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Fixed v/s variable withdrawals from portfolio
Old 04-26-2010, 04:18 PM   #1
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Fixed v/s variable withdrawals from portfolio - How much money can you prudently take out of your investments in retirement?

Paul Merriman compares how a fixed withdrawal strategy (ie. % of initial portfolio adjusted for inflation annually) would do v/s a variable withdrawal strategy (ie. fixed percentage of current portfolio value).

I found the data interesting because while taking variable withdrawals may sound good, the swings can be pretty painful (as I experienced in 2008). Interestingly, he has taken expenses into account as well as a 1% management fee. You don't see data with expenses included very often.

Paul's suggestion is to save enough to "afford" a variable SWR. ie, have your initial withdrawal be more than what you need, so that you will be able to do more than survive if the withdrawals decrease for a period of time.

(I apologize if this document was already linked to in another post. I read it someplace but can't find the post here or on bogleheads.)

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Old 04-26-2010, 04:34 PM   #2
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This doesn't have to be a black or white (on or off thing). Perhaps you could break the stash into 2 piles - 1 pile to fund a very basic lifestyle at perhaps a 4% fixed SWR. The other pot could fund the extras and would fluctuate with the markets at perhaps a 5 or 6 % withdrwal rate.

Other variations are to take some of the stash and buy a SPIA to fund a basic lifestyle. Use the other funds in a variable withdrawal scheme.

There are many variations and all of them can be tailored to your needs.

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Old 04-26-2010, 04:52 PM   #3
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Nice Illustration. Thanks.
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