REITs and Diversification in a Retirement Withdrawal Portfolio

Abstract

This study uses Monte Carlo simulation to examine the success of the monthly withdrawal of funds from portfolios consisting of U.S. large capitalization stocks, U.S. corporate bonds, and REITs. The objective of this research is to provide an empirical examination of the effect of diversification with REITs on the withdrawal of funds from a retirement portfolio. We compare portfolios consisting of large capitalization stocks and corporate bonds to portfolios consisting of large capitalization stocks, corporate bonds, and REITs. We examine both portfolio compositions using a variety of portfolio weights, fund withdrawal rates, and fund withdrawal periods. The results of the study indicate that, in general, portfolios with REITs had a greater likelihood of sustaining a given number of withdrawals over this time. The results of this study can be used for retirement planning since it provides a historical perspective on the success of various withdrawal rates. The results can also be used to determine the value of the portfolio an individual needs at retirement to fund a given level of withdrawals. REITs and Diversification in a Retirement Withdrawal