• Noel Watson

Book review: 'Beyond the 4% rule' by Abraham Okusanya

Updated: 2 days ago

'Beyond the 4% rule: The science of retirement portfolios that last a lifetime' was published in 2018 by Abraham Okusanya. Abraham first appeared on my radar in 2013 (soon after he had formed his consultancy firm Finanlytiq) when he wrote a piece on Neil Woodford and received a lot of feedback (not all positive!). Abraham has since launched a discretionary fund management (DFM) service named Betafolio (that follows a similar investing style to Tim Hale at Albion). In addition, he has released a piece of software, Timeline, used to evaluate the chances that a portfolio might run out in retirement. I use Timeline in my day-to-day work and used it extensively in the case study for my book.



Retirement income history


The book begins by discussing the history of retirement incomes, from the introduction of what was effectively the first state pension introduced by Otto Von Bismarck in 1883 to the pension freedoms introduced in the UK in 2015.


The two retirement income philosophies are then covered. On one side, safety-first advocates believe that essential spending should be covered by income sources that aren’t at the mercy of investment markets, such as state pensions, final salary schemes, and annuities. In contrast, those advocating a probability-based approach believe that investment, inflation and longevity risks should all be taken into account and used to create an estimate of how likely the retirement pot might be exhausted.



Sequencing risk and withdrawal strategies


The book then covers sequencing risk (or pound cost ravaging as Abraham likes to call it) and how investment returns during the first decade are linked to portfolio sustainability.

He next looks at the theories that don’t work, from managing volatility in a retirement portfolio, the limitations (Abraham has a less polite interpretation!) of a natural yield approach (living off the dividend income from a portfolio) to the downsides of cash buffers.


Abraham then covers flexible withdrawal strategies (i.e. not just increasing withdrawals by inflation each year) with inflation adjustment options including Guyton and advanced withdrawal rules such as ‘ratcheting’.


The final sections of the book look at what can impact the sustainable withdrawal rate. These include asset allocation, longevity and fees and how these can be used to bake a 'layer cake' of a sustainable withdrawal rate.


Abraham's book was the first that helped to plan a sustainable retirement for a UK retiree, with most books before this tending to be aimed at US audiences. It deserves its place on the bookshelf for those planning for retirement (and those helping them!). That said, I felt that some of the examples were not always as clear as they could be, and the book would’ve benefitted from a case study where the impact of factors affecting SWR was in one place.



Want to find out more


If you want to find out more about our retirement planning process and how we may be able to help you, please schedule a free, no-obligation call.


Alternatively, if you would prefer to read around the subject in more detail first, our book, 'Planning for Retirement: Your Guide to Financial Freedom' is available on Amazon.



About us


Pyrford Financial Planning is a team of Independent Financial Advisers specialising in retirement planning. As a retirement financial adviser, we provide pension advice, investment advice and inheritance tax advice.


Our office telephone number is 01932 645150.


Our office address is Wellington Way, Weybridge KT13 0TT



Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.


Although best efforts are made to ensure all information is accurate, you should not rely on this blog for your personal situation or planning.


The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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