Considering that the year 2000 was one of the worst starting periods for retirees, and 2000-2009 was a rough decade in general, we'll start the analysis in that year. We'll assume that we have an opposite sex couple aged 65 with a

**$1 million starting portfolio**. According to the SSA, there is only a 9% probability that either will be alive in 32 years (age 97), and they are comfortable with planning on their portfolio not being depleted before that time. It's important to keep in mind that they can adjust the period of time over which they want to amortize their portfolio whenever they wish.

**So the number of annual periods is 32.**

The couple has no desire for a fixed bequest; they are fine with leaving behind whatever remains in their portfolio after they both pass away.

**So the future value is 0.**

The last needed variable is the projected real rate of return. A historically conservative estimate could be placed here. Many would prefer to use valuations and current fixed income yields instead, so let's do that. According to Shiller's website, the CAPE on 1/1/2000 was 43.77, so the expected return for stocks over the next decade would be 1/43.77 or 2.3%. 10 year Treasury yields were 6.5%, and CPI for the year prior was 2.2%, so the expected real return of bonds was roughly 4.3%.

**So a 60/40 portfolio had an expected 10 year real return of 3.1%.**

When we input all of these variables into the TMV and solve for the current payment, the withdrawal would have been $49,716.40, leaving their balance at the beginning of 2000 at $950,284.

Using the same method for calculating returns for each subsequent year, let's examine their withdrawals and portfolio balance each year going forward. To simplify the analysis, we'll assume that both spouses survive throughout this period but still wish to plan on exhausting their portfolio within the original 32 year period. Also, from 2003 forward, the real yield on 10 year TIPS at the start of each year are used instead of the difference between 10 year Treasuries and the prior year's CPI. Note that the portfolio balances are at the

*beginning*of each year immediately following the annual withdrawal for that year.

2001:

Withdrawal - $43,814

Balance - $911,849

2002:

Withdrawal - $44,008

Balance - $827,549

2003:

Withdrawal - $43,474

Balance - $731,138

2004:

Withdrawal - $48,215

Balance - $821,707

2005:

Withdrawal - $49,897

Balance - $848,294

2006:

Withdrawal - $51,565

Balance - $837,398

2007:

Withdrawal - $55,425.00

Balance - $867,247

2008:

Withdrawal - $57,446

Balance - $874,526

2009:

Withdrawal - $56,456

Balance - $695,556

2010:

Withdrawal - $53,597

Balance - $733,423

2011:

Withdrawal - $56,071

Balance - $775,811

2012:

Withdrawal - $49,296

Balance - $781,404

Fast forward to 2019:

Withdrawal - $77,000 (a 4% higher real withdrawal than 2000's)

Balance - $769,802 (51% of the inflation-adjusted starting balance)

It's interesting to note that withdrawals dropped more from 2011 to 2012 than from 2008 to 2010. This is because 10 year TIPS had a negative real yield of -.04% at the beginning of 2012, so the rate of return used for that year was just 1.23%.

Notwithstanding the 12% drop in withdrawals from 2011 to 2012, I was surprised at how smooth the withdrawals over this turbulent decade were. Note that 2009's withdrawal did not drop much from the year prior because while the portfolio balance dropped significantly, expected returns for stocks, as measured by 1/CAPE, went up significantly, which came close to nullifying each other.

For those wanting to implement this type of withdrawal method but are afraid that it would be too complicated for their spouse to manage, a simple Excel spreadsheet could be created where all that would be necessary is for the spouse to enter the current portfolio balance, the number of years of desired withdrawals remaining, the current CAPE value (easily Googled), and the current 10 year TIPS yield (also easily Googled), and the TMV formula would indicate what the current withdrawal should be.

**For more in-depth information, including current spreadsheets ready for use, see the Wiki page on the amortization based withdrawal (ABW) method.**