File:Logoneovern.jpg

This graph shows a variable percentage-type retirement withdrawal method, where the yearly withdrawal is a fraction of the total portfolio value based on the expected numbers of years that withdrawals will be made from the portfolio. These withdrawal fractions assume spending the entire portfolio and assumes withdrawals each year of a percentage equal to 1/(years remaining) of the total portfolio. For example, if the portfolio is expected to last 20 more years, then the withdrawal amount for that year would be 1/20 of the total portfolio value, 1/19 of the total portfolio value the next year, then 1/18, etc.

The amount of stocks in the portfolio is decreased each year according to the glide-path formula: stock percentage=LOG(100-age)-1, which decreases stocks slower in the early years and then at a faster rate during the typical retirement years, eventually transitioning to a conservative 100% bond portfolio at age 90 and beyond. In this example, the ages covered are from 55-90.

The blue bar-graph shows withdrawals in individual years (using the left-hand scale), while the red line shows the remaining portfolio value (using the right-hand scale). Portfolio consists of 65% stocks and 35% bonds at the start, changing based on the stock percentage=LOG(100-age)-1 formula until the portfolio is 0% stocks and 100% bonds at the end. Yearly withdrawal is a percentage equal to 1/(years remaining) of total portfolio value. Stocks are represented by the MSCI World index and bonds are represented by 5-year treasury notes. Timeframe is 1972-2007.