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Scott,

I subscribe to the Fidelity Independent Adviser Retirement Income Guide.  In the latest issue a portolio similar to the Couch Potato portolio was shown with historical results from 1970 through 2007.  It is a mix of 60% S&P Stock index fund and 40% Intermediate Term Government Bond Fund.  It compared the Stock Only vs. the Bond Only vs. the mix shown above.  The table started with a $1,000,000 balance, then proceded to withdraw at a 6% rate annually adjusted for 3.5% inflation.  The results were that the Bond Only portfolio went broke in 2003, the Stock Only porfolio went broke in 2007, and the 60/40 mix portfolio had $1,298,542 remaining after the 2007 withdrawal of $214,261.  Over the same time period does the original Couch Potato portfolio meet this performance, or is there something wrong with these numbers.

Bob, Corpus Christi

Bob,

The major thing wrong with these numbers is that the study throws a real low-ball when adjusting withdrawals for inflation. According to figures from Ibbotson Associates inflation compounded at a 4.6 percent annual rate from 1970 through 2007. That would make quite a difference over 27 years.

Whether the original Couch Potato portfolio would have survived over this period really isn't the question to ask. The question to ask is "What are the odds that the Couch Potato portfolio would have survived over every historical investing period?" How long your portfolio lasts depends on the sequence of your returns as well as on your annualized return. Start with a period of losses, and the odds of portfolio survival plummet. Start with a period of healthy gains, and you may die rich.

You can learn a lot more about this by reading some of the columns collected in the category, "the Spender's Portfolio and Portfolio Survival."

http://assetbuilder.com/tags/The+Spender_2700_s+Portfolio+_2600_amp_3B00_+Portfolio+Survival/default.aspx?PageIndex=1

 Before you start on those columns, however, please read this 1995 column, "Dangerous Advice from Peter Lynch."  It was one of the first column on portfolio survival and showed that high withdrawal rates can be very dangerous to your portfolio health.

http://assetbuilder.com/blogs/scott_burns/archive/1995/10/01/Dangerous-Advice-from-Peter-Lynch-.aspx

Scott

Scott,

 Thanks for the quick response.  I remember the Peter Lynch article and will revisit it.  I also know of your caution about withdrawing at too fast a rate and running out of money.  I enjoyed your advice for years in the DMN and have found you here in Corpus Christi.  Thanks again for your direction.

Bob