It would probably work quite nicely. Financial planner
William Bengen examined this issue carefully. So has financial planner Jonathan
T. Guyton. Here are links to columns about their findings:
William T. Bengen (2006)
http://assetbuilder.com/blogs/scott_burns/archive/2006/09/10/Retirement-Income-Planning_2C00_-Advanced-Version.aspx
Jonathan T. Guyton (2004):
http://assetbuilder.com/blogs/scott_burns/archive/2004/11/30/New-Rules-for-Retirement-Spending_3F00_.aspx
William T. Bengen (2001)
http://assetbuilder.com/blogs/scott_burns/archive/2001/06/26/Retirement-Income_3A00_-Working-Toward-a-5-Percent-Solution.aspx
Looking
for 8 percent, even under these spending rules is a big and dangerous stretch
but thinking about 6 percent, or even slightly more, is reasonable.
You
should also know that most of the original work on withdrawal rates and
portfolio survival is based on a simple portfolio containing only domestic
stocks and bonds. More recent work shows that more diversified portfolios,
particularly those with holdings in a REIT fund and commodity oriented fund,
have lower risks as measured by standard deviation. They also have a lower
number of years with declines of at least 10 percent and a lower maximum loss
in a year compared to portfolios with fewer asset classes. I’ll be writing a
column on this recent work before the end of the year.
This
quest for lower risk, which is extremely important for retired investors making
regular withdrawals from their investments, is also what motivated me to create
the Couch Potato Building Block portfolios. These portfolios start with the
original 2 part Couch Potato and grow in equal sized blocks to 10 pieces,
including a REIT component and an energy ETF as a proxy for commodities.
You can
read the most recent columns on the building block portfolios by going to the
articles archive (http://assetbuilder.com/blogs/
) and typing “Building Blocks” into the search engine space. You can see
regular updates of the Building Block portfolios, along with figures for what
we do at AssetBuilder at this link:
http://assetbuilder.com/Investing/inv_potato.aspx
