The 30-year Historical Database Rate is now 5.1% for a portfolio of stocks and commercial paper. The original survey had raised it from 3.9% to 5.0%.
Details
I collected this data using my full-up modified version of the Retire Early Safe Withdrawal Calculator (version 1.61). I refer to it as the JanSz-Chips Deluxe V1.0A version. This could have been done on any of my modified versions that include two-levels of P/E10 switching thresholds with three-allocations of stocks and commercial paper.
I also made extensive use of some of my early data summary improvements.
I limited my examination to retirement portfolios begun from 1921 to 1980.
I set the initial balance at $100000 to minimize the effects of round-off errors. I set the expenses to 0.20% of the portfolio balance. I did not use my special JanSz-Chips modifications. That is, I set the capital gains percentage at 0% and the dividend reinvestments at 100%. I examined portfolio life times of 30 years. Withdrawal amounts were adjusted to match inflation (CPI-U). Withdrawal rates were based upon the initial portfolio balance.
I started with my allocations from my previous investigation. The low threshold allocation was 100% stocks. The middle allocation was 50% stocks and 50% commercial paper. The high threshold allocation was 0% stocks. In that investigation, I had used an 80% stock / 20% commercial paper allocation to establish a baseline without switching.
Survey A
The lower P/E10 threshold was 11. The higher P/E10 threshold was 21.
The stock allocation when P/E10 was below the lower threshold was 100%. The stock allocation when P/E10 was between thresholds was 50%. The stock allocation when P/E10 was above the higher threshold was 0%.
Code: Select all
Withdrawal Rate Failures
5.0% 0
5.1% 1
5.2% 2
5.3% 5
The lower P/E10 threshold was 11. The higher P/E10 threshold was 21. The withdrawal rate was 5.3%.
The stock allocation when P/E10 was the lowest was 100% stocks. The stock allocations for intermediate P/E10 valuations were varied, as shown in the table. The stock allocation when P/E10 was the highest was 0% stocks.
Code: Select all
Allocations (middle) Failures
0% 27
10% 22
20% 17
30% 9
40% 3
50% 5
60% 7
70% 11
80% 11
90% 11
100% 11
At the 30% middle level stock allocation, failures occurred for retirement portfolios that began in 1937-1940, 1956, 1959, 1962 and 1964-1965.
At the 40% middle level stock allocation, failures occurred for retirement portfolios that began in 1962 and 1964-1965.
At the 50% middle level stock allocation, failures occurred for retirement portfolios that began in 1962, 1964-1966 and 1968.
At the 60% middle level stock allocation, failures occurred for retirement portfolios that began in 1962, 1964-1966, 1968-1969 and 1972.
At the 70% middle level stock allocation, failures occurred for retirement portfolios that began in 1962 and 1964-1973.
Survey C
The lower P/E10 threshold was 11. The higher P/E10 threshold was 21. The withdrawal rate was 5.3%.
The stock allocation when P/E10 was the lowest was 100% stocks. The stock allocation for intermediate P/E10 valuations was 40%. The stock allocations when P/E10 was the highest were varied, as shown in the table.
Code: Select all
Allocations (highest) Failures
0% 3
10% 5
20% 6
30% 10
40% 13
50% 15
60% 17
70% 17
80% 19
90% 21
100% 21
At the 30% stock allocation for the highest P/E10 levels, failures occurred for retirement portfolios that began in 1937, 1959-1960, 1962 and 1964-1969.
At the 20% stock allocation for the highest P/E10 levels, failures occurred for retirement portfolios that began in 1937, 1962, 1964-1966 and 1968.
At the 10% stock allocation for the highest P/E10 levels, failures occurred for retirement portfolios that began in 1937, 1962 and 1964-1966.
At the 0% stock allocation for the highest P/E10 levels, failures occurred for retirement portfolios that began in 1962 and 1964-1965.
Survey D
The lower P/E10 threshold was 11. The higher P/E10 threshold was 21. The withdrawal rate was 5.3%.
The stock allocations when P/E10 was the lowest were varied, as shown in the table. The stock allocation for intermediate P/E10 valuations was 40%. The stock allocation when P/E10 was the highest was 0%.
Code: Select all
Allocations (lowest) Failures
0% 39
10% 36
20% 36
30% 36
40% 29
50% 24
60% 22
70% 20
80% 15
90% 9
100% 3
When the stock allocation (for the lowest P/E10 levels) was 80%, failures occurred for retirement portfolios that began in 1937-1940, 1959-1960 and 1962-1970.
When the stock allocation (for the lowest P/E10 levels) was 90%, failures occurred for retirement portfolios that began in 1937-1940, 1962, 1964-1966 and 1968.
When the stock allocation (for the lowest P/E10 levels) was 100%, failures occurred for retirement portfolios that began in 1962 and 1964-1965.
Looking at an extreme case, when the stock allocation (for the lowest P/E10 levels) was 0%, failures occurred for retirement portfolios that began in 1928-1946, 1956-1957 and 1959-1976. In addition, there were failures at year 20 or less for retirement portfolios that began in 1931-1932, 1936-1942 and 1968-1973.
Survey E
The lower P/E10 threshold was 11. The higher P/E10 threshold was 21.
The stock allocation when P/E10 was the lowest was 100% stocks. The stock allocation for intermediate P/E10 was 40%. The stock allocation when P/E10 was the highest was 0% stocks.
Code: Select all
Withdrawal Rate Failures
5.0% 0
5.1% 0
5.2% 1
5.3% 3
Remarks
The Historical Database Rate has been increased an additional 0.1%. It was 3.9% without switching. It is now 5.1%.
Failure mechanisms appear to be well balanced. They are split between the Great Depression and the Stagflation Years except at the very highest survivability levels.
There is quite a bit left to do. We need to look very carefully for sensitivities around these levels. Having a single point optimization is never enough. We must know its reliability.
There is still a tremendous opportunity for further improvement by using TIPS and/or ibonds instead of commercial paper.
Have fun.
John R.