Maybe you have heard of the safe withdrawal rate "rule-of-thumb" that you can withdraw about 4% of your nest egg balance annually and have a reasonably good chance that you will not run out of money in 30 years.
There are many studies that evaluate whether 4% or 2.5% or 5.5% is the right number. If you can be flexible each year, then several percentages may work. But one thing that is key is how much of your portfolio is in stocks versus fixed income (bonds and/or cash, money markets, etc.).
Mr. Bengen began this analysis/discussion in 1994 and came up, in later years, with a "safemax" percentage where your money will last 30 years. The key is that you must have some portion in stocks.
40% is the likely minimum and 80% may be the maximum needed, but somewhere in this range is probably the amount of stocks needed to maintain a withdrawal that will be sustainable.
A February 2012 contribution in the Journal of Financial Planning by Sacks "...repeated all the calculations and analyses, but with a 70/30 asset allocation in the portfolio, and with an 80/20 asset allocation. The results were essentially the same. This finding is consistent with Bengen's observation that "for a wide range of stock allocations - between 40 percent and 70 percent - the safemax is virtually constant..."
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.