**INSTRUCTIONS**

Our wiki explains how to use variable-percentage withdrawals during retirement.

**VPW TABLE**

Our wiki provides a simple to use VPW Table.

**LINKS**

Here are the links to the

*latest versions*of the VPW Accumulation and Withdrawal Worksheet and the VPW Backtesting Spreadsheet.

**SCREENSHOTS**

**VPW-Accumulation-And-Retirement-Worksheet Screenshot 1**

**VPW-Accumulation-And-Retirement-Worksheet Screenshot 2**

**VPW Backtesting Spreadsheet Screenshot**

**IMPORTANT**

*The rest of this post contains the original text that I wrote, in July 2013, to present the idea I had for variable-percentage withdrawals (VPW). The VPW method*

**was improved and simplified (relative to this initial post) to only require the retirement age and asset allocation**. I suggest to**new readers**who have read the wiki page and who don't want to read all of the hundreds of posts of this thread**to skip directly to this post**written in August 2017 starting a series of posts where some of the key elements of VPW's current design are summarized.Hi,

I'm seeking comments on a withdrawal method I've thought up. I've been reading the forums for a while and I've read many Safe Withdrawal Rate (SWR) threads. I've also read the Withdrawal Methods Wiki page. Yet, I'm not satisfied with the methods I've seen :

- Constant-Dollar : I would need to make a huge leap of faith to start withdrawing 4% (or whatever %) of the my portfolio, and index it to inflation every year. (1) This is scary! I would be subject to
*bad*sequence of return risk, and (2) there is a very high probability that I will leave much money unspent (if the*bad*sequence doesn't show up). I might be too old to spend it, once I realize that I have too big a pile of money. - Constant-Percentage : This one does not have as much sequence of return risk (I can still end up with a much lower amount to spend than I expected, if I chose too high a percentage). The problem is that I am, again, quite likely to underspend and leave a lot of money unspent.
- Spend Only the Dividends : I would likely overspend my bonds and underspend my equities, unless, of course, I had a 50/50 portfolio and rebalanced it regularly. Yet, I would still be very likely to leave a lot of money unspent.

Let say I have a portfolio with an expected 3% real return. I want this portfolio to survive 30 years. I have no bequest motive, so I am happy to drawdown 100% of it.

At the start of year 1 of retirement, I withdraw 4.95% of my portfolio (and take the opportunity to rebalance it).

At the start of year 2 of retirement, I withdraw 5.06% of my remaining portfolio (and rebalance it).

At the start of year 3 of retirement, I withdraw 5.17% of my remaining portfolio (and rebalance it).

And so on, until year 30, where I withdraw 100% of my remaining portfolio. (No need to rebalance!)

So, even if the famous bad sequence of return was to happen, I wouldn't run out of money before the end of 30 years. As a bonus, I am sure to have spent it all; there's no risk of having a single dime left for year 31 (unless I died before year 30, of course).

The withdrawn amount varies as an increasing percentage of portfolio balance.

The percentages, above, are computed from a constant-payment 30-year annuity at 3%:

Payment: 0.049533

Balance

Year 1: 1.000000

Year 2: 0.978981 (= (1.000000 – 0.049533) * 1.03)

Year 3: 0.957331 (= ( 0.978981 – 0.049533) * 1.03)

…

Year 30: 0.049533

So, we get:

Year 1: 4.95% (= 0.049533 / 1.000000)

Year 2: 5.06% (= 0.049533 / 0.978981 )

…

Year 30: 100%

Now, I don't know about you, but personally, if I'm not dead at the end of 30 years, I'd like to have some minimal money left. So, as a first improvement, I would cap the

*increasing*percentage at 20% to smooth out the final portfolio decline.

Another improvement is to cap the drawdown. Let say I want to drawdown 75% of my porfolio: I would apply the VPW method on this 75%, and I would only spend the expected return (3%) of the remaining (more precisely: (3/1.03) %, so that the capital can rebuild up). This would add up to:

Year 1: 4.44%

Year 2: 4.51%

Year 3: 4.59%

…

Year 25: 9.72%

Year 26: 9.95%

Year 27: 9.17%

...

Year 30: 7.09 %

…

Year 40: 3.67%

...

Year 50: 3.03%

With the two improvements, the rate increases until year 26. Then the rate starts declining. The “expected remaining balance” slides towards 25% of the original portfolio.

I am sure somebody has probably thought about something similar before. (I was partly inspired by the Canadian Registered Retirement Income Fund (RRIF) minimum withdrawal rules, probably similar to US RMD.)

I have an excel spread sheet to compute the percentages, given 3 inputs:

- expected real return
- number of years
- Drawdown percentage

So, does VPW make sense?