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Here is the senerio, when I retire I have the estimated 500K in my 401K that I mentioned in the other post, I convert it to a self directed IRA and buy 30 year bonds paying 5%. It seems to me that I would not only get a 5% guaranteed return but it would also guarantee my principal for the thirty years. So is that the same as a 5% withdrawal rate? Is it better than or not as good as?

That's a 5% withdrawl rate all right. But as inflation creeps along, your $25,000 will have less and less buying power each year. Ever notice how cheap stuff was 30 years ago? By the end of 30 years you will be capable of purchasing a lot less than you can now with that $25k. How much less? That depends on how much inflation we have.

The purpose of having a significant portion of your portfolio in stocks is that they tend to increase in value beyond the rate of inflation over long periods of time.

Various studies have shown that with a mix of 75% S&P500 and 25% fixed income, a withdrawl of 4% of your initial portfolio value adjusted for inflation each year would have survived any 30-year period starting as far back as 1871, even if you had retired just before the Great Depression.

A 5% withdrawl would have survived also, if you took 5% of each year's portfolio value, whether it was up or down over the previous year. Obviously that wouldn't have left you much to live on during the Depression.

--fleg
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