In this December 10 article, Dr. Pfau compares the spending
paths created by two variable withdrawal strategies: The Guyton Decision Rules
and the Blanchett actuarial approach discussed in our November 20 post. Unfortunately, Dr. Pfau's compares what is essentially a
spending smoothing algorithm (Guyton) with year-by-year application of
Blanchett's spreadsheet calculator without application of any smoothing of the
results. However, as Dr. Pfau revealed in his article, Mr. Blanchett, "would
almost certainly incorporate a moving average approach to smooth out the cash
flows."
As I said in my original 2010 article (available in the articles section),
the most important step in the five step general actuarial process to developing
an estimate of how much you can spend each year involves periodic calculation of
the theoretically correct spendable amount (using the simple spreadsheets found
in this website, or Mr. Blanchett's spreadsheet or some other more "robust"
calculator) and application of an algorithm to smooth actual experience as it
occurs. See our post of October 11, 2003 for our recommended smoothing
algorithm.
Dr. Pfau concludes that, "More research about variable withdrawal rates
should look to build in a smoother spending path with changes only made when
thresholds are crossed, and to more carefully calibrate the relationship between
withdrawal rates and age." I agree and encourage Dr. Pfau to look at the
approach recommended in this website.
