THE FOUR "FREE LUNCHES" FOR RETIREMENT WITHDRAWAL PLANS
In my study of withdrawal rates, I have discovered several factors which tend to increase rates without incurring additional risk. I call these "free lunches."
1. DIVERSIFICATION: This is a standard tool for all portfolio managers, but non-professionals should heed it as well. Increased diversification tends to increase withdrawal rates, as it reduces volatility and increases returns.
2 REBALANCING: Periodically returning your retirement portfolio to its original asset allocation is generally beneficial, and costs nothing
3. TILT YOUR INVESTMENTS SLIGHTLY TOWARD THE HIGHEST-PERFORMING ASSET CLASSES. Small-cap stocks have worked to increase withdrawal rates in the past, although they may not be as effective as doing so in the future.
4. USE A RISING EQUITY GLIDE PATH DURING RETIREMENT. This means beginning with a lower allocation to stocks in the early years of retirement, and increasing that allocation each year. It works!
Yours for a richer retirement,
BIll Bengen