Retirement Income Portfolio Survival

As financial professionals, we believe understanding the dynamics of retirement income portfolio risk can be crucial to investment success. The survivability of five hypothetical retirement portfolios over the 20-year period ended December 31st, 2018 shown in the accompanying table is not intended as investment advice but is intended to help clients better understand retirement portfolio risk and conquer perhaps the worst of all financial fears: running out of money in retirement. The data is based on a continuing professional education session by Professor Dr. Craig Israelsen, an independent economist whose research we license.

The results of the five portfolio risk levels illustrated a range from very conservative to aggressive. All five portfolios assume a retiree withdrew 5% of the portfolio value annually, and annually increased withdrawals by 3% to keep up with inflation. Pick whichever starting balance — $250,000, $500,000 or $1 million — best applies to your situation.

What stands out is that the most diversified of the five portfolios outperformed considerably — broad diversification worked! That diversification worked may come as no great surprise; conventional wisdom and academic research hold that diversifying is wise. Remarkably, diversification worked even though this was a 20-year period of low returns on stocks.

To Read the Full Story, Subscribe or
This article was written by a professional financial journalist for Cardinal Capital Management, LLC and is not intended as legal or investment advice.

© 2019. All Rights Reserved.