A few years ago I ran some models using FireCalc selecting the % remaining portfolio withdrawal (spending) method which is the fixed % of portfolio at the start of each year.
I tested the AA 50% Total Stock Market and 50% 5 year treasuries as it somewhat resembled my own AA.
Firecalc outputs average ending portfolio inflation adjusted, as well as lowest and highest for a given time period.
Average ending portfolio was a useful way to compare the different withdrawal rates. I found that a % remaining portfolio method using the above 50/50 AA could probably sustain around a 4.35% withdrawal rate indefinitely. Over 30 years, average ending portfolio was what you started with: ~100% adjusted for inflation. Worst case was ~50% of what you started with. Not bad! I even did some 40 year runs too - and it didn’t get worse.
One thing FIREcalc did not do, was tell you the worst draw down, i.e, the lowest your portfolio might go during the time period. I had to tease that out by finding the worse case starting years and doing individual runs.
This is a critical factor for the % remaining portfolio withdrawal method, because your income is directly affected by the gain or loss in your investment portfolio each year. The higher the withdrawal %, the larger the potential drawdown, but if you were starting with a higher % you might still be better off in absolute income terms. Regardless, there could be wide swings in income over many years.
Stare at this table for a while. It contains a lot of information. $1M starting portfolio, 30 year period, all numbers inflation adjusted (i.e. in today's dollars). So you can do much of the % comparison math in your head such as average ending portfolio, worst case ending portfolio, etc.
% withdrawal remaining portfolio | $1M starting portfolio income | lowest portfolio | lowest income | worst income drop from start in % | average ending portfolio | income from average ending portfolio | lowest ending portfolio | income from lowest ending portfolio | Ending portfolio for lowest income case | income from average ending portfolio | income from lowest ending portfolio |
| | | | | | | | | | | |
6% | $60,000 | $270,798 | $16,248 | 73% | $593,418 | $35,605 | $298,371 | $17,902 | $308,050 | $35,605 | $17,902 |
5% | $50,000 | $345,873 | $17,294 | 65% | $815,142 | $40,757 | $409,854 | $20,493 | $698,231 | $40,757 | $20,493 |
4.5% | $45,000 | $388,214 | $17,470 | 61% | $954,171 | $42,938 | $479,758 | $21,589 | $817,320 | $42,938 | $21,589 |
4.35% | $43,500 | $401,853 | $17,481 | 60% | $1,000,171 | $43,507 | $512,306 | $22,285 | $856,722 | $43,507 | $22,285 |
4.25% | $42,500 | $411,198 | $17,476 | 59% | $1,032,020 | $43,861 | $518,901 | $22,053 | $884,004 | $43,861 | $22,053 |
4% | $40,000 | $435,476 | $17,419 | 56% | $1,115,994 | $44,640 | $561,123 | $22,445 | $955,934 | $44,640 | $22,445 |
3.5% | $35,000 | $474,093 | $16,593 | 53% | $1,304,200 | $45,647 | $655,754 | $22,951 | $1,176,616 | $45,647 | $22,951 |
3.33% | $33,300 | $486,776 | $16,210 | 51% | $1,374,917 | $45,785 | $691,310 | $23,021 | $1,240,415 | $45,785 | $23,021 |
3.25% | $32,500 | $492,854 | $16,018 | 51% | $1,409,464 | $45,808 | $708,681 | $23,032 | $1,271,583 | $45,808 | $23,032 |
3% | $30,000 | $512,306 | $15,369 | 49% | $1,522,919 | $45,688 | $765,726 | $22,972 | $1,373,939 | $45,688 | $22,972 |
Key issues are worst case income drop from initial income, average and worst case ending portfolios. Clearly even the most conservative withdrawal % modeled had to deal with a potential long period of income dropping in real terms. One thing this table does not show was how long inflation adjusted income might drop in the worst case. In general it was a very long time period - like 15-29 years!!! depending on the starting year. I'm guessing due to those long periods, inflation played a strong role, not just some bear markets.
Note that - 3% withdrawal might have a worst case drawdown of portfolio, and thus income drop from start, of 49%. 4.35% was only a little worse at 60% but at a considerably higher starting income! In fact due to the higher income from using 4.35%, even your worst case income is still higher even though it drops enough to get closer to the 3% income. On the other hand, the lower the withdrawal %, the higher the ending portfolios.
At the time I did this research I was using around a 3% of portfolio each year withdrawal rate. I'm still around that rate due to it already providing a high income. My conclusion was that I could certainly go higher if we wanted!!!