Drawing down portfolio for retirement income. Part 1 of 4(Formatted for 70-column line wrap).by Ray Van Tassle firstname.lastname@example.org Sept 2, 1997In this series of four articles, I show the results ofdrawing 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 thefirst 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 $1,000Lowest ever year-end balance $639Median ending 20-year balance $19,853 (1969-1988) Total withdrawal $3,085 Total capped shortfall $69Lowest 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 52nd 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 1With UV4+, you could safely draw 8%. 10% was barely workable, and12% you would have run out of money during several periods. Here are some figures for 10% drawdown using UV4:Starting balance $1,000Lowest year-end balance $598Median ending 20-year balance $9,454 (1977-1996) Total withdrawal $3,102 Total capped shortfall $52Lowest 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 12Neither 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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