If your safe investments won't produce enough income to cover your "floor" expenses, the answer is to rethink and reduce your expenses, Bodie says. You can't afford to gamble on stocks for growth. You might lose capital or run out of money. If you hold enough safe investments to more than cover your essential bills, however, you can afford to risk some money in stocks or stock mutual funds, to cover lifestyle expenses. This part of your budget can rise or fall, depending on how the market performs.
Option 2: Total Return Investing
The second and more traditional approach ? known as "total return investing" ? uses the famous 4 percent rule. You own a portfolio of diversified stock and bond funds, with roughly half in stocks. At retirement, you withdraw 4 percent of your assets in the first year, and raise that amount each year by the inflation rate.
At today's low bond-interest rates, however, 4 percent is too high, says William Bernstein, a portfolio manager and author of The Ages of the Investor. A 65-year-old should probably take just 3 percent, to protect his principal, he says. Or you could start with 4 percent and skip inflation adjustments when the market is poor.
Source: http://www.aarp.org/money/budgeting-saving/info-05-2013/safest-investment-path-for-retirement.html
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