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.
Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.