Le 24 août 2015, 08:55 dans Humeurs • 0
Safe Portfolio Withdrawal Rates An idea that gets repeated often enough seems to gather weight and, eventually, gets accepted as part of the conventional wisdom. An example of this type of in investment planning is the belief that retirees can safely plan to withdraw an (inflation adjusted) annual income of no more than celine bag 4% of their portfolio value at the time of retirement. In other words, if you are retiring this year and have $1 Million in invested assets, you can draw only $40,000 per year in 2006 dollars for the rest of your life. The basic issue here is that there is risk in the future performance of your invested assets. If you are drawing a constant annual income against these assets, you will draw proportionately more after a down period than after a period of gains. You must account for the chance of a period of drawdowns this is how you end up with a draw of 4% from a portfolio that is generating 78% in average return. It is common to run across advisors who advocate the 4% number as a basis for planning, without critically examining the underlying assumptions in this article from The Motley Fool.
The socalled solution results when you look at the ability of a generic portfolio of 60% stocks and 40% bonds to reliably support a constant inflationindexed income draw for 30+ years of retirement. The safety http://www.lhbon.com/ of the four percent draw has been demonstrated from a range of Monte Carlo models, given the assumptions listed above.
It is important to critically examine the assumptions that have gone into getting this result from historical data and from Monte Carlo simulations. One critic of the efficacy of the suggested percent draw is Jonathan Guyton.
He makes a series of good points, and the two main ones are that (1) the specific asset allocation makes a substantial difference in a safe draw and (2) that the ability to lower your income draw in bad years makes a substantial difference in portfolio survival. Mr. Guyton analysis uses historical market data from the 1970 forward, which is not a bad idea but thus means that his results may be sensitive to the specific period. He finds that a portfolio with 80% invested in equities would support a 4.7% draw rate, with no modification in income draw from year to year, except to index up with inflation. The stock portfolio in question was quite broadly, with 20% in international stocks and 10% in REIT He also finds that an investor who can lower his income draw in bad years will substantially increase his potential average income over his entire retirement. I like Mr. Guyton analysis, but I do have some concerns. First, because this analysis focuses on a single period in history, the success of a specific strategy of altering income draw may be fitted to this historical period. Second, and more critical, is the issue of the equity risk premium. volatility) that investors have been exposed to.
If the economic experts are correct, and the equity risk premium in the future is lower than we have seen over the past 30 years, it may be too rosy simply to look at the last celine handbags 30 years as the basis for planning.
It would be expected that an investor will try to draw less from his/her portfolio after a bad year. That said, the basic case of a constant inflationindexed draw provides a good baseline for planning. A good approach is to check that your portfolio will sustain your basic income needs constant flow of income needed to sustain your lifestyle. If you happen to hit a major series of good years during retirement, you can always test what would happen for a high withdrawal to out some extra gains and then plan accordingly. In other words, I feel that it celine bag online is most important to ensure that your portfolio has a high probability of sustaining your basic required income draw. If we ignore various income cycling strategies, the main issue that we want to look at is how to allocate a portfolio to give the highest income at a specific level of certainty.