Variable percentage withdrawal

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Variable percentage withdrawal (VPW) is a method which adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

The VPW method uses a variable (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal.

The VPW method and spreadsheets were collaboratively developed and improved by a group of Bogleheads®.[1]

The VPW Accumulation And Retirement Worksheet calculates variable portfolio contributions, during accumulation, and variable portfolio withdrawals, during retirement, while taking into account current and future pensions with and without cost-of-living adjustments.

The VPW Backtesting Spreadsheet contains two data sets: U.S. (1871-2019)[2][3] and Canada (1970-2019)[4].

How to use variable percentage withdrawals during retirement

VPW is best used in conjunction with guaranteed base income from Social Security[5], a pension (if any), and (if necessary) an inflation-indexed Single Premium Immediate Annuity (SPIA).

Portfolio withdrawals are preferably calculated with the VPW Accumulation And Retirement Worksheet. Users who don't want to use a spreadsheet can calculate portfolio withdrawals with the VPW table instead.

With the VPW Accumulation And Retirement Worksheet

Steps

  1. Open the worksheet.
  2. Click on the Instructions tab and read its content.
  3. Click on the Retirement tab and:
    1. Each year:
      1. Enter (or update) your Age (or, for a couple, the age of the younger spouse), Portfolio Balance, Portfolio Allocation, and the desired withdrawal frequency (annual, quarterly, or monthly).
        • Note that it is important to update the Age and Portfolio Balance, every year of retirement, as they change.
      2. Enter (or update) the Monthly Payment of all current and future pensions, including Social Security.
        • Note that it is important to update monthly pension payments every year when they change due to cost-of-living adjustments.
      3. On the chosen frequency, withdraw the suggested amount and, once during the year, rebalance your portfolio.
        • Note that the suggested withdrawal amount changes every year as soon as the age and portfolio balance are updated.
    2. Every few years, you should review your overall retirement plan.
    3. At age 80, if you're still alive, it's important to consider using part (but not all) of your remaining portfolio to buy an inflation-indexed Single Premium Immediate Annuity (SPIA), so that the estimated Income Floor After 100 is sufficient to live comfortably, independently of future portfolio withdrawals. This aims to reduce the financial risks associated with living past age 100.
    4. The withdrawal percentage stops growing when it reaches 10%.

Detailed Example

A detailed illustration of how to use the the VPW Accumulation And Retirement Worksheet during retirement to generate monthly income is presented in Bogleheads® forum topic: A Simple Bogleheads Retirement Using Variable Percentage Withdrawals (VPW Forward Test).

With the VPW table

  1. Missing payments between retirement and the start of a pension such as Social Security (possibly delayed to age 70[6]) can be provided by using a simple CD ladder or short-term bond fund. For the purposes of VPW calculations, the money set aside in this CD ladder or short-term bond fund should not be considered as part of the portfolio.
  2. The following procedure should be repeated each year of retirement:
    1. Lookup the withdrawal percentage for your age (or, for a couple, the age of the younger spouse) and the planned asset allocation of your portfolio for the upcoming year in the table below. (For example, a 65-years old retiree with a 30% Stocks / 70% Bonds portfolio would find 4.4% on line 65 under the appropriate column).
      • Note that the withdrawal percentage changes every year. It must be looked up, as your age has increased by one since the previous year.
    2. Multiply the current balance of your portfolio by the looked up percentage to calculate the withdrawal amount. (For example, if the portfolio Balance is $1,200,000 and the percentage is 4.4%, the withdrawal amount is $52,800).
      • Note that the withdrawal amount changes every year. It must be recalculated because both the portfolio balance and the withdrawal percentage have changed since the previous year.
    3. Withdraw the withdrawal amount and rebalance your portfolio.
  3. Every few years, you should review your overall retirement plan.
  4. Around age 80, if you're still alive, it is important to consider using part (but not all) of your remaining portfolio to buy an inflation-indexed Single Premium Immediate Annuity (SPIA), so that total non-portfolio income (including Social Security, pension, and other lifelong income) is sufficient to live comfortably, independently of future portfolio withdrawals. This aims to reduce the financial risks associated with living past age 100.
  5. It is suggested to limit the withdrawal percentage to no more than 10%, after buying the inflation-indexed SPIA.

VPW Table

Variable Percentage Withdrawal Rates Based on Age and Asset Allocation
Age Withdrawals 30% Stocks
70% Bonds
40% Stocks
60% Bonds
50% Stocks
50% Bonds
60% Stocks
40% Bonds
70% Stocks
30% Bonds
40 60 3.4% 3.6% 3.8% 4.1% 4.3%
41 59 3.4% 3.6% 3.8% 4.1% 4.3%
42 58 3.4% 3.6% 3.9% 4.1% 4.3%
43 57 3.4% 3.6% 3.9% 4.1% 4.4%
44 56 3.4% 3.7% 3.9% 4.1% 4.4%
45 55 3.5% 3.7% 3.9% 4.2% 4.4%
46 54 3.5% 3.7% 4.0% 4.2% 4.4%
47 53 3.5% 3.8% 4.0% 4.2% 4.4%
48 52 3.6% 3.8% 4.0% 4.2% 4.5%
49 51 3.6% 3.8% 4.0% 4.3% 4.5%
50 50 3.6% 3.8% 4.1% 4.3% 4.5%
51 49 3.7% 3.9% 4.1% 4.3% 4.6%
52 48 3.7% 3.9% 4.1% 4.4% 4.6%
53 47 3.7% 3.9% 4.2% 4.4% 4.6%
54 46 3.8% 4.0% 4.2% 4.4% 4.7%
55 45 3.8% 4.0% 4.2% 4.5% 4.7%
56 44 3.9% 4.1% 4.3% 4.5% 4.7%
57 43 3.9% 4.1% 4.3% 4.5% 4.8%
58 42 4.0% 4.2% 4.4% 4.6% 4.8%
59 41 4.0% 4.2% 4.4% 4.6% 4.9%
60 40 4.1% 4.3% 4.5% 4.7% 4.9%
61 39 4.1% 4.3% 4.5% 4.7% 5.0%
62 38 4.2% 4.4% 4.6% 4.8% 5.0%
63 37 4.2% 4.4% 4.6% 4.9% 5.1%
64 36 4.3% 4.5% 4.7% 4.9% 5.1%
65 35 4.4% 4.6% 4.8% 5.0% 5.2%
66 34 4.5% 4.7% 4.9% 5.1% 5.3%
67 33 4.5% 4.7% 4.9% 5.1% 5.3%
68 32 4.6% 4.8% 5.0% 5.2% 5.4%
69 31 4.7% 4.9% 5.1% 5.3% 5.5%
70 30 4.8% 5.0% 5.2% 5.4% 5.6%
71 29 4.9% 5.1% 5.3% 5.5% 5.7%
72 28 5.0% 5.2% 5.4% 5.6% 5.8%
73 27 5.2% 5.4% 5.5% 5.7% 5.9%
74 26 5.3% 5.5% 5.7% 5.9% 6.1%
75 25 5.5% 5.6% 5.8% 6.0% 6.2%
76 24 5.6% 5.8% 6.0% 6.2% 6.3%
77 23 5.8% 6.0% 6.1% 6.3% 6.5%
78 22 6.0% 6.1% 6.3% 6.5% 6.7%
79 21 6.2% 6.4% 6.5% 6.7% 6.9%
80 20 6.4% 6.6% 6.8% 6.9% 7.1%
81 19 6.7% 6.8% 7.0% 7.2% 7.4%
82 18 6.9% 7.1% 7.3% 7.5% 7.6%
83 17 7.3% 7.4% 7.6% 7.8% 7.9%
84 16 7.6% 7.8% 7.9% 8.1% 8.3%
85 15 8.0% 8.2% 8.3% 8.5% 8.7%
86 14 8.5% 8.6% 8.8% 9.0% 9.1%
87 13 9.0% 9.2% 9.3% 9.5% 9.7%
88 12 9.6% 9.8% 10.0% 10.1% 10.3%
- 11 10.4% 10.5% 10.7% 10.9% 11.0%
- 10 11.3% 11.4% 11.6% 11.7% 11.9%
- 9 12.4% 12.5% 12.7% 12.8% 13.0%
- 8 13.7% 13.9% 14.0% 14.2% 14.3%
- 7 15.5% 15.6% 15.8% 15.9% 16.1%
- 6 17.8% 18.0% 18.1% 18.2% 18.4%
- 5 21.1% 21.2% 21.4% 21.5% 21.6%
- 4 26.0% 26.2% 26.3% 26.4% 26.5%
- 3 34.3% 34.4% 34.5% 34.6% 34.7%
- 2 50.7% 50.8% 50.8% 50.9% 51.0%
- 1 100.0% 100.0% 100.0% 100.0% 100.0%

VPW Accumulation And Retirement Worksheet

Here are the links to the latest VPW Accumulation And Retirement Worksheet (version 1.5):

Online

Google Sheets

Read the following instructions before clicking on the link!

  • Click on the link below.
  • Sign into your Google account (if not already signed in).
  • Make a copy of the file as follows: File -> Make a copy...
  • The copy is yours to modify.
  • Here is the link: VPW-Accumulation-And-Retirement-Worksheet

Download location

Microsoft Office Excel

LibreOffice Calc

Backtesting Spreadsheet

Here are the links to the latest VPW Backtesting Spreadsheet (version 2.3):

Online

Google Sheets

Read the following instructions before clicking on the link!

  • Click on the link below.
  • Sign into your Google account (if not already signed in).
  • Make a copy of the file as follows: File -> Make a copy...
  • The copy is yours to modify.
  • Here is the link: VPW Backtesting Spreadsheet

Download location

Microsoft Office Excel

LibreOffice Calc

Compatibility

The spreadsheet is developed using the open-source LibreOffice Calc software, available here. As a result, some compatibility issues may arise when using other spreadsheet products.[note 1]

Microsoft Excel

  • Microsoft Excel may raise an Office File Validation security error. This is because the spreadsheet was not built using Microsoft software; it was built using OpenOffice Calc and saved as Microsoft Excel format. Consequently, Excel raises a warning to the user. This error can be safely ignored.
  • There is a difference in the way Excel and LibreOffice Calc displays charts. Excel does a nicer job.

Screenshots

VPW Accumulation And Retirement Worksheet Screenshot 1 VPW-Retirement-Worksheet-Screenshot.png
VPW Accumulation And Retirement Worksheet Screenshot 2 VPW-Accumulation-Worksheet-Screenshot.png
VPW Backtesting Spreadsheet Screenshot VPW.jpg

Support

On-going discussion and support is in Bogleheads® forum topic: Variable Percentage Withdrawal.

Notes

  1. Details on LibreOffice calc can be found here. Another open-source spreadsheet is from Apache OpenOffice

See also

References

  1. VPW was developed in the Bogleheads® forum topic: Variable Percentage Withdrawal.
  2. Simba's backtesting spreadsheet, Bogleheads wiki.
  3. Robert Shiller, long term stock, bond, interest rate and consumption data since 1871.
  4. Libra Investment Management, returns spreadsheet.
  5. Social Security benefits can be estimated using the Social Security Administration Online Calculator.
  6. Bogleheads® forum topic: Delay Social Security to age 70 and Spend more money at 62.

External links