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Author: rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Drawdown Part 1 Date: 9/3/1997 9:41 AM
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Drawing down portfolio for retirement income. Part 1 of 4



(Formatted for 70-column line wrap).

by Ray Van Tassle rayvt@comm.mot.com Sept 2, 1997



In this series of four articles, I show the results of

drawing down an initial portfolio of $1000. The examined results were

for every 20-year period from 1961 to 1997 (17 such intervals).

I checked both the median period and the lowest period. The median

gives you an idea of what you might expect, as it's the halfway

point--half were better and half were worse. The lowest, of course,

is the absolutely worst period. This is the one to worry about.

Assuming that you would be "worried" if you ever ran out of money!



Initial value: $1000. Scale the dollar amounts up as desired.

Initial drawdown: $80, $100, $120 (for 8%, 10%, 12% draw)

Draw increases at 5% a year (slightly better than inflation rate.)

Annual draw limits: Reduce the draw for a year if it would be a

greater percentage than the starting percentage. But never reduce the

draw below 75% of what it should be.

Draw the entire annual amount at the first of the year, including the

first year. In practice, you would more likely do a monthly or

quarterly draw, so these figures are probably a bit pessimistic.



Part 1 -- Entire portfolio in stocks. UV strategies.



The 60's were terrible. The worst period was 1962-1981.



With UV2, you could safely draw 8%, 10%. You could have drawn 12%,

but would have bumped against the caps almost every year. Here are

some figures for 10% drawdown using UV2:

Starting balance $1,000

Lowest ever year-end balance $639

Median ending 20-year balance $19,853 (1969-1988)

Total withdrawal $3,085

Total capped shortfall $69

Lowest ending 20-year balance $3,822 (1962-1981)

Lowest yearend bal $750

Total withdrawal $2,843

Total capped shortfall $311

# times hit 10% cap 11

# times hit 75% floor 5



2nd lowest ending 20-year bal $4,867 (1961-1980)

Lowest yearend bal $939

Total withdrawal $2,981

Total capped shortfall $173

# times hit 10% cap 9

# times hit 75% floor 1







With UV4+, you could safely draw 8%. 10% was barely workable, and

12% you would have run out of money during several periods. Here are

some figures for 10% drawdown using UV4:

Starting balance $1,000

Lowest year-end balance $598

Median ending 20-year balance $9,454 (1977-1996)

Total withdrawal $3,102

Total capped shortfall $52

Lowest ending 20-year balance $1,652 (1962-1981)

Lowest yearend bal $638

Total withdrawal $2,498

Total capped shortfall $656

# times hit 10% cap 19

# times hit 75% floor 12



Neither BTD5 nor Foolish Four could support a 10% draw; with either

there were several periods in which you would have run out of money.

They both could have supported (barely) an 8% draw.









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