Retirement Myth of 4%

In this recent article Brett Owens on the Contrarian Outlook makes some valid comments on the problems with the notion you can withdraw 4% from your capital in retirement. However, unfortunately he ends up trying to sell you some other products.

I started off taking out 4% of my portfolio when I stopped working. After 2000 and 2008 bear markets, I decided I only wanted to take out my dividend income. A couple of things happened. I have dividend growth stocks and the dividends were growing faster than inflation and more importantly faster than my budget. I also repositioned my portfolio to get a higher overall dividend yield. I sold some low dividend stocks and bought some REITs.

There is a tradeoff between high and low dividend yield stocks and dividend growth. Dividends tend to grow faster on lower dividend yield stocks. REITs tend to have high dividends and growth rates just over the rate of inflation.

I did a number of articles in the past on this subject. In August of 2013 I wrote that in trying to figure out how to handle retirement, I came across the 8%, 4% rule. See my entry was called Retiring using 8%, 4% Rule.

I also wrote again about the 4% rule in May 2015. This was prompted by at that time current article in the New York Times that talked about the 4% Withdrawal Rule. The title is "New Math for Retirees and the 4% Withdrawal Rule". Basically the article thinks that we have to rethink the 4% rule because of low interest rates that are likely to persist for some time.

On my other blog I wrote yesterday about Intact Financial Corp (TSX-IFC, OTC-IFCZF)... learn more. Tomorrow, I will write about Saputo Inc. (TSX-SAP, OTC-SAPIF)... learn more on June 29, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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