Continuing Withdrawal Rates (July 2009)

Summary

The drop in stock prices has improved the outlook for new retirees. They may find that they still have enough to generate a satisfactory income stream in spite of recent stock market losses.

The continuing withdrawal rates are:

1) Between 6.0% and 6.5% (plus inflation) for traditional retirees who use a traditional, low cost annuity.
2) About 4.4% of the original balance (plus inflation) using a traditional fixed allocation, liquidation approach, selling stocks for income and always withdrawing the same amount in terms of inflation adjusted dollars. The downside risk is that the Year 30 balance would be one-half of the original balance (plus inflation).
3) About 6% of the portfolio’s original balance (plus inflation) when withdrawing a constant percentage of the portfolio’s current balance, allowing withdrawals to vary in terms of buying power. The downside risk is that withdrawals could fall as much as one-third (to 4%) in terms of buying power at Year 20 before the portfolio recovers and grows once again.
4) About 7% to 8% of the original balance (plus inflation) with a straight income approach with a downside risk of 6% (plus inflation). A conservative selection with a very limited amount of risk produces 6.4% (plus inflation).
5) About 7.2% of the original balance (plus inflation) with a dividend blend. The downside risk is 5.4% (plus inflation) in the presence of high inflation.

http://www.early-retirement-planning-insights.com/Continuing...

Have fun.

John Walter Russell