In this guest column, Amyr Rocha Lima, chair of the CISI’s Financial Planning forum, looks at a different approach to flexible retirement income. This column first appeared in the July-August issue of Financial Planning Today magazine.

How can we provide our clients with a retirement that’s not just secure, but also vibrant and fulfilling? As Financial Planners, this question should be at the forefront of our minds.

In the realm of retirement income planning, we often adhere to established norms and rules, such as the ‘4% rule’, which advocates for a fixed withdrawal rate from the retirement portfolio. This provides a measure of stability, but can it also limit our clients’ potential lifestyle in retirement?

Enter the Flexible Spending Strategy, a fresh perspective on retirement income planning that could dramatically enhance your client’s golden years.

This dynamic approach invites clients to adjust their annual spending in tandem with market performance, allowing more freedom in prosperous times and advocating for frugality during downturns.

Here’s the rationale: instead of a fixed ‘4% rule’, imagine applying a more flexible ‘5.5% rule’, increasing annual spending from £40,000 to £55,000 on a £1 million portfolio. This gives clients the ability to enjoy their money when the markets are doing well.

The strategy works like this: at each year-end, assess the market’s status. If the MSCI World Index, for example, is less than 10% off its highs, advise your clients to freely spend their discretionary budget the following year. If it’s more than 10% but less than 20% off its highs, suggest they reduce discretionary spending by half. If it’s over 20% off, recommend tightening the belt and cutting all discretionary spending.

In essence, the Flexible Spending Strategy provides a balance, allowing clients to enjoy the fruits of a buoyant market, while ensuring they protect their nest egg during a downturn.

However, it’s crucial to emphasise that this strategy requires flexibility from your clients. In times of financial turbulence, they will need to significantly reduce or even eliminate discretionary spending. Can they weather a few austere years for a more prosperous future?

How might the Flexible Spending Strategy enhance your retirement income planning proposition? Could it enable you to provide a more prosperous retirement for your clients, and help them weather financial storms with greater peace of mind? As Financial Planners, our aim should always be to offer informed and adaptable strategies that cater to clients’ lifestyle aspirations and risk tolerance.

The Flexible Spending Strategy presents a potential avenue to achieve this.

• You can subscribe to the magazine by clicking on 'My Account' (once registered for the site) and choosing from the options available.

Amyr Rocha Lima is a Certified and Chartered Financial Planner and chairman of the CISI Financial Planning Forum Committee.