Vanguard looks at
ways to spend retirement savings
Vanguard (March 1, 2011)
Interesting read. Stochastically testing three spending strategies
using proprietary data and assuming a 50% equity/ 50% bond investment
mix (rebalanced each year), the Vanguard Investment Strategy group determines
that the "percentage-of-portfolio" approach with limits on annual
increases or decreases in the previous year's amount is preferable to the other
two approaches studied. Article implies that a 4.75% initial withdrawal
rate is reasonable for a 35-year payout period and the 50%/50% investment mix
(implying about a 3.5% real annual rate of investment return using the
"Excluding Social Security" spreadsheet above). There appear to
be some mixed messages in this article as the authors state that
maintaining a flexible spending plan is key, but recommend a plan that is not
flexible, and they fail to address how their recommended plan should
be adjusted for adverse (or favorable) experience.
