Retirement Present Value

[Arch]

I read an interesting article written by Van Harlow, Ph.D., CFA, Director of Research at Putnam. It is not about the accumulation phase, but my next phase,
attempting to draw an income for the next 30 years.  It is different!  It is not a program or plan Putman is selling, it is a paper which supposedly addresses
peopole who are worried about their income, and want to know the odds that it will LAST until death.....and oh yeah....they want it to be as low-risk as possible.
It is too coplicated for me to attempt to explain; however the focus in on greatly reduced investment in equities (10,15,20 percent), with the balance spread between bonds and cash.  He is using the following yields in his calculations:  equities 6%; bonds 3%, and cash 1%.  Rather than attempting to predict an accumulation value
(although that is a factor) the purpose is to find the value of a future cash, factoring mortality, and estimating the amount of income a rettiree can draw.  And his numbers are far ahead of the normal 4% rule.
Would like to hear your thoughts if you have read this.  if you have not read it, you might find it interesting; not necessiarly acceptable, but interesting!

[AgAuMoney]

I read an interesting article written by Van Harlow, Ph.D., CFA, Director of Research at Putnam. It is not about the accumulation phase, but my next phase,
attempting to draw an income for the next 30 years.

I don't know which paper you read.  I've read several from Putnam Institute (where van Harlow is director).  I've yet to see any where they address companies which have a long history of growing their dividend year after year.  Known as dividend growth investing (dgi) this approach is substantially different than run of the mill equity investing.  It is trivial right now to have a well diversified portfolio yielding over 3%.  It is rather harder to get over 4% as many of the qualified companies have been bid up quite a bit over the last 3 or so years.  The key things with this approach are first that the dividend payouts grow, historically significantly faster than inflation.  Second, for every dollar you get in dividends you avoid the need to sell assets, which is critical during market decline or stagnation.

[Arch]

The article is dated June 2011......titled, Optional Asset Allocation in Retirement: A Downside Risk Perspective.
I'm not positive, but I do not remember the article ever using ther word, "dividend."  He used stocks and equities, but
it did not make any recommendation. 
There are several other articles addressing the topic, but only one ever mentioned a product.  In a 3rd or 4th article
they mentioned an absolute return product by Putnam.  Outside of that, there was no mention of product at all.

[Ad Orientem]

"Two percent is bullet-proof, 3% is probably safe, 4% is pushing it and, at 5%, you're eating Alpo in your old age,"

-William J. Bernstein

[Ad Orientem]

See also this excellent essay by Todd Tresidder which explains why the traditional 4% rule is not as safe as most people think.

http://financialmentor.com/free-article ... eally-safe

[AgAuMoney]

I'm glad the 4% withdrawal mantra is finally being discredited.

I remember first hearing that in the mid-1990's and the presenter (a CFP) was totally unable to address my concerns about the effects of negative returns and asset sales into that declining market.  Well, he tried...  "keep more money as cash so you don't have to sell assets."  My response was, "but that means I'll have lower returns, so I'll have to spend less."  "No, 4% is the safe number."  "But that cannot be in all situations."  "The math proves it."  etc.

I think 4% sticks because that way they don't have to think, and they cannot be held responsible for giving out "industry standard" advice.

[MachineGhost]

Relevant threads:

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=7