Why are Unitrusts so Often Based on a 5% Payout?

Prof. Joel C. Dobris of the University of California, Davis, School of Law has recently published an article entitled Why Five?  The Strange, Magnetic, and Mesmerizing Affect of the Five Percent Unitrust and Spending Rate on Settlors, Their Advisers, and Retirees, 40 Real Prop., Prob. & Tr. J. 39 (2005).

The editor’s synopsis of this article reads as follows:

Investment literature aimed at trustees and retirees often assumes that investors can obtain a return sufficient to support a five percent annual payout without impairing capital. According to the author, truly sophisticated commentators see this as over-optimistic. This disconnect between investor fantasy and investment reality is the topic of this Article. The author explores the idea primarily in a trust context.