The magic number for retirement is four, as in a 4% annual draw on the initial balance of your retirement portfolio. Thus, if your portfolio totals $1 million, you draw $40,000 in year number one. In future years, you draw 4% or $40,000 annually, whichever is less. To achieve the 4% goal, you will want a balanced portfolio of bonds and stocks. You will want to craft an armadillo-like portfolio, assembled with care to dampen volatility and smooth out long-term returns. You will always gauge risk before looking at potential returns. You will look to achieve most of your annual 4% cash flow, if not all of it, from dividends and interest. Remember, when you lose 50% on an investment and make 50% on your next investment, you are not back to even. You are still down a retirement-debilitating 25%. My monthly strategy report and our family investment management firm (www.younginvestments.com) offer the guidance you and your family can rely upon.
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Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.