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My apologies - Here's the one with line breaks.


Calculation of Cashout starting at 5% with a 4% CoLA - 
(CoLA - Cost of Living Adjustment)

The long term historic rate of return for equities has 
been about 11%. The cashout rate of 5% has been bandied
about as a rule of thumb for retirement income. 

The calculation below assumes that invesment value does not 
change.  In other words, the withdrawal made each year is 
covered by the investment's return - An unrealistic expectation.

Holding this to be true, the withdrawal rate of 5% in
1999 will increase to 10.96% in the year 2019.

1999	5.00%
2000	5.20%
2001	5.41%
2002	5.62%
2003	5.85%
2004	6.08%
2005	6.33%
2006	6.58%
2007	6.84%
2008	7.12%
2009	7.40%
2010	7.70%
2011	8.01%
2012	8.33%
2013	8.66%
2014	9.00%
2015	9.36%
2016	9.74%
2017	10.13%
2018	10.53%
2019	10.96%


If the withdrawal rates match the investment returns, the investment
will not change.  If the return on investment is assumed to
stop at 11%, then the withdrawal amount can not increase with an
inflation rate of 3% after 20 years. To do so will decrease the value
of the investment.

The numbers below use an 8% withdrawal rate and a 3% inflation rate.

1999	8.00%
2000	8.24%
2001	8.49%
2002	8.74%
2003	9.00%
2004	9.27%
2005	9.55%
2006	9.84%
2007	10.13%
2008	10.44%
2009	10.75%
2010	11.07%

In this case, the withdrawal rate reaches 11% in just over 10 years.

If this calculation is expanded such that the rate of return is the expected 11% 
historical value, then in the early years the investment will grow so
that it will take much longer for the withdrawal amount to match
the 11% return because the investment value has grown.

I used $100,000 as a starting point but the number of years will
be the same no matter what the starting amount is. These calculations
are based on an 8% withdrawal rate, an 11% return on investment, and
3% inflation.

	Withdrawals	Investment	Return
Star	 $8,000 	 $100,000 	 $11,000 
1999	 $8,240 	 $102,760 	 $11,304 
2000	 $8,487 	 $105,576 	 $11,613 
2001	 $8,742 	 $108,448 	 $11,929 
2002	 $9,004 	 $111,373 	 $12,251 
2003	 $9,274 	 $114,350 	 $12,579 
2004	 $9,552 	 $117,376 	 $12,911 
2005	 $9,839 	 $120,449 	 $13,249 
2006	 $10,134 	 $123,564 	 $13,592 
2007	 $10,438 	 $126,718 	 $13,939 
2008	 $10,751 	 $129,905 	 $14,290 
2009	 $11,074 	 $133,121 	 $14,643 
2010	 $11,406 	 $136,358 	 $14,999 
2011	 $11,748 	 $139,609 	 $15,357 
2012	 $12,101 	 $142,865 	 $15,715 
2013	 $12,464 	 $146,117 	 $16,073 
2014	 $12,838 	 $149,352 	 $16,429 
2015	 $13,223 	 $152,558 	 $16,781 
2016	 $13,619 	 $155,720 	 $17,129 
2017	 $14,028 	 $158,821 	 $17,470 
2018	 $14,449 	 $161,843 	 $17,803 
2019	 $14,882 	 $164,763 	 $18,124 
2020	 $15,329 	 $167,558 	 $18,431 
2021	 $15,789 	 $170,201 	 $18,722 
2022	 $16,262 	 $172,660 	 $18,993 
2023	 $16,750 	 $174,903 	 $19,239 
2024	 $17,253 	 $176,889 	 $19,458 
2025	 $17,770 	 $178,577 	 $19,643 
2026	 $18,303 	 $179,917 	 $19,791 
2027	 $18,853 	 $180,855 	 $19,894 
2028	 $19,418 	 $181,331 	 $19,946 
2029	 $20,001 	 $181,277 	 $19,940 

Note that it takes almost 30 years for the withdrawal amount
($20,001) to exceed the amount of investment return ($19,940).
The value of the investment increases from $100,000 to a peak
of $181,331 in 2028.  The value of the investment, if the 
withdrawal amount continues to increase at the rate of inflation 
begins to decrease in 2029.

In fact, if the withdrawal amount continues to grow at 3%, the 
investment will drop to $100,000 in 2041 and go negative in
2046.

Thus for those expecting to retire at 65, they can, if they feel 
comfortable that their portfolio will sustain an 11% long term 
rate of return,withdraw 8% annually with a 3% CoLA until the 
age of 95 with their portfolio value continuing to grow.  if 
they continue to survive to 107, their investment will then 
be worth what it was when they began at 65. 

The 5% rule of thumb for cashout in retirement is a conservative
value that should work in almost all instances.  Understanding what
the cashout number means helps to understand when even 5% may not
work.
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