For people that try to live off of interest only from a nest-egg, what might a retirement portfolio look like that can generate cash every month (or quarter) while keeping assets intact and growing with inflation?


In simple terms applicable to all countries,

Find the interest rate of fixed income products like Fixed Deposits, bonds etc. Invest as much capital to produce an yearly income equal to the annual interest.

Keep the remaining assets in shares and use the dividends to increase the capital of your income investment everytime your shares give you dividend.

Let me explain with example.

You have 5000 as retirement corpus. (No assumption of currency)

If monthly expenses = 10 Yearly = 10*12 = 120

If fixed income products give 5% returns, you need 100/5 = 20 times of first year expenses to get that much interest. 120 * 20 = 2400. Call this as your "INCOME corpus"

Put an equal amount in shares and wait for dividends. Call this your "GROWTH corpus" Total 2400+2400 = 4800 Keep the 200 as emergency buffer or contribute 100 each in both above.

Whenever you get dividends from Growth corpus, invest them back to Income Corpus to increase your future income. This strategy will keep protecting you from inflation without touching or eroding your capital.

In simple terms, this is 50:50 approach but with a modification that you do not invest back in shares if they fall. You just wait for dividends but do not depend heavily on them. Hence risk is immaterial.

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You want 'income' investments e.g. preferred shares, bonds that give you periodic interest or dividend payments. What you DON'T want (much of) is common shares in a growth industry/company, whose value increases over time with little/no periodic payments.

If you keep assets intact the entire time, then you are being EXTRAORDINARILY generous to your heirs. I'd plan for my retirement portfolio to be depleted at, say, 100 yrs of age. So likely, part of your retirement income would consist of withdrawals of the capital amount.

One rule of thumb is that your first yearly income = max 4% of your savings. Then index to inflation after that.

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