When I stopped working and decided to live off the dividends from my portfolio, I did some research and one thing I came across was the 8%, 4% rule. This rule was meant to see retirees through a long term retirement without running out of money.
The 8%, 4% rule means that you should count on making 8% a year on your investments and you should count on spending 4% a year from your investments. This also means that what you have to spend each year goes up by 4%.
So, roughly, if you have at retirement a portfolio worth $1,000,000, you would hope to make $80,000 total return and spend $40,000. The next year you will start with $1,040,000 and expect to earn $83,200 and can take out $41,600. An expectation under this was that the portfolio would be a balance portfolio of stocks and bonds.
This recent article in the New York Times talks about the 4% Withdrawal Rule. The title is "New Math for Retirees and the 4% Withdrawal Rule". Basically the article thinks that we have to rethink the 4% rule because of low interest rates that are likely to persist for some time.
If you are near retirement and plan to live wholly or partially off a portfolio, this would be a very good article to read.
On my other blog I am today writing about Thomson Reuters Corp. (TSX-TRI, NYSE-TRI) ... continue...
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