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Subject:  Re: Am I naive? Date:  12/29/2002  1:36 PM
Author:  1HappyFool Number:  88042 of 888931

I've watched the debates on 2-3-5% wdr - but, call me naive - as DH and I are planning our retirement, we are planning on not touching our principal and living only on interest.

We estimate we'd like to have an annual income of $60/year. That requires us to have anywhere from $600,000 to $1.5m (preferably the higher in the event of very low returns).

Are we totally off in our thinking?

I think you're naive, but I mean that in the kindest way. The big picture can get lost in the focus on pixels around here.<grin>

Your principal must continue to grow in retirement, because your expenses will continue to grow due to inflation. It will take more and more principal to get more and more interest to counteract inflation(all else being equal).

If inflation averages 3%/yr., then your expenses will grow by 3%/yr. and your principal must grow by 3%/yr. This growth must come from your interest, but if you spend all your interest each year, you will need some of your principal to counteract inflation which will decrease your pricipal and create a declining principal/interest spiral that results in portfolio failure (poverty before death).

The whole SWR debate is about whose quess is the optimum and there's no crystal ball to provide the level of clarity that some desire. Your SWR + PIR (personal inflation rate) is your RROR (required rate of return). Since all three of these are unknowable, you have to make guesses and assumptions. Failure to include your PIR is very dangerous. Failure to understand that these are averages and that they will undoubtedly fluctuate is also dangerous.


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