Paul Meisel

Safe Portfolio Withdrawal Rates: Beyond The 4% Solution

Thanks for calling the article to our attention. The thought process is valuable -- most retirees I know have higher income wants and desires in their 60s and 70s than their 80s and 90s. Experimenting with this concept of "two stages", or some other kind of "declining draw" could have value for a lot of people.

The same concept applies to portfolio construction (trading growth potential for declining risk as one ages) and has been discussed before. Most models don't look at the flip side -- choosing to moderate income requirements and life style as one ages, or to fit within the income available due to portfolio performance. But they could easily be modified to do so.......

Safe Portfolio Withdrawal Rates: Beyond The 4% Solution

I certainly have no quarrel with the quality of work or the conclusions in this article. However, not wanting to do extensive simulations, I am reduced to looking for a heuristic approach.

Being a simple person, I would summarize this as "think more carefully about diversification." Cross-correlation between individual stocks is time consuming to measure precisely, but not too difficult to understand directionally. The tested portfolio seems to indicate that overweighting financials, utilities, and healthcare would accomplish the goal of reducing the standard deviation of return more significantly than the average return.

Another question is, will the future mirror history. Who knows? But the deeper principal of choosing good performing companies that are not strongly cross-correlated will be sound -- choosing those companies will be the key.