This Sneaky-Smart Retirement Play Pays 9.5% a Year

 | Jul 03, 2023 05:14AM ET

TV personality Suze Orman has bad news for anyone hoping to escape the rat race: they’ll probably have to wait until they’re over 70.

In a recent interview, the host of the Suze Orman Show splashed cold water on the idea that anyone can enjoy their golden years without clocking in at the office. “Stop this ‘Oh, I’m going to retire at 60. I’m going to start claiming Social Security at 62!’” she proclaimed to viewers.

The reason Orman is adamant most people don’t have enough money to retire, and won’t until they’ve hit 70? She says the 4% rule—a cornerstone of retirement planning for decades—is “dangerous,” and no one should “be using the 4% rule on any level.”

Sound a bit extreme? I mean, by that logic, Orman is suggesting that if you have $100 million a year and take $4 million out for annual expenses, you aren’t ready to retire. Even if you’re 70 and expect to live to 80 (which is actually above the average life expectancy in America).

The inventor of the 4% rule, Bill Bengen, was a financial advisor when he published his famous study in the 1990s showing that 4% can be safely withdrawn from a portfolio per year without the retiree running out of money.

He’s gone further recently. His original analysis was based on a theoretical portfolio consisting of large cap stocks and intermediate-term Treasury bonds. Since then he’s said that if you add small cap stocks, you could potentially withdraw up to 4.5% a year.

That sounds good. But if you buy my favorite high-yield assets, closed-end funds (CEFs), you could potentially do something neither Bengen nor Orman would say is possible: safely withdraw 7% or more every year. Not only that, but several years into your retirement, you could wind up with a bigger nest egg than you started with.

h2 The Secret to Living (Well!) on a Retirement Portfolio That Grows/h2

To see what I’m getting at, let’s imagine it’s 2002 and an investor we’ll call Mr. Smith has just retired. He doesn’t know it, of course, but he’s done so just a few years before the worst recession in a century, and his retirement will also include the COVID pandemic and last year’s inflation-driven market crash.

Let’s assume for the sake of this scenario that he’s put all of his money in the Adams Diversified Equity Closed Fund (NYSE:ADX), a CEF.

(Note that I don’t recommend this—even though ADX is a great equity fund, you’re best to spread your money across CEFs from various asset classes. The portfolio of my CEF Insider service is a great place to go looking for these funds—it provides a diversified collection of CEFs yielding up to 12.7%. Below I’ll show you how to get instant access to this portfolio today.)

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That said, let’s see how Mr. Smith is doing today, 21 years later. Here’s how his income and profits break down.

Big Income and Profits