Gauging Withdrawals From a Retirement Portfolio Sarasota Herald-Tribune (02/11/01) p.6E; Stepleman, Robert
To ensure financial support in retirement years, young couples
need to plan a withdrawal strategy that will last for 30 to 40 years.
Let us assume a conservatively invested tax deferred retirement
portfolio has an expected yield of about 8 percent. This corresponds to
a retirement portfolio in an IRA or 401(k) plan invested in 60 percent
conservative stocks and 40 percent intermediate-term U.S. Treasury
Securities. For retirees who wish to maintain a consistent lifestyle
throughout their retirement, they must decide on an initial amount to
withdraw from their assets, and each year, increase that amount for
inflation. If we could count on both the portfolio's actual annual
return and inflation to be a constant 8 percent and 3 percent,
respectively, then it would be relatively simple to decide on the
initial amount to withdraw. If 5 percent is withdrawn for real return
of the portfolio, then 3 percent would be left to increase in value for
next year's inflation, thus the portfolio would never be depleted.