Here is an excerpt from my newsletter this past weekend highlighting a couple of topics discussed by Bob Brinker.
Excerpt from David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host)
WITHDRAWING YOUR MONEY IN RETIREMENT
Brinker Comment: One of the questions that comes up a lot on Moneytalk is what is the best way to get your hands on your money in retirement. Bob said he likes to try and do it in a way that will allow you to withdraw money and replenish what you have. If you want to protect the integrity of your portfolio over the long term, a formula that works very nicely is the 4% formula. This dictates that when you stop working you withdraw 4% of your portfolio on an annual basis and use that money to meet your expenses and do whatever it is you like to do.
How do you implement the 4% withdrawal rate and how does it work? First, you take off the cash flow from your portfolio which will be coming from a balanced portfolio (50% stocks and 50% bonds). Suppose over the very long term you can generate a total return (appreciation plus dividends) of 8% on your stock portfolio. If you are able to do that on half of your portfolio, that gives you 4%. On the bond side, assume you could get 5%, so half of that would be 2.5%. Therefore, if you have a balanced portfolio Bob thinks it is reasonable to assume you can get a total return of about 6.5% using realistic objectives over the long term. Of that 6.5% return , you take out 4% and spend it, give it away, whatever you like. That leaves you 2.5% in your portfolio on average. That is the money that is used to replenish the purchasing power over time to account for inflation. Thus, using a 2.5% annual inflation rate over time, you could do this for the rest of your life. That is the whole idea of how to get your hands on the money and withdraw it in a way that makes good sense. Bob said he likes the 4% rate. If you want to go higher such as a 5% withdrawal rate, then you can expect some diminution of your portfolio asset base.
In terms of how to get the 4% out of your portfolio, Bob says start with the cash interest you earn from your bond portfolio. Then, take out the cash dividends (which is taxable in personal accounts) from stocks. The third thing you do is take out distributions (in taxable accounts). In some years, that can get you to 4%. If its more than that, maybe you want to reinvest some of it. This is a wonderful way to figure out how to get your money.
Editorial Comment "EC": That was a good discussion by Bob. Here is a great article to bookmark or print out for future reference. It is an article published by the American Association of Individual Investors entitled: "Withdrawal Rules: Squeezing More From Your Retirement Portfolio" which you can access here:
tinyurl.com
EC#2: One of my subscribers has prepared a web page with links to various articles on withdrawal strategies once you get in retirement. Worth bookmarking for that day you can punch out the time clock. Access Bob's Financial Web site Withdrawal Strategies Links Page here:
tinyurl.com
BABY BOOMER BEAR MARKET?
Caller: This caller wants Bob's opinion on solicitations she is getting that are saying you should get out of the stock market because baby boomers are going to retire and start selling stocks to fund their retirement. Bob said these people have been "bears" for so long, some as long as 20 years, and there is no reason to listen to any of them.
EC: Bob gave a pretty superficial response to this caller's question by assuming that the solicitation came from someone who has been bearish for an extended period of time. That may or may not be true as Bob didn't give the caller a chance to elaborate on the question. I think Bob's response, however, implicitly reflects his bullish view on the stock market at this time.
EC#2: It would have been interesting to hear more of a dialogue on the impact baby boomers will have on the stock market going down the road. Probably the most famous commentator on this issue is futurist Harry Dent. According to my newsletter archives, back in 2002, a caller asked Bob what he thought about Harry Dent's view that between 2008 and 2010, we will see a significant drop in spending due to the aging of the baby boomer generation. This decline in spending could greatly impact the economy and create a new "depression." Bob didn't offer a specific opinion on what Harry Dent has forecast, but did say that the scenario raised by the caller would fit in "very comfortably" with the secular bear market scenario that Bob has discussed.
EC#3: A while back, the Wall Street Journal published an article entitled, "As Boomers Retire, a Debate: Will Stock Prices Get Crushed?" This is a good article that I saved and can be accessed at this url:
tinyurl.com
- David Korn,
editor of http://www.BeginInvesting.com
DISCLAIMER: This e-mail is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker. This e-mail is not a substitute for listening to Moneytalk, it is only my interpretation and commentary of some of what is discussed on Moneytalk, along with additional educational information that I include, editorial comments about the market and helpful financial links. I also provide my own stock market commentary to subscribers as part of my service and give them access to my web site, www.BeginInvesting.com. If you want to know what was said verbatim on Moneytalk, listen to the show live or subscribe to "Moneytalk on Demand" which allows you to listen to the show in case you missed it live. The web site, bobbrinker.com has all the links to the ABC Radio Network stations that broadcast the show live. The information contained in this newsletter is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security. This newsletter is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. |
