Nolan Jones has a slightly maniacal grin as he twirls his chair around to face a gigantic computer screen. Next to it, two more large monitors track client portfolios through the day, showing composite results. "If I wasn't in this business," he says with glee, "I couldn't get these toys."

A former Paine Webber broker in Dallas, Mr. Jones left to form Optima Asset Management so he could manage money the way he wanted, cut costs, and do what he likes to do most--- quantitative research. Internet and NASDAQ declines notwithstanding, Mr. Jones has had fun this year, sending clients e-mail notes with a simple message:

"Have you checked your account today?"

As I enter his office he has just finished sending a note to a risk tolerant client: at the close of June, his account was up 50 percent year-to-date---Christmas in July. Significantly, Mr. Jones doesn't pick stocks: he designs portfolios and picks managers.

A few days earlier he had sent me a chiding e-mail, saying that when I wrote about portfolio survival and withdrawal rates I was missing something. "If you don't eliminate the Depression (years) you're going to eke by on 3 or 4 percent--- and leave a big estate for the tax man."

And that's where his quantitative obsession comes in. To explore options and demonstrate choices to clients Mr. Jones has built a gigantic test model, a 9.5 megabyte goal seeking Excel spreadsheet that can compare performances during withdrawal over any period of time and set for any final value desired. In addition to finding the withdrawal rate, the model also shows the lowest dollar value the portfolio would have reached--- a figure that often tests the panic response of clients.

He has found that if you eliminate the Great Depression years but prepare for the worst of the post war years--- the 73-74-market crash and the years of inflation that followed--- clients can have significantly higher withdrawal rates and still feel safe.

How much higher?

Try 10 percent instead of 4. In practice, he personally feels more comfortable with a limit of about 8 percent. He has also found, as other researchers have, that a diversified portfolio allows a higher withdrawal rate than a single asset class portfolio. For instance, although small growth stocks could produce the high returns while you were accumulating assets, they allow the lowest return in distribution.

"If you reduce volatility you can get a higher withdrawal rate. You just don't have the valleys that take away your ability to compound--- the declines that make recovery difficult. You can also take more from an optimized portfolio--- one where the ups and downs have been reduced.

"What I've found is that if you add small cap value stocks to the portfolio you can get roughly double the withdrawal rate. The benefit of using more asset classes to increase diversification is that it increases the survival of the portfolio. I think asset allocation is the key."

To demonstrate, Mr. Jones demonstrated six different ways of investing $1 million beginning in 1964--- the start of the worst post war 10-year investing period. He asked the spreadsheet to solve for a withdrawal rate that would rise with inflation and leave an inflation-adjusted $1 million by the end of 1999.

The results are surprising. If you have invested in large cap growth stocks, you portfolio would hit bottom at a calamitous $279,000 and your withdrawal rate (to maintain constant purchasing power) would have been only 3.4 percent or $2,840 a month.

A mixed portfolio, however, would never have fallen below $504,000 and would have allowed a 6.7 percent withdrawal rate or $5,561 a month--- nearly twice as much. The full results are shown below in the rank ordered table.

Safe Withdrawal Rates for an Inflation Adjusted Retirement Income

Asset Class Withdrawal Rate Monthly Income Lowest Value
Fama/French Small Value Index 10.6 percent $8,825 $464,000
Mixed Portfolio 6.7 percent $5,561 $504,000
Fama/French Large Value Index 6.6 percent $5,468 $433,000
Fama/French Small Growth Index 4.1 percent $3,432 $368,000
S&P 500 Index 3.8 percent $3,185 $291,000
Fama/French Large Growth Index 3.4 percent $2,840 $279,000

Source: Optima Asset Management/Ibbotson Associates data

Mr. Jones cautions that getting index results with smaller, less liquid, stocks isn't easy and that both management expenses and trading costs need to be considered.