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The dilemma many investors face in retirement
is how much money should they withdraw from their portfolios
annually?
There are two goals that I believe they should try to meet
in considering how much money they should withdraw from their
portfolios every year:
1. The first goal most people try to achieve
is adding enough income to their cash flow to meet their living
expenses and/or other needs.
2. The second goal they should try to meet is having their
portfolio's value keep up with inflation.
Both of these goals should help investors meet their income
needs today and in the future.
If your portfolio's value can keep up with inflation, or
exceed it, you should be able to increase your income along
with the increase in the value of your investments.
I think it's important not to take out more than your planned
withdrawals in years where your portfolio grows more than
inflation. The reason for this is that the excess growth will
help you in years where your portfolio has lost value. As
we all know, investments do fluctuate over long periods of
time.
I've always felt that a moderately invested portfolio can
handle a withdrawal rate of up to six percent (6%) per year.
In my 26 years in the financial planning business, I've had
good success with people withdrawing up to 6% per year. Clearly,
if you can take less, you leave yourself more room for increases
in the future.
If your portfolio value is $300,000, you should be able to
withdraw up to $18,000 per year, or $1,500 per month.
A moderate risk portfolio generally has investments in growth
& income funds (blue chip stocks funds) and/or balanced
or equity income funds (blue chip stocks and bonds). The common
stocks have an inherent or intrinsic growth component to their
make-up. This should help you achieve your goals of keeping
up with inflation.
If your portfolio is made up of only bonds, you're ability
to meet our two goals becomes almost non-existent. Bonds have
no way to truly appreciate over the long term nor do most
have any way to increase their income over long periods of
time.
Planning for your retirement is tricky business. If you make
a general rule of thumb for your portfolio to withdraw up
to six percent per year from a moderately invested portfolio,
you should have a reasonable chance of success throughout
the years.
Please call if you have any questions or would like to discuss
your retirement income needs.
Apprvd.BBDP
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