One of the more popular retirement financial planning strategies is the "4% Rule". This calls for retirees to withdraw 4% of their nest eggs each year, which would theoretically last through a 30-year retirement period. The 4% Rule gives retirees a look into how much they can expect to receive each year from their savings, and how long it will last before they run out of money.
When I first heard about this method, I soon found myself asking: Why do retirees have to run out of money at all? I wouldn't want to drain my retirement savings down to zero. As an investor, I think a better way to go is to make your money work for you. In exchange for a modest amount of risk, a person could easily construct an investment portfolio that is diversified and provides 4% (or greater) in investment income. To me, the biggest advantage of investing for 4% yields instead of the 4% Rule is that it allows you to earn a return on your investment, not a return of your investment.
Source: Seeking Alpha
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problem is market volatility.
Market volatility doesn't affect the dividend only company bankruptcy or dividend cuts will affect the dividend. Market volatility can, however, provide a buying opportunity at a lower cost base and higher dividend rate:)
Hard to create a portfolio that will achieve 4%. You would have add some reit's or some stocks that might have a yield that may be cut. I think 3.2% is a better number to use for safety. That means you need to have tucked away 1.5 M away to remove $50 or $60 k a year.
What happens when 2008 comes again and many of your dividends are cut again?
There is risk with all types of investing. I disagree that this method will be any better or worse then indexing or value investing.
Don't forget dividends or not you invest with the goal of your overall portfolio increasing in value each year. Even if you remove 4% one year you might make 8% then a year later lose 8%. There is not really a difference in either method as long as you plan them well.