How Much Is Enough? A Guide to Planning for a Retirement Portfolio

Kennedy, James K.; Nash, Robert T.; Bonno, John Andrew; Ph.D.
June 1998
Journal of Financial Planning;Jun98, Vol. 11 Issue 3, p82
Academic Journal
This article examines a planning model for a retirement portfolio. To construct a realistic retirement planning model for the future, it is reasoned that actual year-to-year variations in investment return and inflation are more meaningful than average returns for a similar time period. The planning model presented argues that for retirees to be assured a steady real income throughout a retirement period that could last for decades, they would need to limit themselves to just three percent of initial corpus. Accordingly, a retiree requiring $40,000 annually of steady real income would need to amass $1,333,333 of corpus. A corpus of $1,666,666 would permit an annual $50,000 real retirement income to be drawn out. Generally, the corpus did best when invested in equities, though a diversified portfolio of equities and income and interest-earning instruments did best in periods of market decline. In addition to being conservative about investment expectations, the planning guide presented also recognizes the need that retirement income must always increase with inflation. This is particularly true of senior citizens who, as a group, are most affected by the current high inflation occurring in health care goods and services. Although many retirees may question the need for an ever-growing investment corpus as they live past their mid-seventies, it is noted that life expectancy is just an average and an individual may live 10, 20 or more years past their life expectancy. One key message in this retirement guide is to recognize the shortcoming of using averages in planning for retirement income needs.


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