There was an article in today's (Aug 17, 2003) NY Times about how to avoid busting your retirement account http://www.nytimes.com/2003/08/17/business/yourmoney/17RETI.html?th=&pagewanted=all&position= . After spending most of the article explaining how you shouldn't be taking more than 4 or maybe 5% tops, the Times gets the opinion of the author of the various Trinity Unversity studies.
To tell people with $1 million portfolios that they can spend less than $4,000 a month is "absurd," said Dr. Philip Cooley, the Prassel Professor of Business at Trinity University in San Antonio, who has published several papers on sustainable withdrawal rates in the last five years.
"When you recommend such low rates, you cause the retiree to forgo a joyous life in early retirement," he said, "and they end up with a lot of money later on, when they can't take advantage of it."
He said his research indicated that over 30 years, a withdrawal rate of 7 percent of the initial portfolio value, without adjustments for inflation, is sustainable 86 percent of the time for a stock-dominated portfolio.
"This is not a contract," Dr. Cooley said. "We're talking about a financial plan." People who retire into a bear market can cut back on their withdrawal rate, he said. Then, when things look better, why not bump it up again?
Of course he started at a 4.8% withdrawal rate and is raising it to a gasp! 5% rate. Plus, note that his 7% without adjustments for inflation. So not much of a license to loot your retirement kitty. Still there is a good point here that you may find yourself wishing that you had spent more money when you could have had more fun with it.
Regards,
Baanista
To tell people with $1 million portfolios that they can spend less than $4,000 a month is "absurd," said Dr. Philip Cooley, the Prassel Professor of Business at Trinity University in San Antonio, who has published several papers on sustainable withdrawal rates in the last five years.
"When you recommend such low rates, you cause the retiree to forgo a joyous life in early retirement," he said, "and they end up with a lot of money later on, when they can't take advantage of it."
He said his research indicated that over 30 years, a withdrawal rate of 7 percent of the initial portfolio value, without adjustments for inflation, is sustainable 86 percent of the time for a stock-dominated portfolio.
"This is not a contract," Dr. Cooley said. "We're talking about a financial plan." People who retire into a bear market can cut back on their withdrawal rate, he said. Then, when things look better, why not bump it up again?
Of course he started at a 4.8% withdrawal rate and is raising it to a gasp! 5% rate. Plus, note that his 7% without adjustments for inflation. So not much of a license to loot your retirement kitty. Still there is a good point here that you may find yourself wishing that you had spent more money when you could have had more fun with it.
Regards,
Baanista
