I ran across a good paper from Morningstar which they released last November. It explored safe withdraws rates on the most common withdrawal strategies, taking into account various portfolio allocations and looking for a 90% success rate over 30 years. Also included tables for shorter and longer time frames. Concluded with good advice for newbies in setting your withdrawal rate.
Lots has changed with the market and inflation since November, but I still found it a good read and they plan to update annually.
The takeaways are likely known overall to this group, but the paper gave good insight as to which and why the conclusions are made.
Copied from page 2 of the report:
Key Takeaways
× Low starting bond yields and high equity valuations are unlikely to sustain the higher portfolio
withdrawal rates that retirees became accustomed to in the past.
× Using conservative assumptions, our research finds that a 50% stock/50% bond portfolio should support
a starting fixed real withdrawal rate of around 3.3% per year.
× By relaxing these assumptions or adopting a more flexible spending approach, our analysis finds retirees
can safely sustain higher withdrawals, with a 4.5% starting real withdrawal rate achievable under some
scenarios.
× Equity-heavy allocations tended to support higher lifetime withdrawal rates under flexible spending
methods, reflecting the benefits that stocks’ market appreciation can confer as well as the rebalancing
“dividends” that flexible spending approaches can yield in the way they adjust spending to changing
market conditions.
× That said, retirees don’t necessarily need to load up on stocks to achieve a higher starting withdrawal
rate under a flexible spending approach, with balanced allocations supporting higher initial withdrawals
(subject to later adjustment) than stock-heavy mixes.
× Flexible withdrawal strategies may help retirees consume their portfolios more efficiently, factoring in
both portfolio performance and spending, but they also add variability to retiree spending that may or
may not be acceptable, as shown in Exhibit 1.
× Variable strategies also tend to lead to lower residual (end-of-life) balances, which makes them most
appropriate for retirees who don’t have a strong desire to leave money to family members or charity.
× The right level of flexibility in a retiree’s spending system will depend on his specific situation—the
extent to which fixed expenses are covered by nonportfolio income sources, for example.
× At the portfolio level, retirees can explore additional strategies to enlarge payouts, such as improving tax
efficiency or being willing to tolerate a lower success rate than 90%.
× Nonportfolio strategies such as delaying retirement and annuitization will also increase the sustainable
withdrawal rate
You will have to give up your email to get the 58-page paper.
https://www.morningstar.com/lp/the-state-of-retirement-income
Lots has changed with the market and inflation since November, but I still found it a good read and they plan to update annually.
The takeaways are likely known overall to this group, but the paper gave good insight as to which and why the conclusions are made.
Copied from page 2 of the report:
Key Takeaways
× Low starting bond yields and high equity valuations are unlikely to sustain the higher portfolio
withdrawal rates that retirees became accustomed to in the past.
× Using conservative assumptions, our research finds that a 50% stock/50% bond portfolio should support
a starting fixed real withdrawal rate of around 3.3% per year.
× By relaxing these assumptions or adopting a more flexible spending approach, our analysis finds retirees
can safely sustain higher withdrawals, with a 4.5% starting real withdrawal rate achievable under some
scenarios.
× Equity-heavy allocations tended to support higher lifetime withdrawal rates under flexible spending
methods, reflecting the benefits that stocks’ market appreciation can confer as well as the rebalancing
“dividends” that flexible spending approaches can yield in the way they adjust spending to changing
market conditions.
× That said, retirees don’t necessarily need to load up on stocks to achieve a higher starting withdrawal
rate under a flexible spending approach, with balanced allocations supporting higher initial withdrawals
(subject to later adjustment) than stock-heavy mixes.
× Flexible withdrawal strategies may help retirees consume their portfolios more efficiently, factoring in
both portfolio performance and spending, but they also add variability to retiree spending that may or
may not be acceptable, as shown in Exhibit 1.
× Variable strategies also tend to lead to lower residual (end-of-life) balances, which makes them most
appropriate for retirees who don’t have a strong desire to leave money to family members or charity.
× The right level of flexibility in a retiree’s spending system will depend on his specific situation—the
extent to which fixed expenses are covered by nonportfolio income sources, for example.
× At the portfolio level, retirees can explore additional strategies to enlarge payouts, such as improving tax
efficiency or being willing to tolerate a lower success rate than 90%.
× Nonportfolio strategies such as delaying retirement and annuitization will also increase the sustainable
withdrawal rate
You will have to give up your email to get the 58-page paper.
https://www.morningstar.com/lp/the-state-of-retirement-income
