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Subject:  Re: Safe withdrawal rates Date:  9/13/1999  3:29 PM
Author:  GrayWulff Number:  101 of 178


I'm glad you found something that gives you a better feel for what a string of bad years can do.

Forgive me if I'm beating a dead horse, but the real issue is not what your stock/bond mix should be or how "stable" your portfolio is. Rather, what you should worry about is how long you can wait for the equity market to recover from a slump before you must sell some of your stocks. Choose the number of years that makes you feel comfortable--5 years is aggressive, 10 is conservative. Then you create a bond ladder that delivers the cash you need over that time span.

Remeber, your portfolio will deliver cash from three sources: bond cupons, stock divideds, and bond maturities. When equities are down you don't replace your bonds as they mature. When they are again up, you rebuild your ladder.

Simply holding a fixed percentage of bonds is terribly sub-optimal. They must be structured into a bond ladder to give you real protection.

With this kind of plan, you can start with a conservative withdrawl rate, say 4%, and then increase your amount as your portfolio grows in value. As long as your withdrawl rate plus the inflation rate don't exceed your long term average portfolio return, you're in fat city.

For example, with stocks yielding 1.5% in dividends and bonds yielding 6%, you can gaurantee 4% cash flow for 5 years with only 10.2% of your money in bonds. 17.3% will guarantee 10 years. The only unsecured risk, is the dividend amount of the stocks.


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