Morningstar Advisor Catalog 2008

1 866 391-4730 http://global.morningstar.com/US/PresentationMaterials View tutorials and sample PowerPoint content and images. Withdrawal Risk When you reach retirement, you face a lot of changes, from your daily routine to your financial situation. Perhaps the biggest financial challenge you will ever face is the transition from earning money and accumulating assets to a phase in which you are spending down your hard-earned assets. Developing a plan for spending down your assets can be extremely challenging, especially since you won’t know how long you’ll live. Withdrawal risk refers to the risk of drawing down your assets too aggressively to meet your spending needs, with the possibility of depleting your assets before you die. It’s a risk that keeps many retirees up at night. What is a reasonable withdrawal rate? When approaching retirement, the first question many investors ask is how much money they can safely take from their portfolio each year. A simplistic way of looking at this is a withdrawal rate, expressed as a percentage of your investment assets. The withdrawal rate you can sustain may be lower than you think Average: 1926–2005                Historically, as shown above, withdrawal rates that could support an investor over a typical 30-year retirement, have varied from 4% to 5.6%, depending on the asset allocation of the portfolio. Of course, if you lived longer than 30 years, these withdrawal rates would need to be lower. Many investors are too optimistic and hope to withdraw 10% or more of their portfolio annually to support their desired retirement lifestyles, which is sure to deplete their portfolio rapidly. This is especially true in down periods in the market, such as 1999–2002. Other investors are too pessimistic; they construct a portfolio of CDs, bonds, and dividend-paying stocks and only withdraw interest and dividends from their portfolio, vowing never to touch principal. ©2006 Morningstar, Inc. All rights reserved. Morningstar and the Morningstar logo are either trademarks or service marks of Morningstar, Inc. For illustrative/educational purposes only. Should not be viewed as Morningstar, Inc. providing investment, tax or legal advice. Please contact your financial professional regarding such services. Principia Presentations & Education is the easiest way for advisors to prepare for presentations and to provide clients with authoritative answers to investment questions on a wide variety of topics. 9 http://global.morningstar.com/US/PresentationMaterials

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