Is the 'Safe' Initial Withdrawal Rate Too Safe?
Posted: Thu Feb 24, 2005 10:40 am
This article is a few years old but I think that it still presents valid considerations to look at SWR.
This paper establishes new guidelines for determining the maximum "safe" initial withdrawal rate, defined as (1) never requiring a reduction in withdrawals from any previous year, (2) allowing for systematic increases to offset inflation, and (3) maintaining the portfolio for at least 40 years.
It evaluates the maximum safe initial withdrawal rate during the extreme period from 1973 to 2003 that included two severe bear markets and a prolonged early period of abnormally high inflation.
It tests the performance of balanced multi-asset class portfolios that utilize six distinct equity categories: U.S. Large Value, U.S. Large Growth, U.S. Small Value, U.S. Small Growth, International Stocks, and Real Estate.
Two portfolios (65 percent equity and 80 percent equity) are evaluated in conjunction with systematic Decision Rules that govern portfolio management, sources of annual income withdrawals, impact of years with investment losses and withdrawal increases to offset ongoing inflation.
This paper finds that applying these Decision Rules produces a maximum "safe" initial withdrawal rate as high as 5.8 percent to 6.2 percent depending on the percentage of the portfolio that is allocated to equities.
http://www.fpanet.org/journal/articles/ ... 4-art6.cfm
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regards,
mickeyd
This paper establishes new guidelines for determining the maximum "safe" initial withdrawal rate, defined as (1) never requiring a reduction in withdrawals from any previous year, (2) allowing for systematic increases to offset inflation, and (3) maintaining the portfolio for at least 40 years.
It evaluates the maximum safe initial withdrawal rate during the extreme period from 1973 to 2003 that included two severe bear markets and a prolonged early period of abnormally high inflation.
It tests the performance of balanced multi-asset class portfolios that utilize six distinct equity categories: U.S. Large Value, U.S. Large Growth, U.S. Small Value, U.S. Small Growth, International Stocks, and Real Estate.
Two portfolios (65 percent equity and 80 percent equity) are evaluated in conjunction with systematic Decision Rules that govern portfolio management, sources of annual income withdrawals, impact of years with investment losses and withdrawal increases to offset ongoing inflation.
This paper finds that applying these Decision Rules produces a maximum "safe" initial withdrawal rate as high as 5.8 percent to 6.2 percent depending on the percentage of the portfolio that is allocated to equities.
http://www.fpanet.org/journal/articles/ ... 4-art6.cfm
_________________
regards,
mickeyd