Improving Withdrawal Rates in a Low Yield World
15 Pages Posted: 23 Aug 2015
Date Written: August 21, 2015
Decreased real bond yields substantially increase failure rates for portfolios with an initial 4% withdrawal rate. One way to increase the safe withdrawal rate of a portfolio is to decrease the allocation to bonds and to increase the allocation to stocks. Unfortunately, increasing the allocation to stocks dramatically changes the risk profile of the portfolio. I propose that a solution to this conundrum is to use a low volatility stock portfolio as the primary asset class in the portfolio. A portfolio constructed primarily of low volatility stocks allows an investor to decrease the allocation to lower yielding bonds while still maintaining a similar risk profile to a traditional 50% stock and 50% bond portfolio.
Keywords: retirement, systematic withdrawals, 4% rule, safe withdrawal rates
JEL Classification: C15, D14, G10, G11, G17
Suggested Citation: Suggested Citation