- may be just that, a fuss. "When financially optimal results are produced with stock allocations above 100%, as I have demonstrated for variable withdrawals, glide-path analysis has little practical significance," he wrote. "Conveniently, with variable strategies, we don't really need to sort out the conflicting evidence about the best choice of a retirement glide path."

In his research, Tomlinson also demonstrated the use and value of a holistic (floor-and-upside) approach to retirement-income planning. In short, he's recommending that retirees use guaranteed sources of lifetime income such as Social Security and a SPIA to cover essential expenses and variable sources of income - a 100% stock portfolio - to cover the discretionary expenses.

But even though that might sound like a high and perhaps imprudent percent for retirees to allocate to stocks, Tomlinson reports that's not necessarily the case when you factor in a person's entire portfolio, including Social Security, SPIAs and stocks. When you do that, he notes, the stock allocation might be just 37%. "Once a retiree secures funding for essential spending needs, the remaining assets are 'liberated' and can be invested more aggressively," he wrote.

The bottomline: "A narrow focus on the investment portfolio distorts retirement planning," Tomlinson wrote. "Taking a broader view combined with a greater focus on variable withdrawal strategies and their asset allocation implications moves retirement planning in a positive direction."

What do other planners say?

So, what say other financial planners of Tomlinson's research?

In general, many agree that using a fixed withdrawal strategy makes sense for research but not in reality. "A fixed spending strategy from a volatile portfolio was meant to be a research simplification rather than a viable retirement strategy," Wade Pfau, professor of retirement income at The American College of Financial Services wrote on APViewpoint, a sister website to Advisor Perspectives. "But a lot changes when you switch from fixed withdrawals to variable withdrawals. Notably, the impact of sequence of returns risk is reduced, which has implications for matters like glide paths as well... they may be less important."

Others agree. "Implementing a fixed withdrawal strategy requires the retiree to calculate a withdrawal amount at the beginning of retirement and spend that same amount, perhaps inflation-adjusted, for the remainder of retirement ignoring all new information in the interim," Dirk Cotton, a financial adviser and author of the Retirement Cafe blog in Chapel Hill, N.C., wrote on APViewpoint. "Sounds irrational to me, like continuing to sail on your initial heading after you know you've strayed far off course."

Commentators also say, however, that trying to determine an optimal asset allocation - given that we don't know future equity premiums nor their distribution - might not be a reasonable endeavor.

Reasonable or not, Tomlinson said his research has some practical implications: namely, that some of the key planning recommendations change. "For practical financial planning, I think it would be a positive step if we could help (investors) to focus more broadly on all sources of retirement income and less on just the investment portfolio and its short-term fluctuations," he wrote. "But I realize such a change in focus is not easy to accomplish."