Here's What Beats the 4% Rule: Jamie Hopkins

Financial planners who want to help clients successfully (and comfortably) navigate the retirement process must expand their thinking about income planning — and emerging tools and new ways of thinking can help, says Jamie Hopkins, managing partner at Carson Group,

As Hopkins recently explained in a video he posted to the social media platform X, there is a clear consensus among researchers that Americans are facing a retirement income shortfall — and they are worried about it.

“One of the things that I am often asked to talk about is the fact that so many Americans are facing a retirement income gap,” Hopkins says. “While it’s true there is an income challenge facing older Americans, many people are actually in better shape than they realize, and many retirement income plans that ‘fail’ can actually be fixed with minor adjustments.”

According to Hopkins, the basic disconnection at work here is that so much of the income planning that is done today by financial planners is based purely in Monte Carlo simulations that generate binary success and failure metrics. These are useful as far as they go, Hopkins says, but they also fail to capture so much of the nuance that comes into play during the retirement income planning effort.

Specifically, traditional income analyses built around Monte Carlo simulations fail to distinguish between different levels of failure, Hopkins says, and that’s a big shortcoming. Another issue is that Monte Carlo simulations provide only a single snapshot in time, and they are only as good as the inputs and assumptions fed into them.

Income Confusion

“Why is this such a big deal? Well, the reality is that Americans are taught about savings but not spending, so they have very little clarity about income planning,” Hopkins says. “People don’t learn about spending when they are saving for retirement. Instead, they learn about budgeting and living below their means.

“But when we get to retirement and the working income stops, we need to put a new strategy in place,” Hopkins continues. “The traditional places to start are flooring strategies, bucket strategies and systematic withdrawals approaches, like the 4% safe withdrawal strategy. These are powerful and they help tell different stories, but I think we can do a lot better.”

Hopkins says there is a particular overreliance on the “4% safe withdrawal strategy.”

“And I’m saying ‘strategy’ on purpose — because it’s not a rule,” Hopkins says. “Really, the 4% ‘rule’ is just a finding that shows us a potential strategy to use for income, one that is based on what market returns looked like in the past.”

While better than spending in an uncontrolled and unconsidered fashion, Hopkins says, the 4% framework has another problem: People don’t actually follow the rule even when they say they will, because life is just much more complicated than that.