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Rekenthaler Report

Retirement Income: Assessing the Odds

Graduating from a spreadsheet to simulations.

They Dissent
This is the third article in a series on retirement income. The first described how rising stock and bond prices have reduced retirees’ withdrawal rates, while the second discussed funding after-inflation payments from portfolios that produce pre-inflation returns. Those columns elicited several objections, the main ones being that: 1) required minimum distributions from tax-sheltered retirement plans, such as IRAs or 401(k)s, may exceed my assumed 4% withdrawal rate; and 2) because my calculations came from a spreadsheet, they were too simplistic.

I had not considered the RMD objection, because--as with the original source that inspired my ruminations--my inquiry was theoretical. What are the prospects for those who wish to live for 30 years off their assets, while removing an annual amount that is equal to 4% of their initial portfolio, after that figure is adjusted for inflation? The question was broad, addressing the logic that underlies withdrawal tactics.