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Drawing down portfolio for retirement income. Part 2 of 4

In this series of four articles, I show the results of

drawing down an initial portfolio of $1000. The examined results were

for every 20-year period from 1961 to 1997 (17 such intervals).

Part 2 -- 80% of the portfolio in stocks, 20% in cash/bonds, to cover

shortfalls when the draw is reduced. UV strategies.

One commonly mentioned strategy is to keep part of your portfolio in

bonds or cash, to ride out a down market. The common recommendation

is to keep 4 or 5 years living expenses in cash. Peter Lynch wrote an

article discussing this strategy; he claimed that you would be better

off by keeping the entire portfolio in stocks. My results bear this


For UV2 with a 10% draw, you would have run out of money in several


Here are some figures for 8% drawdown using UV2:

Starting balance $1,000 (80% stocks / 20% cash)

Lowest ever year-end balance $511 (stocks)

Lowest ending 20-year balance $3,057 (1962-1981)

Lowest yearend bal $600

Total withdrawal $2,275

Total capped shortfall $249

# times hit 8% cap 11

# times hit 75% floor 5

The $200 cash would have covered all but $49 of the shortfall. But

overall, this is much inferior to staying 100% in stocks. Both 8% and

10% draw with 100% in stocks are much better than 8% draw with this


The other strategies are worst, so there results are not listed.

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