Percentage of Remaining Portfolio- Spending Models

[nico08]

Hi:

I would like to know if there is a way that I could see how low my safe withdrawal rate would be in the worst case scenarios of the Percentage of Remaining Portfolio spending plan. I know that there is the line graph, but it is difficult for me to see exactly how low my safe withdrawal rate could be and the likelihood of having that lowest safe withdrawal rate.

Thanks.

 

[Cb]

Set your annual withdrawal to $0, but add 4% (or whatever annual % you want to model) to the portfolio annual expense ratio.

You can also model combinations of the two to look at variable & fixed SWR's.

Cb
PS: credit for this technique belongs to SGeeeee

 

[Animorph]

FIRECalc does have a built-in percent of portfolio withdrawal option, including a setting for a minimum percentage of last year's withdrawal (such as for the 95% rule).

Set the withdrawal amount for the first year as normal. This sets the percentage amount that will be taken each year. Then click on the Spending Models tab and select Percentage of Remaining Portfolio. Within this selection you can also select a percentage of last year's withdrawal as a floor.

The results page gives the lowest portfolio amount throughout retirement:

"Here is how your portfolio would have fared in each of the 113 cycles. The lowest and highest portfolio balance throughout your retirement was $471,381 to $2,098,686, with an average of $1,118,338. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.) "

More relevant to the OP, the Investigate tab has a box you can check to generate an Excel spreadsheet for any one scenario starting on 1960 or after.

"
Display the results of the retirement plan

The success rate of your portfolio and withdrawal plans, and optionally provide data and formulas in a spreadsheet format, using as the starting retirement year in the spreadsheet showing a full retirement cycle (must be on or after the first year data were available, and early enough to show a full cycle). Note: Spreadsheets are not formatted; they are for verifying numbers and calculations only. For 30 year terms only."

A lot of work, but you can get an exact number for your portfolio minimum during retirement for any scenario starting in 1960 or beyond.

Note that there is not really a "safe withdrawal rate" when using a fixed portfolio percentage withdrawal. You will never run out of money. Your key concerns are the smallest withdrawal made during retirement and the size of the portfolio, which are of course directly related. If the lowest portfolio value times your withdrawal percentage gives you a withdrawal that will meet or exceed your non-discretionary expenses you are in the "safe" zone. Of course many here would add a safety margin to that.

 

[Midpack]

Note that there is not really a "safe withdrawal rate" when using a fixed portfolio percentage withdrawal. You will never run out of money.

+1, that's why I didn't reply the first time I read the first post, wasn't entirely sure what the OP was really asking.

 

[Tupper]

I was looking at the safe withdrawal rate models, and like nico08 wanted to look at some of the data instead of just the graphs. Using the option to download the data into Excel as suggested by Animorph lets me look at the data, but there are some problems with it (or with me) and things don't make sense:

1. The 1960 data in column C, "Infl Adj Withdrawals", is identical if the spending model has been set to "Constant Spending Power" or to "Percentage of Remaining Portfolio". The Excel formulas in the bottom half of the spreadsheet show that the correct spending model rules are not being used for this column.

2. In disagreement with the note in the spreadsheet at A36, the 1960 data for a "Percentage of Remaining Portfolio" spending model in the top half of the spreadsheet (calculated by FIREcalc) does not match the data in the bottom half (calculated by Excel).

Assuming that the problem is in the downloaded spreadsheet (or my understanding of it) and not in the results calculated in FIREcalc, I created new columns for withdrawals and inflation adjusted withdrawals by subtracting the "Starting Portfolio" data form the previous year "Ending Portfolio". This looked like what I wanted; the 1960 period had some ups and downs. More added columns for the new withdrawal data as a percent of total and as a percent of previous year showed most years sitting at 4.5% as desired except a few like 1975 (1974 was a down year)where the 95% rule kicked in and made the withdrawal larger than 4.5%.

Bottom line, the FIREcalc computed data looks ok to me, but some of the downloadable spreadsheet data does not. And 1960 was a tough year to retire...