Start slowly when you begin to tap your retirement portfolio. Taking too much, too soon, can be risky — history shows just how risky. Suppose, for example, you had retired in 1968 with a $1 million portfolio, which you invested 60% in stocks, 30% in bonds and 10% in cash. Assuming you got the average return for those types of investments, your portfolio would have returned 11.7% per year, through 1998. With that return, you should have been able to take an $85,000 (8.5%) distribution in Year One, increased the distribution to keep pace with inflation, and not run out of money for 30 years. The catch? You would not have received an 11.7% return each year.
In 1973 and 1974, for example, the stock market fell more than 40%. In reality, if you had started with an $85,000 distribution and increased that amount to match the cost of living, throughout the inflationary 1970s, your $1 million would have run out in 1981, after only 13 years. Thus, you would have done better to start with a $50,000 (5%) distribution and increase that amount each year for inflation. With that approach you could have kept drawing money from your retirement fund for nearly 30 years, even with high inflation and a market collapse.