Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

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UnrealizedGains
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Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by UnrealizedGains » Tue Jul 12, 2016 12:19 pm

http://www.forbes.com/sites/wadepfau/20 ... s-in-2016/

Can someone explain to me this passage from the article. It seems to be splitting hairs between the definitions of "sustainable" and "safe":
According to our model, the best guess we can make for the sustainable spending rate for a new retiree in 2016 is 4.16%. While this is very close to the historical SAFEMAX, it is important to emphasize that this is not an estimate of the “safe” withdrawal rate.

It is not a conservative guess about a safe withdrawal rate, but rather it is the best guess based upon the historical relationship between withdrawal rates, market valuations, and interest rates. It could end up being more or less (we won’t know which for another thirty years).

To be conservative, a lower withdrawal rate is required to account for the additional random fluctuations from outside the model. This analysis further confirms the idea that the 4% withdrawal rate cannot be treated as safe for retirees in today’s market environment.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Aptenodytes » Tue Jul 12, 2016 12:24 pm

"safe" = guaranteed sustainable
"sustainable" = sustainable

Essentially they are the same thing, because I doubt that anyone advocating "safe withdrawal rates" ever meant to guarantee them.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by MathWizard » Tue Jul 12, 2016 12:36 pm

The clue is in the sentence:
To be conservative, a lower withdrawal rate is required to account for the additional random fluctuations from outside the model.
Sustainable means "safe within the model".

Factors outside of the model (perhaps unknown or unknowable) may make the withdrawal rate unsafe.

E.g. The model would not take into account takeover by a foreign country, since that would not be within
the model, or a complete collapse of capitalism in the US. I doubt those things would happen, but other countries have
had such things happen, so it is not outside of the realm of possibility.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by lack_ey » Tue Jul 12, 2016 12:36 pm

The sustainable figure given is 4.16%, meaning that the model's estimate is that one could embark upon a 30-year withdrawal of 4.16% of the original amount adjusted for inflation every year and not run out of money. That is, it thinks with 4.17% you'd run out.

The model is basically telling you the most likely outcome. Nobody actually knows the sequence of returns that will happen between now and 2046, and the model doesn't even predict historical returns (for which we know the answer) all that closely.

It may turn out that you could spend a good deal more than 4.16%, or perhaps with 4.16% you'd run out early. We don't know and as such planning for the most likely outcome a model tells us is not a safe plan. To be increasingly safe, you need to be increasingly cautious and spend less. For a model that's not biased, fudging here slightly, you'd expect that half the time the actual sustainable rate is lower than what it thinks, and half the time it turns out higher. The model is based on past data that doesn't include catastrophic events (for US stocks and bonds) in its history. Regardless, it does not remotely take a catastrophic event to end up with a 40 percentile outcome.

I didn't check if this is one of Pfau's works where he assumes a certain amount of asset management fees, bringing down returns (and thus the sustainable withdrawal rates), or not.

Again, these are all just planning tools. Nobody is expected to and nobody should follow these kinds of constant withdrawals in practice. Everyone should adjust based on future willingness and ability to cut spending if needed and also consider life expectancy, among many other things.
Last edited by lack_ey on Tue Jul 12, 2016 12:40 pm, edited 1 time in total.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Tyler9000 » Tue Jul 12, 2016 12:38 pm

Basically, it's his way of saying that it's a prediction of the future based on personal calculations with no guarantee of success. A pretty standard disclaimer. I do find his methodology interesting and appreciate his thought process.

IMHO, the larger issue is his assumption of a simple 50/50 S&P500/10yr-treasury portfolio. Change the portfolio, and you change the withdrawal rate by far more than the precision he is quoting. One should be careful about reading too much into this if their own asset allocation differs from his assumption.
Last edited by Tyler9000 on Tue Jul 12, 2016 3:54 pm, edited 1 time in total.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Rodc » Tue Jul 12, 2016 12:51 pm

I think he is saying SWR is what works looking at all historical periods (usually with a small failure rate not 100% success)

His new rate is based on current conditions (fed into and digested by his model and you know about garbage in garbage out, right?)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by MIretired » Tue Jul 12, 2016 12:55 pm

SWR ('safe' with. rate) is a answer from historic data on market performance in the worst case for a 30 year period. ie: retired 1966.
This is the worst time to retire in about 80 year history of retirement dates that have not run out of money in 30 years. And that SWR is about 4%.

The sustainable with. rate he calculates is not measuring this.
It is not a conservative guess about a safe withdrawal rate, but rather it is the best guess based upon the historical relationship between withdrawal rates, market valuations, and interest rates. It could end up being more or less than the 4% SWR(we won’t know which for another thirty years).
--my red text.

SWR was just a Monte Carlo sim of historical data on the what if of SWR. Which became 4%.

He had previous weekly articles on Forbes with related things to SWR in 2016.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Kevin K » Tue Jul 12, 2016 2:42 pm

I'm taking Pfau with an ever-larger grain of salt these days, due not only to his vested interests in selling annuities and getting folks into the FA world, but also to the absurdly high costs embedded in both such options.

John Greaney, a Boglehead if ever there was one, does a great job of skewering Pfau's retirement rate assumptions here:

http://www.retireearlyhomepage.com/wadepfau_2016.html

Much else of interest on his site, including a very recently updated study of real world retiree returns on a bunch of well-known allocations.

Bottom line for me anyway: expenses matter more than ever in this low-return environment and flexibility in SWRs during retirement is vital.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Rodc » Tue Jul 12, 2016 2:44 pm

Tyler9000 wrote:

IMHO, the larger issue is his assumption of a simple 50/50 S&P500/10yr-treasury portfolio. Change the portfolio, and you change the withdrawal rate by far more than the precision he is quoting. One should be careful about reading too much into this if their own asset allocation differs from his assumption.
Wade has never been bothered by false precision.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Rodc » Tue Jul 12, 2016 2:46 pm

Kevin K wrote:I'm taking Pfau with an ever-larger grain of salt these days, due not only to his vested interests in selling annuities and getting folks into the FA world, but also to the absurdly high costs embedded in both such options.

John Greaney, a Boglehead if ever there was one, does a great job of skewering Pfau's retirement rate assumptions here:

http://www.retireearlyhomepage.com/wadepfau_2016.html

Much else of interest on his site, including a very recently updated study of real world retiree returns on a bunch of well-known allocations.

Bottom line for me anyway: expenses matter more than ever in this low-return environment and flexibility in SWRs during retirement is vital.
Yes. I find his work far from impressive. Not sure why folks pay much attention.

Agree with your bottom line.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by garlandwhizzer » Tue Jul 12, 2016 5:06 pm

Kevin K wrote:
Bottom line for me anyway: expenses matter more than ever in this low-return environment and flexibility in SWRs during retirement is vital.
1+

I believe much of Wade Pfau's commentaries have as their chief purpose feathering his own bed, a very common practice in the financial industry. Backtesting statistics, if tortured sufficiently in a well chosen time frame, can demonstrate whatever the Chief Inquisitor chooses to demonstrate.

Garland Whizzer

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by nedsaid » Tue Jul 12, 2016 5:25 pm

I have found Dr. Pfau's articles interesting and helpful. Yes, you do have to realize he isn't 100% objective but he has got me thinking about several things. For example, he favors Nominal Single Premium Immediate Annuities over Real (Inflation Adjusted) SPIAs because there is a 15-20 year period before the payments on Real SPIAs catch up to Nominal SPIAs. He also has got me thinking about annuitizing a portion of my retirement nest egg as it decreases the chances of exhausting a retirement portfolio. He lists his assumptions for his critics to skewer. A good but imperfect source of information.
A fool and his money are good for business.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by AlohaJoe » Tue Jul 12, 2016 10:46 pm

I generally like Pfau since at least he's doing more than repeating fact-free "rules of thumb". In the same way that not every song by a band is great, not every paper he writes is great. I think he harps on "current safe withdrawal rates in this current, unprecedented period" a bit too much but he was also one of the first looking at international withdrawal rates, nominal SPIAs, and several other under-discussed topics.

I do, however, struggle to reconcile how Wade Pfau writing for Forbes in 2016 can say that the sustainable spending rate is 4.16% but Wade Pfau writing for WealthVest in 2015 can say that the sustainable spending rate is 2.1%.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by qwertyjazz » Wed Jul 13, 2016 5:49 am

My read of this paper is that is the average withdrawl rate -55%- Monte Carlo estimates use a 95% SWR - so basically the average rate in this market is near the SWR from previous eras.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by azanon » Wed Jul 13, 2016 6:58 am

The day that I am actually constrained to only investing in the S&P 500 and 10-yr treasuries, is the day I'll find it a good use of time to be concerned about his research. My expected portfolio return and SWR is significantly higher vs. a 50/50 mix of S&P 500/10-yr treasuries.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by tennisplyr » Wed Jul 13, 2016 7:22 am

Really, 4.16%, not 4.1638525805368533? This level of accuracy smacks of fishyness.
Those who move forward with a happy spirit will find that things always work out.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Da5id » Wed Jul 13, 2016 7:40 am

tennisplyr wrote:Really, 4.16%, not 4.1638525805368533? This level of accuracy smacks of fishyness.
Given that:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

Obviously a very high level of precision is needed here :happy

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Call_Me_Op » Wed Jul 13, 2016 7:55 am

Aptenodytes wrote:"safe" = guaranteed sustainable
"sustainable" = sustainable

Essentially they are the same thing, because I doubt that anyone advocating "safe withdrawal rates" ever meant to guarantee them.
The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance. This requires some degree of over-saving to maintain lifestyle during a market down-turn.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by tennisplyr » Wed Jul 13, 2016 8:21 am

Call_Me_Op wrote:
Aptenodytes wrote:"safe" = guaranteed sustainable
"sustainable" = sustainable

Essentially they are the same thing, because I doubt that anyone advocating "safe withdrawal rates" ever meant to guarantee them.
The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance. This requires some degree of over-saving to maintain lifestyle during a market down-turn.
Forgive me, but somethings "fixed" in life may not necessarily work out, eg, 55mph on highway may not work out if you don't see the truck stopped ahead of you. :?
Those who move forward with a happy spirit will find that things always work out.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by tennisplyr » Wed Jul 13, 2016 8:22 am

Call_Me_Op wrote:
Aptenodytes wrote:"safe" = guaranteed sustainable
"sustainable" = sustainable

Essentially they are the same thing, because I doubt that anyone advocating "safe withdrawal rates" ever meant to guarantee them.
The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance. This requires some degree of over-saving to maintain lifestyle during a market down-turn.
Forgive me, but somethings "fixed" in life may not necessarily work out, eg, 55mph on highway may not work out if you don't adjust for the truck stopped ahead of you. :?
Those who move forward with a happy spirit will find that things always work out.

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Call_Me_Op » Wed Jul 13, 2016 8:23 am

tennisplyr wrote:
Call_Me_Op wrote:
Aptenodytes wrote:"safe" = guaranteed sustainable
"sustainable" = sustainable

Essentially they are the same thing, because I doubt that anyone advocating "safe withdrawal rates" ever meant to guarantee them.
The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance. This requires some degree of over-saving to maintain lifestyle during a market down-turn.
Forgive me, but somethings "fixed" in life may not necessarily work out, eg, 55mph on highway may not work out if you don't see the truck stopped ahead of you. :?
Perhaps. But if you spend 4% of your portfolio each year, you are guaranteed to never run out of money.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by qwertyjazz » Wed Jul 13, 2016 8:26 am

Call_Me_Op wrote:
tennisplyr wrote:
Call_Me_Op wrote:
Aptenodytes wrote:"safe" = guaranteed sustainable
"sustainable" = sustainable

Essentially they are the same thing, because I doubt that anyone advocating "safe withdrawal rates" ever meant to guarantee them.
The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance. This requires some degree of over-saving to maintain lifestyle during a market down-turn.
Forgive me, but somethings "fixed" in life may not necessarily work out, eg, 55mph on highway may not work out if you don't see the truck stopped ahead of you. :?
Perhaps. But if you spend 4% of your portfolio each year, you are guaranteed to never run out of money.
Actually - if you believe this article and start spending now then you will have a 45% chance (1-0.55) of running out of money
G.E. Box "All models are wrong, but some are useful."

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Da5id » Wed Jul 13, 2016 8:30 am

qwertyjazz wrote: Actually - if you believe this article and start spending now then you will have a 45% chance (1-0.55) of running out of money
He was stating the obvious that if you spend 4% of your current balance (adjusted yearly)you'll never run out of money I believe. And that is clearly correct. Of course, you might be eating catfood if you are spending 4% after an 80% decline in the stock market, but still, you technically won't run out of money...

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by qwertyjazz » Wed Jul 13, 2016 8:33 am

Da5id wrote:
qwertyjazz wrote: Actually - if you believe this article and start spending now then you will have a 45% chance (1-0.55) of running out of money
He was stating the obvious that if you spend 4% of your current balance (adjusted yearly)you'll never run out of money I believe. And that is clearly correct. Of course, you might be eating catfood if you are spending 4% after an 80% decline in the stock market, but still, you technically won't run out of money...
You could also spend 90% each year and never run out by the same logic- our old friend Zeno
G.E. Box "All models are wrong, but some are useful."

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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Bustoff » Wed Jul 13, 2016 8:45 am

After taxes and inflation, returns on a conservatively allocated distribution portfolio might not amount to very much.
Throw in sequence of return risk and things start to get even more complicated.
I have never felt comfortable about a 4% withdrawal rate.

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The Award-Winning TLW Strategy

Post by cfs » Wed Jul 13, 2016 8:57 am

I follow the TLW strategy.

Way too many moving parts, we are making the simple task of portfolio withdrawal way too complicated! I try to keep it as simple as possible, but not simpler. And for simplicity I just follow the TLW strategy, which was developed and brilliantly explained by our very own shipmate Taylor Larimore [really, who needs the high-paid experts when we have Taylor and the rest of the battle-tested Bogleheads team here?]. My current TLW rate [and spending rate] is between 1.5% to 2% and oh yes, it is sustainable, and as of now that's all I need from my SWAN. For those not familiar with the TLW strategy, see this link. The Award-Winning TLW Strategy.

Thanks for reading.
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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by #Cruncher » Wed Jul 13, 2016 4:52 pm

Call_Me_Op in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2976885#p2976885]this post[/url] wrote:The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance.
It's not necessary that the percentage be fixed. A withdrawal method with a percentage that increases with age -- as the government mandates for IRA Required Minimum Distributions (RMD) -- has a couple of advantages.
  • Most years it provides a larger withdrawal.
  • Most years it leaves less money unspent at death.
Here is an example using a withdrawal rate that increases from 3.13% at age 65 to 23.26% at age 105. These percents are the inverse of a "Divisor" that is similar to the "Distribution Period" as shown on the IRS' IRA Required Minimum Distribution Worksheet PDF file.) [*] The withdrawal percents are applied starting at age 65 against an initial balance of $1,000,000. For illustration a 0% investment growth rate is assumed. The results are compared to those using a fixed 4% withdrawal rate.

Code: Select all

      ----- 4% ------    ------- Variable Percent -------     WDraw
Age   WDraw   Balance    Divisor   Pct   Wdraw   Balance      vs 4%

Code: Select all

             1,000,000                          1,000,000 
 65   40,000   960,000     32.0   3.13%  31,250   968,750    (8,750)
 66   38,400   921,600     31.1   3.22%  31,150   937,600    (7,250)
 67   36,864   884,736     30.1   3.32%  31,150   906,451    (5,714)
 68   35,389   849,347     29.1   3.44%  31,150   875,301    (4,240)
 69   33,974   815,373     28.2   3.55%  31,039   844,262    (2,935)
 70   32,615   782,758     27.3   3.66%  30,925   813,337    (1,690)
 71   31,310   751,447     26.3   3.80%  30,925   782,412      (385)
 72   30,058   721,390     25.4   3.94%  30,804   751,608       746 
 73   28,856   692,534     24.4   4.10%  30,804   720,804     1,948 
 74   27,701   664,833     23.5   4.26%  30,673   690,132     2,971 
 75   26,593   638,239     22.6   4.42%  30,537   659,595     3,944 
 76   25,530   612,710     21.7   4.61%  30,396   629,199     4,867 
 77   24,508   588,201     20.8   4.81%  30,250   598,949     5,742 
 78   23,528   564,673     19.9   5.03%  30,098   568,851     6,570 
 79   22,587   542,086     19.0   5.26%  29,940   538,912     7,353 
 80   21,683   520,403     18.1   5.52%  29,774   509,137     8,091 
 81   20,816   499,587     17.3   5.78%  29,430   479,708     8,614 
 82   19,983   479,603     16.4   6.10%  29,250   450,457     9,267 
 83   19,184   460,419     15.6   6.41%  28,875   421,582     9,691 
 84   18,417   442,002     14.8   6.76%  28,485   393,096    10,068 
 85   17,680   424,322     14.0   7.14%  28,078   365,018    10,398 
 86   16,973   407,349     13.3   7.52%  27,445   337,573    10,472 
 87   16,294   391,055     12.5   8.00%  27,006   310,567    10,712 
 88   15,642   375,413     11.8   8.47%  26,319   284,248    10,677 
 89   15,017   360,397     11.1   9.01%  25,608   258,640    10,591 
 90   14,416   345,981     10.5   9.52%  24,632   234,008    10,217 
 91   13,839   332,142      9.9  10.10%  23,637   210,371     9,798 
 92   13,286   318,856      9.3  10.75%  22,620   187,750     9,335 
 93   12,754   306,102      8.8  11.36%  21,335   166,415     8,581 
 94   12,244   293,858      8.2  12.20%  20,294   146,120     8,050 
 95   11,754   282,103      7.8  12.82%  18,733   127,387     6,979 
 96   11,284   270,819      7.4  13.51%  17,214   110,173     5,930 
 97   10,833   259,986      6.9  14.49%  15,967    94,205     5,134 
 98   10,399   249,587      6.6  15.15%  14,274    79,932     3,874 
 99    9,983   239,603      6.2  16.13%  12,892    67,040     2,909 
100    9,584   230,019      5.8  17.24%  11,559    55,481     1,974 
101    9,201   220,819      5.5  18.18%  10,087    45,394       887 
102    8,833   211,986      5.2  19.23%   8,730    36,664      (103)
103    8,479   203,506      4.9  20.41%   7,482    29,182      (997)
104    8,140   195,366      4.6  21.74%   6,344    22,838    (1,796)
105    7,815   187,552      4.3  23.26%   5,311    17,527    (2,504)
106    7,502   180,049      4.0  25.00%   4,382    13,145    (3,120)
107    7,202   172,847      3.8  26.32%   3,459     9,686    (3,743)
108    6,914   165,934      3.5  28.57%   2,767     6,918    (4,147)
109    6,637   159,296      3.3  30.30%   2,096     4,822    (4,541)
110    6,372   152,924      2.9  34.48%   1,663     3,159    (4,709)
As shown in the far right column, the increasing percent method provides a larger withdrawal from age 72 to 102. And there is less money unspent for those who die age 79 or later. Interestingly these two statistics appear to be the case regardless of assumed investment growth. For example, here is the same table with a 5% growth rate.

Code: Select all

      ----- 4% ------    ------- Variable Percent -------     WDraw
Age   WDraw   Balance    Divisor   Pct   Wdraw   Balance      vs 4%

Code: Select all

             1,000,000                          1,000,000 
 65   40,000 1,008,000     32.0   3.13%  31,250 1,017,188    (8,750)
 66   40,320 1,016,064     31.1   3.22%  32,707 1,033,705    (7,613)
 67   40,643 1,024,193     30.1   3.32%  34,342 1,049,330    (6,300)
 68   40,968 1,032,386     29.1   3.44%  36,059 1,063,934    (4,908)
 69   41,295 1,040,645     28.2   3.55%  37,728 1,077,517    (3,567)
 70   41,626 1,048,970     27.3   3.66%  39,469 1,089,949    (2,156)
 71   41,959 1,057,362     26.3   3.80%  41,443 1,100,932      (516)
 72   42,294 1,065,821     25.4   3.94%  43,344 1,110,467     1,049 
 73   42,633 1,074,348     24.4   4.10%  45,511 1,118,204     2,878 
 74   42,974 1,082,942     23.5   4.26%  47,583 1,124,152     4,609 
 75   43,318 1,091,606     22.6   4.42%  49,741 1,128,131     6,424 
 76   43,664 1,100,339     21.7   4.61%  51,988 1,129,951     8,323 
 77   44,014 1,109,141     20.8   4.81%  54,325 1,129,408    10,311 
 78   44,366 1,118,015     19.9   5.03%  56,754 1,126,286    12,389 
 79   44,721 1,126,959     19.0   5.26%  59,278 1,120,358    14,558 
 80   45,078 1,135,974     18.1   5.52%  61,898 1,111,383    16,820 
 81   45,439 1,145,062     17.3   5.78%  64,242 1,099,499    18,803 
 82   45,802 1,154,223     16.4   6.10%  67,043 1,084,079    21,240 
 83   46,169 1,163,456     15.6   6.41%  69,492 1,065,316    23,323 
 84   46,538 1,172,764     14.8   6.76%  71,981 1,043,002    25,443 
 85   46,911 1,182,146     14.0   7.14%  74,500 1,016,927    27,590 
 86   47,286 1,191,603     13.3   7.52%  76,461   987,489    29,175 
 87   47,664 1,201,136     12.5   8.00%  78,999   953,915    31,335 
 88   48,045 1,210,745     11.8   8.47%  80,840   916,728    32,795 
 89   48,430 1,220,431     11.1   9.01%  82,588   875,847    34,158 
 90   48,817 1,230,195     10.5   9.52%  83,414   832,055    34,597 
 91   49,208 1,240,036      9.9  10.10%  84,046   785,409    34,838 
 92   49,601 1,249,956      9.3  10.75%  84,453   736,004    34,851 
 93   49,998 1,259,956      8.8  11.36%  83,637   684,986    33,639 
 94   50,398 1,270,036      8.2  12.20%  83,535   631,524    33,137 
 95   50,801 1,280,196      7.8  12.82%  80,965   578,087    30,163 
 96   51,208 1,290,438      7.4  13.51%  78,120   524,966    26,912 
 97   51,618 1,300,761      6.9  14.49%  76,082   471,328    24,464 
 98   52,030 1,311,167      6.6  15.15%  71,413   419,910    19,383 
 99   52,447 1,321,657      6.2  16.13%  67,727   369,792    15,281 
100   52,866 1,332,230      5.8  17.24%  63,757   321,336    10,891 
101   53,289 1,342,888      5.5  18.18%  58,425   276,057     5,136 
102   53,716 1,353,631      5.2  19.23%  53,088   234,118      (628)
103   54,145 1,364,460      4.9  20.41%  47,779   195,656    (6,366)
104   54,578 1,375,376      4.6  21.74%  42,534   160,778   (12,045)
105   55,015 1,386,379      4.3  23.26%  37,390   129,557   (17,625)
106   55,455 1,397,470      4.0  25.00%  32,389   102,026   (23,066)
107   55,899 1,408,649      3.8  26.32%  26,849    78,936   (29,050)
108   56,346 1,419,918      3.5  28.57%  22,553    59,202   (33,793)
109   56,797 1,431,278      3.3  30.30%  17,940    43,325   (38,857)
110   57,251 1,442,728      2.9  34.48%  14,940    29,805   (42,311)
Again the increasing percent method provides a larger withdrawal ages 72 to 102; and a smaller unspent balance for those who die after age 79.

* I computed the "Divisors" based on the female section of the 2013 SSA Period Life Table. Each divisor is the number of years until only 8% of the women alive at a given age are still alive. For example, of the women alive at age 65 (88,054) only 8% are still alive 32 years later at age 97 (7,083). So the divisor is 32.0 and the corresponding withdrawal percent is 3.13%. I chose the female section and 8% because this makes the divisor at age 70 (27.3) close to the divisor in the IRS table at the same age (27.4).

Call_Me_Op
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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by Call_Me_Op » Thu Jul 14, 2016 5:44 am

Thanks #cruncher. Yes, I was under-generalizing in my statement. I was contrasting against starting with a specific percentage and then adjusting upwards for inflation each year. That approach disconnects your withdrawals from your balance, and that's when you can run out of money.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

AlohaJoe
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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by AlohaJoe » Thu Jul 14, 2016 5:52 am

#Cruncher wrote:
Call_Me_Op in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2976885#p2976885]this post[/url] wrote:The only way to guarantee that your money will last is to withdraw a fixed percentage of the portfolio balance.
It's not necessary that the percentage be fixed. A withdrawal method with a percentage that increases with age -- as the government mandates for IRA Required Minimum Distributions (RMD) -- has a couple of advantages.
  • Most years it provides a larger withdrawal.
  • Most years it leaves less money unspent at death.
If you haven't seen them already:

Blanchett et al have a nice chart showing how RMD stacks up against "Constant Dollar" (i.e. the 4% SWR)

Image

Webb and Sun have a similar finding

Image

209south
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Re: Wade Pfau: What Is The Sustainable Spending Rate For Retirees In 2016?

Post by 209south » Thu Jul 14, 2016 11:23 am

nedsaid wrote:I have found Dr. Pfau's articles interesting and helpful. Yes, you do have to realize he isn't 100% objective but he has got me thinking about several things. For example, he favors Nominal Single Premium Immediate Annuities over Real (Inflation Adjusted) SPIAs because there is a 15-20 year period before the payments on Real SPIAs catch up to Nominal SPIAs. He also has got me thinking about annuitizing a portion of my retirement nest egg as it decreases the chances of exhausting a retirement portfolio. He lists his assumptions for his critics to skewer. A good but imperfect source of information.
+1 Wade Pfau is a tremendous resource and has been especially helpful in articulating alternative approaches to retirement spending and portfolio withdrawal strategies. Larry Swedroe, Rick Ferri and others all have 'day jobs', but that doesn't mean we can't learn a lot from them!

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