William P. Bengen is an author and a certified financial planner. In 1994 he published a study concluding that if retirees withdrew 4% (the 4% rule) of their nest egg in the first year, and then increased the dollar amount by the inflation rate every year, their savings would easily last 30 year.
At the time of the initial study, he assumed the portfolio was held in a tax-deferred account and was evenly split between large-company stocks and U.S. Treasury bonds. In a subsequent study he revised the withdrawal rate to 4.5%. The higher rate was supported by adding U.S. small-company stocks to the portfolio. This increased the portfolio's potential return, and also increased its volatility
Bengen notes that people who retired in 2000 are of the greatest concern. Since retiring, they have endured two major bear markets. The next five years will be critical for this group. A surge of inflation above its historical average of 3 percent, could derail the 4% rule for this group.
You have to be able to survive worst-case scenarios. There is a better way...
Instead of eating away at your principle, why not live off the fruit of your portfolio. The best way to do that is with a hand-selected portfolio of dividend growth stocks. Not only will you receive an annual income, but it will grow each year.
This week week, I screened my dividend growth stocks database for select stocks with a minimum 3% dividend growth rate and yield of 4% or more. The results are presented below:
Waste Management Inc. (WM) is the largest U.S.