The study examined four payout periods from 15 to 30 years and covered withdrawal rates from 3 percent per year to 12 percent per year. Rates of return used were historical long-term performance of stocks and bonds. The study also examined the effect of inflation by adjusting the withdrawal rate to changes in inflation. However, the presence of stocks provides upside potential and holds the promise of a higher sustainable withdrawal rate. Most retirees would likely benefit from allocating at least 50 percent to common stocks.
Asset allocation is just as important during a withdrawal phase.
Retirees can be too conservative by not including enough stock funds in their portfolio. The right allocation of stock funds and bond funds is important if you need to sustain a regular withdrawal rate and not run out of money. With proper asset allocation and a reasonable withdrawal rate you can increase your chances that you won't outlive your money. Yes, it is prudent to plan for the inevitable stock market declines during your retirement years. However, it is gratifying to remember the upside potential for creating wealth through stock ownership that can benefit future generations.