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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: investing for retirement Date: 9/25/2001 11:43 PM
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InvestorLou55 asks,

Anyway, Intercst, I'm interested in your asset allocation for already retired people. You say 5-10 yrs. worth of living expenses in cash/cd's/liquid investments. What about living off the interest of investments and not touching the principal?
I guess I'm trying to get a handle on how to go about living on say, $48,000 a yr. as was mentioned on another board<I think> without touching the principal. Does that mean having combination interest/dividend yielding investments that total 48,000 a yr. or what.


I'd only be comfortable "living off the interest of investments and not touching the principal" if that principle was at least growing as fast as inflation over time. If you want to buy bonds to do this, the only "risk-free" way to do this would be with TIPS. The current yield on the 30-year TIPS is 3.43% which means you'd need $1.4 million dollars worth of TIPS to generate $48,000/yr. in pre-tax income.

I'm comfortable using the growth of the US stock market to provide my inflation protection over the long-term. Long-term studies of historical data show a 4% withdrawal (adjusted up or down for inflation/deflation each year) from a portfolio of 75%-80% stock and 20%-25% cash and CDs would have allowed a retiree to survive even the Crash of 1929. If the crash doesn't come, you're likely to have more money than you know what to do with when your 80 years of age. For more on this concept, check out the safe withdrawal studies on my web site at:

www.retireearlyhomepage.com

intercst
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