[Political Junkie Too]

Imagine you're looking at a $2 million nest egg. If we apply a fairly conservative 2% annual withdrawal rate, you'd start out with $40,000 of income.

Am I missing something here?

Why assume a "withdrawal rate?" What about investing the $2 million in a diversified portfolio that earns, say, 4% annually? Won't that give you $80,000 without withdrawing any principle at all?

-PJ

[freedumb2003]

>>Why assume a “withdrawal rate?” What about investing the $2 million in a diversified portfolio that earns, say, 4% annually? Won’t that give you $80,000 without withdrawing any principle at all?<<

That is the theory but planning is to draw it down and assume no return. For TSA-type investments you have to take withdrawals anyway.

[SeekAndFind]

RE: What about investing the $2 million in a diversified portfolio that earns, say, 4% annually? Won’t that give you $80,000 without withdrawing any principle at all?

As long as you are not going to lose sleep over the huge swings and the ups and downs of the markets ( e.g. the downs of the mortgage crisis ), then have at it.

Most retirees do not have the stomach for this and would prefer steady, predictable income.

[DugwayDuke]

“Why assume a “withdrawal rate?” What about investing the $2 million in a diversified portfolio that earns, say, 4% annually? Won’t that give you $80,000 without withdrawing any principle at all?”

Lots of articles on the 4% strategy. This strategy does assume a historical rate of return. The idea is to maximize the amount of revenue to spend in retirement and that requires spending down the portfolio. Lot’s of assumptions built into the 4%. It’s probably the most common strategy advanced by retirement planners.

The 4% strategy is based upon simulations of the expected return and upon a 90% probability of not outliving your portfolio. It’s a very conservative strategy.

[DCBryan1]

Why assume a "withdrawal rate?" What about investing the $2 million in a diversified portfolio that earns, say, 4% annually? Won't that give you $80,000 without withdrawing any principle at all? -PJ

You get taxed on that 80k unless its in tax free investments.

Just buy tax free muni bonds after moving/retiring to a state income tax free state (TX, FL, NV, etc). Buy 2mm in tax free AA rated bonds with insurance and you'll get 80k a year at 4%. After the bonds are called/matured, you get your 2mm back to reinvest. Nice if you are retiring now because interest rates are going up. You can get 5% if you go out longer near par. That's 100k a year TAX FREE!