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Greetings, Lee, and welcome. You wrote:

<<1. TMFPixy, presumably, has data showing how much you get to withdraw from your theoretical $100K pot each year. But I can't find it anywhere. Did you publish those tables?>>

No, only the final results were published.

<<2. I'm still a little confused about what the "fixed percentage with inflation adjustment" means. If your portfolio goes down in a given year, do you adjust *last* year's payment by inflation and take that? You mentioned the difference between what the algorithm did and what would be prudent, which made sense, but I couldn't tell exactly what the algorithm did. *My* prudent approach would be withdraw the minimum of (a) your fixed percentage amount and (b) last year's payment, adjusted for inflation.>>

The income taken each year was based on the initial draw as increased by inflation or decreased by deflation for the prior year. If you have $100K and begin taking 5%, then in the first year you take $5K and leave $95K at investment. At the end of the year you note inflation for that year was 3%. Therefore, you compute the second year's income as $5,150, which is the product of 1.03 times $5K. At the end of year two you note inflation is again 3%, so the next year's draw becomes $5,305, which is the product of $5,150 times 1.03. If there was deflation (none occurred between 1961 and 1998), then the draw would be decreased. The study did not adjust for the remaining size of the portfolio, something that would happen in real life.

<<3. Ann Coleman has me sufficiently nervous about the Foolish Four that I'm hesitant to recommend it to Dad, and yet it's one of the few mechanical strategies for which we have semi-long-term data. I'm in the situation that I have a strategy that has numbers I can use to sell Dad on my plan, but I'm not at all sure it's the strategy that I think is best for him. >>

It's a very valid concern. Keep in mind this is a value strategy, and value strategy investing is very much out of favor right now, as is investing in old-line, stable industries in general. Also, the Dow now includes some non-dividend paying stocks, which throws in a factor previously not present in the FF selection methodology. Ask yourself how your parents would react to the significant short-term decline in the Dow over the last few weeks. If they're looking for "secure" income, then the market is the wrong place for that. They need to follow the course that makes them most comfortable. In the present marketplace, a FF strategy would probably make many retirees very edgy. There's more to life than having to worry about your stash, and if such a proposal would make your parents uncomfortable, it should not be followed under any circumstances.

I use the FF, and am very comfortable doing so; however, I am also quite used to seeing markets go down as well as up. That doesn't panic me, even with a retirement pot of money. Many, though, find a paper loss in the short-term too much to bear. Those folks then make the paper loss a real one by selling out because the pressure is too much to bear. What would your parents do? If they're satisfied with the lower (but "guaranteed") return and income of the annuity, then talking them into something else that might make them suffer huge pangs of anxiety could be the worst thing you could do.

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