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Hearing about a ceremony to honor newly-minted Eagle Scouts recently, I was reminded of the scout motto which is “Be Prepared.” It occurred to me that many people approaching retirement with the financial resources to afford an adequate personal lifestyle are woefully unprepared to make constructive decisions when the time comes. “Analysis paralysis” just sets in and the tendency is to turn to the resource that exudes the most self-confidence and that promises what appears to be the most income for the money. A resource reflecting misplaced self confidence can come in the form of an individual advisor or it can be a large institution that spends a lot on advertising. In either case, the results may fall short of expectations. For the record, we want to see self-confidence in our heart surgeon or our defense attorney. But, when it comes to investment advice, some humbleness and lowered expectations lead to a more productive, satisfying and longer-term relationship as we come to terms with the powerful and uncertain forces of financial markets.

Over the years, this column has explored techniques for arranging investments in a way that (on paper and based on past history) maximized income during retirement while keeping pace with inflation. In general, a 50/50 mix of stocks and bonds will accomplish this for someone who can live on annual income of 5 percent of their assets. This works as long as the retiree is not spending more than about 0.25 percent per year on advice and management. Anything beyond that amount in fees just eats into the potential income which explains why most published “rules of thumb” cite 4 percent as the safe extraction percentage. The presumption is that annual costs typically amount to one full percent.

An article by William Baldwin in a recent FORBES magazine adds another wrinkle for the investor who wants to forget bonds, maintain all the money in stocks, and still live on a 5 percent annual distribution including dividends. Baldwin offers an elegant description of how inflation since the spring of 1988 had doubled the cost of living while the increased level of corporate dividend payments has increased by a factor of 5. This means that inflation increased at slightly over 2 percent per year compounded and that corporate dividends from the S&P Index grew at a rate of about 5 percent. The 3 percent difference is what is safe to take out in principal and still maintain the original purchasing power after inflation.

My preferred solution, by comparison, offers the 50.50 mix of stocks and bonds with the bonds generating more income than dividends and requiring only a 1 percent spending of principal to arrive at a total of 5 percent --- leaving the stock side to contribute enough growth to create 3 percent overall to keep the entire nest egg on pace with inflation.

My advice to those planning to retire is to experiment with some of these strategies with small amounts of money and with financial institutions other than the one you use today --- especially some of the less expensive options. If you’re closing in on retirement or there already, set up some different strategies and try them out. Consider actually setting up the accounts so that they deposit money the annual 5 percent amount into your checking account each month Five percent of, say, $24,000 would be $1,200 which amounts to $100 per month. Set up the system and gain a degree of confidence. If you can test the waters for two or three years, the practical experience, and what becomes a preferred relationship with a financial institution, will be worth far more than some hasty decisions conducted in a panic just weeks after enjoying that retirement celebration.