Variable percentage withdrawal

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Variable percentage withdrawal (VPW) is a withdrawal method that adapts 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 his 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 spreadsheet were collaboratively developed and improved by a group of Bogleheads®.[1]

The spreadsheet allows backtesting on two data sets: U.S. (1871-2015)[2][3] and Canada (1970-2015)[4].

Download location

Download the latest VPW spreadsheet:

Dropbox

Google Drive

  • Click on: VPW Spreadsheet (version: February 15, 2016).
  • Hover your mouse near the top of the page and click on the Arrow-Download-4-icon.png icon to download the file.
    • If you see "Whoops! There was a problem previewing this document.", click on the Download icon underneath the message.

Spreadsheet 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.

Google Drive

  • Google Drive is unable to display the spreadsheet correctly. Instead, download the file and use with LibreOffice Calc or Microsoft Excel.

Screenshots

Screenshot VPW.jpg

How to use variable-percentage withdrawals during retirement

VPW is best used in conjunction with guaranteed base income from Social Security, pensions, and, if necessary, inflation-indexed Single Premium Immediate Annuity (SPIA).

Missing payments, between retirement and the start of Social Security pension, can be provided by using a simple CD ladder. For the purposes of VPW calculations, the money set aside in this CD ladder should not be considered as part of the portfolio.

It has been suggested to delay the Social Security pension to age 70 to increase base income in Bogleheads® forum topic: Delay Social Security to age 70 and Spend more money at 62.

With the spreadsheet

  1. Open the spreadsheet with Microsoft Excel or LibreOffice Calc.
  2. Click on the Instructions tab and read its content.
  3. Click on the VPW tab and:
    1. Enter the Start Year and Start Age of your retirement.
    2. Each year:
      1. Check that the asset allocation corresponds to the planned allocation of your portfolio for the upcoming year (Domestic Stocks, International Stocks, and Domestic Bonds). If necessary, adjust the values. (This happens, for example, when a retirement portfolio is on a glide path).
      2. At the beginning of the year, enter the Balance of your portfolio to compute the Suggested Withdrawal amount.
      3. Make the withdrawal and rebalance your portfolio (at the beginning of the year!).
      4. As soon as your withdrawal is made, record it in the Actual Withdrawal column.
    3. Every few years, you should review your overall retirement plan. (If you are over 80 years old and your health is better than anticipated, for example, you might want to increase the Last Withdrawal Age beyond its initial 99 value).

Without the spreadsheet

If you do not wish to utilize the spreadsheet, withdrawal rate calculations for several retirement age and asset allocations are presented in the table below.

  1. The following procedure should be repeated each year of retirement:
    1. Lookup the withdrawal percentage for your age 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.
  2. Every few years, you should review your overall retirement plan. (If you are over 80 years old and your health is better than anticipated, for example, you might want to lookup withdrawal percentages using (age - 5 years) or (age - 10 years)).
Variable-Percentage Withdrawal Rates Based on Age and Asset Allocation
Age 20% Stocks
80% Bonds
30% Stocks
70% Bonds
40% Stocks
60% Bonds
50% Stocks
50% Bonds
60% Stocks
40% Bonds
70% Stocks
30% Bonds
80% Stocks
20% Bonds
40 3.2% 3.4% 3.6% 3.9% 4.1% 4.4% 4.7%
41 3.2% 3.4% 3.7% 3.9% 4.2% 4.4% 4.7%
42 3.2% 3.4% 3.7% 3.9% 4.2% 4.4% 4.7%
43 3.2% 3.5% 3.7% 3.9% 4.2% 4.5% 4.7%
44 3.3% 3.5% 3.7% 4.0% 4.2% 4.5% 4.7%
45 3.3% 3.5% 3.7% 4.0% 4.2% 4.5% 4.8%
46 3.3% 3.5% 3.8% 4.0% 4.3% 4.5% 4.8%
47 3.3% 3.6% 3.8% 4.0% 4.3% 4.5% 4.8%
48 3.4% 3.6% 3.8% 4.1% 4.3% 4.6% 4.8%
49 3.4% 3.6% 3.9% 4.1% 4.3% 4.6% 4.8%
50 3.4% 3.7% 3.9% 4.1% 4.4% 4.6% 4.9%
51 3.5% 3.7% 3.9% 4.2% 4.4% 4.6% 4.9%
52 3.5% 3.7% 4.0% 4.2% 4.4% 4.7% 4.9%
53 3.5% 3.8% 4.0% 4.2% 4.5% 4.7% 5.0%
54 3.6% 3.8% 4.0% 4.3% 4.5% 4.7% 5.0%
55 3.6% 3.9% 4.1% 4.3% 4.5% 4.8% 5.0%
56 3.7% 3.9% 4.1% 4.3% 4.6% 4.8% 5.1%
57 3.7% 3.9% 4.2% 4.4% 4.6% 4.9% 5.1%
58 3.8% 4.0% 4.2% 4.4% 4.7% 4.9% 5.1%
59 3.8% 4.0% 4.3% 4.5% 4.7% 4.9% 5.2%
60 3.9% 4.1% 4.3% 4.5% 4.8% 5.0% 5.2%
61 3.9% 4.2% 4.4% 4.6% 4.8% 5.0% 5.3%
62 4.0% 4.2% 4.4% 4.6% 4.9% 5.1% 5.3%
63 4.1% 4.3% 4.5% 4.7% 4.9% 5.2% 5.4%
64 4.1% 4.3% 4.6% 4.8% 5.0% 5.2% 5.4%
65 4.2% 4.4% 4.6% 4.8% 5.1% 5.3% 5.5%
66 4.3% 4.5% 4.7% 4.9% 5.1% 5.4% 5.6%
67 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6%
68 4.5% 4.7% 4.9% 5.1% 5.3% 5.5% 5.7%
69 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8%
70 4.7% 4.9% 5.1% 5.3% 5.5% 5.7% 5.9%
71 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
72 4.9% 5.1% 5.3% 5.5% 5.7% 5.9% 6.1%
73 5.0% 5.2% 5.4% 5.6% 5.8% 6.0% 6.2%
74 5.1% 5.3% 5.5% 5.7% 5.9% 6.1% 6.3%
75 5.3% 5.5% 5.7% 5.9% 6.1% 6.3% 6.5%
76 5.5% 5.6% 5.8% 6.0% 6.2% 6.4% 6.6%
77 5.6% 5.8% 6.0% 6.2% 6.4% 6.6% 6.8%
78 5.8% 6.0% 6.2% 6.4% 6.6% 6.8% 7.0%
79 6.0% 6.2% 6.4% 6.6% 6.8% 7.0% 7.2%
80 6.3% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4%
81 6.5% 6.7% 6.9% 7.1% 7.2% 7.4% 7.6%
82 6.8% 7.0% 7.2% 7.3% 7.5% 7.7% 7.9%
83 7.1% 7.3% 7.5% 7.6% 7.8% 8.0% 8.2%
84 7.5% 7.6% 7.8% 8.0% 8.2% 8.4% 8.5%
85 7.9% 8.0% 8.2% 8.4% 8.6% 8.8% 8.9%
86 8.3% 8.5% 8.7% 8.9% 9.0% 9.2% 9.4%
87 8.9% 9.0% 9.2% 9.4% 9.6% 9.7% 9.9%
88 9.5% 9.7% 9.8% 10.0% 10.2% 10.3% 10.5%
89 10.3% 10.4% 10.6% 10.7% 10.9% 11.1% 11.2%
90 11.1% 11.3% 11.5% 11.6% 11.8% 11.9% 12.1%
91 12.2% 12.4% 12.5% 12.7% 12.9% 13.0% 13.2%
92 13.6% 13.8% 13.9% 14.1% 14.2% 14.4% 14.5%
93 15.4% 15.5% 15.7% 15.8% 16.0% 16.1% 16.3%
94 17.7% 17.9% 18.0% 18.1% 18.3% 18.4% 18.6%
95 21.0% 21.1% 21.3% 21.4% 21.5% 21.7% 21.8%
96 25.9% 26.1% 26.2% 26.3% 26.4% 26.6% 26.7%
97 34.2% 34.3% 34.4% 34.5% 34.6% 34.7% 34.8%
98 50.6% 50.7% 50.8% 50.9% 50.9% 51.0% 51.1%
99 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

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.