Stefan Sharkansky: The Retirement Spending Plan That Adapts as Markets Change

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**Christine Benz** (0:33)
Hi and welcome to The Long View. I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar.
Our guest on the podcast today is Stefan Sharkansky. Stefan is a Ph.D. statistician who specializes in finance. He wrote a provocatively titled paper, The Only Other Spending Rule Article You Will Ever Need, which was published in the Financial Analyst Journal.
Stefan has also developed a related website called The Best Third, designed to help people with their retirement spending plans and portfolio structures. In addition, he developed and operates the website personalfund.com, which provides proprietary cost analysis of mutual funds to financial advisors. Stefan has a BA in Mathematics from the University of Wisconsin-Madison, an MS in Computer Science from Stanford University, and an MS and a Ph.D. in Statistics from the University of Washington. Stefan, welcome to The Long View.

**Stefan Sharkansky** (1:28)
Thank you very much. I'm delighted to be here.

**Christine Benz** (1:30)
Well, we're delighted to have you here, and we do want to delve into your work on retirement planning. But before we do that, I wanted to spend a little bit of time talking about your background. So you have your doctorate in statistics. What got you interested in investing and especially retirement planning?

**Stefan Sharkansky** (1:48)
Well, I've been interested in investing for a long time, and my doctorate in statistics is with a focus on financial econometrics. So I have the domain knowledge about finance and investing. The retirement planning specifically came from a very personal experience. A few years ago, my wife asked me, how much could we spend in retirement?
I said, well, gosh, I have no idea, but let me research that. That got me into this rabbit hole of figuring out what is the best methodology for retirement planning. That is planning for the actual spending part of the retirement as opposed to the pre-retirement planning and that got me here.

**Christine Benz** (2:32)
Okay. So let's talk about the application that you've created. It's called The Best Third and this Best Third idea is something that you come back to. Can you maybe just give us a little background on how you're using that term and what it means?

**Stefan Sharkansky** (2:47)
Yeah. It means that you could think of your life as having three-thirds. The first third is when you're growing up and going to school. The second third is when you're working and raising kids. And then the third third is when you're in retirement. And the website is about helping you make the best of what should be the best third of your life.

**Christine Benz** (3:09)
Okay. So in the paper which was published in the Financial Analyst Journal, you talk about the kind of research shortcut that many have used and Bill Bengen's seminal research that starts with that 4% guideline. But you, in the paper, are quite critical of those sort of fixed-rate spending systems because they lead to underspending, sometimes dramatically so. So people deprive themselves effectively during their retirement periods. Can you talk about that?

**Stefan Sharkansky** (3:41)
Yeah, absolutely.
First of all, Bill Bengen and the 4% rule deserve a lot of credit because it was the first systematic approach for spending down a retirement portfolio, really. But it has come under criticism from a number of researchers and thought leaders over the years for a few reasons. And one is because whether it's 4% or whatever the fixed rate happens to be, people's spending in tax situations during retirement isn't really constant. So having a constant withdrawal rate doesn't really fit the way people actually need to spend.
And another part of it is, as you mentioned, is the underspending.
And I found in researching the paper and running through the numbers with historical scenario data is that in a median market scenario, if you follow the 4% rule, you would end up your 30-year retirement plan with half as much wealth as you started with, adjusted for inflation. So what that means is that you are not spending as much as you could, and you are leaving so much on the table for your heirs that you're not able to enjoy the quality of life in retirement that you can truly afford.