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

The 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 backtesting spreadsheet contains two data sets: U.S. (1871-2018)[2][3] and Canada (1970-2018)[4].

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).

When using the VPW Table or the older VPW Backtesting Spreadsheet, missing payments, between retirement and the start of Social Security pension, 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.

The newer VPW Accumulation-And-Retirement Worksheet gracefully handles delayed pensions with an undivided portfolio.

With the VPW Accumulation-And-Retirement Worksheet

  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 your Age, 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 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%.

With the VPW table

  1. 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.
  2. Every few years, you should review your overall retirement plan.
  3. 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.
  4. 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 30% Stocks
70% Bonds
40% Stocks
60% Bonds
50% Stocks
50% Bonds
60% Stocks
40% Bonds
70% Stocks
30% Bonds
40 3.4% 3.6% 3.8% 4.1% 4.3%
41 3.4% 3.6% 3.8% 4.1% 4.3%
42 3.4% 3.6% 3.9% 4.1% 4.3%
43 3.4% 3.6% 3.9% 4.1% 4.4%
44 3.4% 3.7% 3.9% 4.1% 4.4%
45 3.5% 3.7% 3.9% 4.2% 4.4%
46 3.5% 3.7% 4.0% 4.2% 4.4%
47 3.5% 3.8% 4.0% 4.2% 4.4%
48 3.6% 3.8% 4.0% 4.2% 4.5%
49 3.6% 3.8% 4.0% 4.3% 4.5%
50 3.6% 3.8% 4.1% 4.3% 4.5%
51 3.7% 3.9% 4.1% 4.3% 4.6%
52 3.7% 3.9% 4.1% 4.4% 4.6%
53 3.7% 3.9% 4.2% 4.4% 4.6%
54 3.8% 4.0% 4.2% 4.4% 4.7%
55 3.8% 4.0% 4.2% 4.5% 4.7%
56 3.9% 4.1% 4.3% 4.5% 4.7%
57 3.9% 4.1% 4.3% 4.5% 4.8%
58 4.0% 4.2% 4.4% 4.6% 4.8%
59 4.0% 4.2% 4.4% 4.6% 4.9%
60 4.1% 4.3% 4.5% 4.7% 4.9%
61 4.1% 4.3% 4.5% 4.7% 5.0%
62 4.2% 4.4% 4.6% 4.8% 5.0%
63 4.2% 4.4% 4.6% 4.9% 5.1%
64 4.3% 4.5% 4.7% 4.9% 5.1%
65 4.4% 4.6% 4.8% 5.0% 5.2%
66 4.5% 4.7% 4.9% 5.1% 5.3%
67 4.5% 4.7% 4.9% 5.1% 5.3%
68 4.6% 4.8% 5.0% 5.2% 5.4%
69 4.7% 4.9% 5.1% 5.3% 5.5%
70 4.8% 5.0% 5.2% 5.4% 5.6%
71 4.9% 5.1% 5.3% 5.5% 5.7%
72 5.0% 5.2% 5.4% 5.6% 5.8%
73 5.2% 5.4% 5.5% 5.7% 5.9%
74 5.3% 5.5% 5.7% 5.9% 6.1%
75 5.5% 5.6% 5.8% 6.0% 6.2%
76 5.6% 5.8% 6.0% 6.2% 6.3%
77 5.8% 6.0% 6.1% 6.3% 6.5%
78 6.0% 6.1% 6.3% 6.5% 6.7%
79 6.2% 6.4% 6.5% 6.7% 6.9%
80 6.4% 6.6% 6.8% 6.9% 7.1%
81 6.7% 6.8% 7.0% 7.2% 7.4%
82 6.9% 7.1% 7.3% 7.5% 7.6%
83 7.3% 7.4% 7.6% 7.8% 7.9%
84 7.6% 7.8% 7.9% 8.1% 8.3%
85 8.0% 8.2% 8.3% 8.5% 8.7%
86 8.5% 8.6% 8.8% 9.0% 9.1%
87 9.0% 9.2% 9.3% 9.5% 9.7%
88 9.6% 9.8% 10.0% 10.1% 10.3%
89 10.4% 10.5% 10.7% 10.9% 11.0%
90 11.3% 11.4% 11.6% 11.7% 11.9%
91 12.4% 12.5% 12.7% 12.8% 13.0%
92 13.7% 13.9% 14.0% 14.2% 14.3%
93 15.5% 15.6% 15.8% 15.9% 16.1%
94 17.8% 18.0% 18.1% 18.2% 18.4%
95 21.1% 21.2% 21.4% 21.5% 21.6%
96 26.0% 26.2% 26.3% 26.4% 26.5%
97 34.3% 34.4% 34.5% 34.6% 34.7%
98 50.7% 50.8% 50.8% 50.9% 51.0%
99 100.0% 100.0% 100.0% 100.0% 100.0%

With the backtesting 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. (For a couple, use the age of the younger spouse).
    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.
    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 Accumulation And Retirement Worksheet

Here are the links to the latest VPW Accumulation And Retirement Worksheet:

Online (Google Sheets)

Read the following instructions before clicking on the link!

Download (Microsoft Office Excel)

Online (LibreOffice Calc)

Backtesting Spreadsheet Download location

Download the latest VPW Backtesting spreadsheet:

Dropbox

Google Drive

  • Click on: VPW Backtesting Spreadsheet (version 2.1).
  • 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.

Backtesting 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

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.

External links