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January 14th, 2013 | Forbes

A Performance-based Approach to Tapping Your Nest Egg

I recently wrote with a perspective on how much retirees can possibly distribute from their portfolios each year without depleting their retirement nest egg. (What Portfolio Withdrawl Rate Can You Live With?) . Our research, which spanned the five most recent 35-year periods (with the final one ending December 31, 2011), concluded that investors with diversified, balanced portfolios were in each case able to withdraw 4% of the portfolio each year without exhausting their capital over those long time horizons. In each scenario, we withdrew a fixed percentage (4%-8%) of the portfolio’s initial value annually, with the amount of monthly withdrawals adjusted annually for actual inflation rates in the prior year.

But there’s another withdrawal method that‘s worth discussing: rather than basing withdrawals on the starting portfolio value (adjusted for inflation), we’ll examine what happens when an investor takes portfolio distributions based on the actual performance of the portfolio over time.

 

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Gerstein Fisher
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