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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75831  
Subject: The 30 year portfolio performance Date: 1/8/2011 6:49 PM
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So, it is January 2011. If you retired 30 years ago, and planned a Safe Withdrawal Rate (SWR), how did your 30 year portfolio end up - are you broke?

Our quick look will be for someone retiring January 1981. Took out X% for 1981 which funded expenses. Then adjusted the expenses (withdrawal in dollars terms) by the CPI to account for inflation. And then the last withdrawal (taken out over 2010) was taken out - what is the value of the portfolio now.

2 ASSET CLASSES (debt/equity)
X = 4% withdraw.
100% S&P             - $4,102,000
75% S&P/25% 10yr UST - $4,134,000
50% S&P/50% 10yr UST - $3,833,000

X = 5% withdraw.
100% S&P - $2,623,000
75% S&P/25% 10yr UST - $2,596,000
50% S&P/50% 10yr UST - $2,304,000

X = 6% withdraw.
100% S&P - $1,145,000
75% S&P/25% 10yr UST - $1,058,000
50% S&P/50% 10yr UST - $776,000




Things look good! The portfolio survived

Infact the SWR rates for these allocations are:
6.78% - 100% S&P
6.69% - 75% S&P/25% 10yr UST
6.51% - 50% S&P/50% 10yr UST



The doctor always prescribes including commodities and real estate in a portfolio. This has a very pleasing effect on SWR's. While it decreases the rate in the good years (those above ~4.5%), it increases the rate for the bad (those below ~4.5%). Sometimes as much as a 100 basis points!

For this precious metals and house price index are used to proxy the other classes.

50.0% S&P
16.3% 10 yr UST
16.3% Precious metals
16.3% Real Estate

Because this was a good year the diversification of the 50% from bonds into bonds/commodities/RE dropped the SWR down from a 50/50 portfolio of 6.51% down to under 5%. A significant decrease but when rates are low the rate usually increases and this still remained above a common consesus of 4% guide.

With only a 4% withdraw the end value was $512,000. Which will last a couple of more years (as the current withdrawal is ~$112,000 this year.
So - If you followed the SWR of 4%, your portfolio lasted the 30 years with a good ending value.

THINGS TO CONSIDER - GOING FORWARD

Here is a rather facsinating point. With the current investment selections including leveraged ETF's (SSO for the S&P) some of the Doc's modeling on a portfolio with 100% in SSO, the initial safe withdrawl rate was -- 13.5%. That is correct, a portfolio of $1,000,000 dollars in 1981 would have survived with the first year withdrawal of $135,400 - yes even adjusted every year for inflation.....

The last time that the leverage would have reduced the SWR rate was from a retire date in the 30's!!! huh!!!!


d(leverage)/dT
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