Can someone explain the TVM withdrawal method?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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R2D2
Posts: 292
Joined: Tue Aug 19, 2014 4:37 pm

Can someone explain the TVM withdrawal method?

Post by R2D2 » Tue Jun 11, 2019 2:41 pm

I've seen numerous threads on VPW vs TVM. VPW is very easy for me to understand; there's a table saying what percentage of your net worth you can spend each year.

I've never been able to find a summary of the TVM method.

I understand what time value of money is (and yes, I know that this is what TVM stands for), I know what PV/FV/PMT are, etc. And I've read long articles explaining TVM, but for the life of me I just can't understand what the 1 or 2 sentence idea is behind the TVM method for retirement spending.

Silk McCue
Posts: 2406
Joined: Thu Feb 25, 2016 7:11 pm

Re: Can someone explain the TVM withdrawal method?

Post by Silk McCue » Tue Jun 11, 2019 3:09 pm

willthrill81 started this thread back in February. He wrote it specifically to help folks understand it.

It should be able to clarify this method for you.

viewtopic.php?t=274243

Cheers

Topic Author
R2D2
Posts: 292
Joined: Tue Aug 19, 2014 4:37 pm

Re: Can someone explain the TVM withdrawal method?

Post by R2D2 » Tue Jun 11, 2019 3:14 pm

Thanks. I've read that post and I still don't get it. Here's what I gathered:

Figure out your net worth and how many periods you want it to last.
Figure out the expected real return of your portfolio.
Calculate the withdrawal amount each period so that you can increase the withdrawal with CPI and exhaust it at the end of N periods.

That's a simple calculation. But then how do you adjust the withdrawal amount each year? That's the whole crux of the issue, and I can't figure out what's going on.

I apologize if it's spelled out in the link you provided, but I just can't seem to find it.

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