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When Withdrawal Rates Could Be Higher

Timothy Strauts

Tim Strauts: In today's chart, we're going to look at maximum sustainable withdrawal rates over a 30-year retirement through the lens of three different portfolios, with the S&P 500 as the stock index and the five-year U.S. Treasury as the bond index.

When looking at the chart, you see a wide variability in maximum withdrawal rates, going from as high as 12%--which was only attainable if you had retired around 1932, right after the 1929 market crash, or in the early '80s at the beginning of a long 20-year bull market. A minimum withdrawal rate of 3% to 3.5% was only reached if you retired at the beginning of a bear market. And obviously, you don't know when you start retirement whether it's going to be a strong or weak market. So, that's why most people pick a withdrawal rate around 4%, because it works a great majority of the time.

When looking at the three portfolios, you can see that allocating a higher percentage to stocks does increase the volatility of your portfolio but has almost always paid off through higher maximum withdrawal rates.