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My friend has about $500K that he needs to last for the next 11 years. Some of the money is in the stock market. He is no longer earning substantial income, and is feeling nervous about the market, so wants to move this $500K into something "safer". He wants to be able to count on an inflation-adjusted $50K withdrawal every year for the next 11 years from that $500K. So for example, next year he will pull out $50K, the following year it will be $50K+inflation adjustment for that year, etc.

So, without any inflation adjustment, he wants to take $550k out of a $500k investment. That means that he needs to have at least 1.625% rate of return on his money for the next 11 years. Adding in a 3% inflation rate, he would need to take out just over $640k, which would require a 4.15% rate of return.

He is very keen on using "safe" investment vehicles - i.e. he's not so concerned with the return as he is on making sure he does not lose the principle in some disastrous event, such as the stock market tanking or some bank going belly-up.

He can't accomplish both of his goals. 'Safe' (i.e. Treasury bonds and/or FDIC insured accounts) investments are returning even less than the 1.625% he would need just to get 11 years of a $50k withdrawal out of a $500k investment. If he adds in inflation adjustments, there will be even more of a shortfall.

He needs to decrease the amount he needs to take out or he needs to invest in something more risky if he wants to make his $500k last 11 years with inflation-adjusted withdrawals.

AJ
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