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"So on average your account will grow faster than the RMD depletes it until you get to 92 years old."

That is sloppy math.



I prefer the term "quick-n-dirty" to "sloppy". ;-)


You can't conflate the average of something over a 20 year period that does not include any withdrawals to mean that someone would, on average, actually earn that same return.

Well, of course return is return, irrespective of withdrawals.

In terms of dollars, both the gains and the withdrawals are governed by their respective percentages, so it seems reasonable to just look at and compare the percentages, as a first pass approximation. Could be wrong, of course.

Such ignores both the withdrawals and sequence of return risk. Taking out any systematic annual or monthly amount from a variable account is going to blow up any average.

By the time a person hits 80 (when RMDs are above 5%), it would be very unlikely, probably below average, than an account with ANY allocation would be able to consistently replace the RMD over the following 10 years. Such is the entire reason why anything much above a 4% SWR has a higher failure rate - it isn't that the account can't grow fast enough, it is that it can't grow consistently enough to replace the RMD.


Ahhh, yes withdrawals and sequence of return risks are indeed major factors, but....

When somebody starts throwing around the words as a talisman it makes me suspicious that there's handwaving and smoke-clouding going on. They are valid concerns, but handwaving doesn't cut it. Handwaving doesn't answer the questions. Data and scenarios with historical data provide a more solid picture than handwaving and incantations of Monte-Carlo.

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So.
I have on hand all the data I need to examine telegraph's (?) proposition that perhaps investment growth will make an IRA grow larger even in the face of increasing RMDs. I just need to put it together in a spreadsheet, to see the interactions.

Lots of ways to put that data together. Here's what I did. The investment to be a balanced 60/40 portfolio in an IRA (so no taxes on internal growth).
Identify the median 20-year annual return, the date of the beginning of that period, and see what happens to the account equity with the actual returns and the actual RMDs. All figures month-by-month, because I have the monthly return data. Do monthly withdrawals of 1/12'th the RMD. Model for a 70 year-old starting at the beginning of the period. Initial account value $100,000.

Median is the most informative, but we are more concerned about the BAD periods, because we don't want to have to move into a refrigerator box. So I ran another scenario starting at the initial year of the *worst* 20-year annual return.

I first just ran a 20 year scenario, which takes us to age 90. But, what the heck, I have the data up to 2016, so why not run the scenarios out to age 98 (which is where I start to run out of data)?

Upon re-reading your comments (above), I added a couple more time-frames to look at. One began just at the start of a bad sequence-of-returns. Another was to encompass both of the recent bear markets, 2001 & 2009.

Note that this is for RMD withdrawals from the IRA, not 4% SWR drawdown. This is _only_ RMD's.

--continued--
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