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Subject:  Re: Time to replace the 4% rule? Date:  5/11/2010  11:47 PM
Author:  Rayvt Number:  67085 of 88540

I have a mortgage payment to make monthly for the next 12 years.

Is there a way to calculate a safe retirement withdrawal based on a 2 tier system, i.e. a higher withdrawal for the next 12 years and a reduced amount, thereafter, based on the mortgage being paid off.

There possibly is, but I haven't heard of one. I suspect that any such study would be essentially useless. This sounds pretty close to the "party hard and hope I die before the money runs out" scenario.

I further suspect that such a study wouldn't tell you what you are wanting to know. The 4% rule is based on the goal of not running out of money in the long term (usually 30 years). Problem for you, is that, IMHO, 12 years is indeed long term (just not quite as long as 30). The death-spiral of a retirement portfolio happens when the withdrawals are too large, thereby reducing the value of the portfolio. This lowered amount results in lower (dollar) returns; the next too-large withdrawal reduces the value even more, so the dollar return is even smaller. This results in an exponential decay----and exponential curves drop breathtakingly fast at the end.

You might want to look at something like a Guyton-Klinger withdrawal method. (FPA Journal, Aug 2007 issue, et. al.) Basically, when you get ready to make your annual withdrawal, if the ratios are outside of a tolerance band, then you REDUCE the amount of the withdrawal.
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