Not so long ago, we experienced a record five years of stock market gains. From 1995 through 1999, the Standard & Poor’s 500 rose by at least 20 percent per year. Investors were feeling so good that the global economic crisis in mid-1998, with its drop of 19 percent, from July to October, became just a blip on the long-term chart.

Conventional wisdom favored index funds made up of the S&P 500, the Nasdaq 100 or others. People made money so automatically that a monkey could do it. Otherwise rational people quit their regular jobs so they could make their fortune by day-trading. My, how things change!

Since we quickly become accustomed to our most recent circumstances and environment, it was extremely difficult at that time to discourage people from planning to take high percentage rates of distribution from their assets during their retirement years. Zealous (or was it greedy?) young financial representatives who had never seen a stock market downturn persuaded workers who had no business retiring into going out with the hope that a couple of hundred thousands would easily produce $30,000 or $40,000 a year for withdrawals and still keep growing.

Since clients are the boss, I also had several who determined they would draw at a rate of 10 percent or more per year regardless of the results. Unfortunately even superior performance has not prevented them from seriously drawing down their assets.

What rate should a prudent person use to plan for distributions of income during his retirement years? If you can think algebraically, a good formula for the longer term is expected return minus taxes minus inflation. For example, 8 percent minus 1 percent for taxes and 3 percent for inflation leaves a distribution rate of 4 percent. This would be $333 per month of spendable income per $100,000 invested.

The problem with trying to choose a long-term rate of return is the incredible variation of conditions we have had recently and probably will experience in the future. Even if the long term average return is 10 percent, if you retired 10 years ago and drew a stable 6 percent dollar amount, you have undoubtedly hurt your principal because net gains for the entire decade have been so elusive. But when this present period of foolishness is over, the same percentage will probably work out fine because the next 10 to 15 years are likely to provide great results.

A safer method is to begin with a conservative percentage such as 3 or 4 and recalculate annually against the balance each year. If you experience a bumper crop of investment return during a year, as I expect we will again soon, then your 4 percent applied to the new higher balance will provide a nice raise in income. Once your principal has a chance to grow even further, your likelihood of long-term success rises almost geometrically.

I believe many of us in the boomer generation will be working part-time until we see our asset balances restored or enhanced so we can retire in a more prudent manner than many of our friends in the past 10 to 15 years. And whether we like it or not, we will be healthier for it.