Retirement Rule of Thumb or Thumb’s Down?

A Texas Tech University professor and director of retirement planning will receive the Montgomery-Warshauer Award for the second consecutive year.

Michael Finke along with doctoral student David M. Blanchett and a co-author are being awarded by the Financial Planning Association for their June 2013 Journal of Financial Planning article “The 4 Percent Rule Is Not Safe in a Low-Yield World.” The award will be presented at their annual conference on Sept. 20-22 in Seattle.

Finke received his first Montgomery-Warshauer Award in 2013 for his July 2012 journal paper “The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice” written with doctoral student Thomas Langdon.

“The award is given to the journal article that had the biggest impact on the profession, and it is the second year in a row that Texas Tech has won the award,” Finke said. “Our goal is to be the center of research supporting the profession, and it’s great to get this kind of recognition for the program.”

The idea for the paper came from earlier work with Blanchett, who also is the head of retirement research for Morningstar Investment Management that investigated the impact of low stock and bond returns on common financial planning practices. They found that the practice of taking out a real 4 percent income from retirement investments wasn’t as safe as many in the industry believed. In fact, low returns raised the failure rate of a 4 percent strategy from 5 percent to nearly 50 percent over a 30-year retirement.

The article received a lot of attention, including mentions in The New York Times and The Wall Street Journal and was the most downloaded article in the field of finance in January and February of 2013 on the Social Science Research Network.

A member of the Journal of Financial Planning’s advisory board said the article was deserving of this recognition because it provides new insights into a rule of thumb that has been overused and incorrectly used for too long.

Finke has doctoral degrees in finance from the University of Missouri and in consumer science from Ohio State University. He was an associate professor at University of Missouri from 1999 through 2006, and has been a professor at Texas Tech since 2006.