Tuesday, June 21, 2011
Sustainability of a 10% Withdrawal Rate in Retirement
Based on an earlier discussion about current withdrawal rates, I didn't state this, but I started thinking that perhaps a good rule of thumb is to reduce your expenditures whenever your current withdrawal rate exceeds 10%, at least if you are hoping to continue spending from your assets for a long enough period of time. This blog post doesn't provide any answers, just a brief exploration about how far you could have gotten historically from a point where you have a 10% current withdrawal rate.
It is based on the standard SBBI data (in annual terms) since 1926 for a portfolio of 60% large-cap stocks and 40% intermediate-term government bonds. This first figure shows how many years before you run out of wealth with the 10% initial withdrawal rate.
This figure shows the actual current withdrawal rate in each subsequent year for an initial withdrawal rate of 10%. The previous bar graph was based on the red squares where the current withdrawal rate increased to 100%, which means that the remaining wealth was exhausted.