Retirement: a Low-Stress Alternative to “The Number”

If I want to retire, according to conventional marketing messages, I need to reach a number. Say my number is $1.2 million. When I hit that target I can retire and withdraw 4% a year.

 If only it were that simple. At retirement, volatility in the markets  could chop my expected $1.2 million down to $900,000. (Yikes! I'll never be able to stop working.)

Or volatility could temporarily supersize my nest egg, to $1.5 million or more. (Whoopee! I'll live large for the next 30 years.)

Wouldn't my risk of deep despair or dangerous euphoria be sharply reduced if I set an income target and invested accordingly?

Suppose I want $40,000 a year. If I prepare by building a portfolio from income stocks and a bond fund or two, my chances of success are pretty good. Even if Wall Street goes berserk the year I retire, my dividend and interest income should remain close to expectations.  (The Great Recession hardly dented this blogger's modest investment income. Dividend increases pretty much balanced out dividend cuts.)

David Van Knapp is an author who loves dividends. He favors setting a retirement-income target and investing primarily in stocks known for increasing dividends..

Hardly a new approach. After the Great Depression vaporized his hot-shot portfolio, grandfather promised himself he'd never again buy a stock that didn't pay decent dividends. And he retired in solid comfort.

Should this low-stress approach to retirement investing be encouraged? Or is it an anachronism, unfit for a "total-return" era, where most retirement investing is highly regulated and fewer Americans are accustomed to "living on income"?