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What Will $1 Million Get You in Retirement?


A retirement expert breaks down the assumptions.

Yet another question we can ask is: How can they spend $55,000 in retirement and raise the probability of never running out of money? There are really only two ways to do this since this couple is already retired (assuming they don't want to go back to work): They can find higher returning investments with the same level of volatility they currently have, or they can find investments that have the same returns, but less volatility.

My favorite way to reduce volatility while maintaining reasonable levels of return is to buy high quality dividend paying stocks that have a history of rising dividends over time. A few of my favorite dividend payers for retirement portfolios that have consistently raised their dividends over the years are Johnson & Johnson (NYSE:JNJ), Sysco (NYSE:SYY), AT&T (NYSE:T), Wal-Mart (NYSE:WMT), Coca-Cola (NYSE:KO), and Eli Lilly (NYSE:LLY).

I replaced their Equity Value fund with the stocks listed above, equally weighted. I kept the same total return assumption, but lowered the level of volatility to the historical levels of these stocks. That is, I reduced the volatility level from about 16% to 13% per year.

The probability that this couple never runs out of money now jumps from 80% to 88%. This is a large jump, solely due to the fact that they are now invested in more stable, solid dividend paying stocks instead of an equity index fund.

Each person and every couple has a different situation and might need to change a variety of things in order to meet their retirement goals. But it is usually impossible to tell whether or not you can retire when you want until you sit down and actually run through the numbers. At that point, you can begin running interesting scenarios that will tell you what you need to do to get to your goals.

Editor's Note: Douglas Carey is a regular contributor to Minyanville's blog.

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