Line chart

Safe Withdrawal Rates for Aussies — Part 7: Sequence of Returns Risk

Posted by on 14 January 2019 in Safe Withdrawal Rate Series

Over the last couple of months we’ve spoken a lot about how varying portfolio factors, such as asset allocation and retirement length, affects safe withdrawal rate. And now we have a clearer view of  how much we can withdraw from our portfolio without running our of money during retirement.

But we haven’t actually spoken about what market conditions determine safe withdrawal rates. Why are some periods associated with low safe withdrawal rates and others not?

So in this article we deep dive into the mathematics behind safe withdrawal rates to figure out what you want to stock market to be doing while you’re saving money and while you’re withdrawing money in retirement.

Continue reading…

Safe Withdrawal Rates for Aussies — Part 6: Final Portfolio Balance

Posted by on 7 January 2019 in Safe Withdrawal Rate Series

After a short Christmas and New Year’s break, we’re back into safe withdrawal rates!

All the work that we have conducted so far has defined a successful retirement portfolio as a portfolio that has does not run out of money during retirement. So we calculated the safe withdrawal rate that would completely deplete the portfolio at the last day of retirement.

But, practically speaking, this would be a scary ride for many retirees. There would be a number of close calls in which the portfolio balance fell very close to zero but did not technically fail. In these cases, it’s not hard to imagine that a retiree would do something drastic, like an undignified return to work in their 70s or 80s.

Should that portfolio be considered safe? It may not have run out of money but it wasn’t a comfortable ride into retirement. A cushion would be nice.

Moreover, I’d guess that many retirees don’t want to end retirement with very little money. Surely most people want to bequest something to their family or favourite charity.

It seems that we could make a fair argument that most people want some balance left in their portfolio at the end of retirement. So in this article we examine the effect of the target final portfolio balance on safe withdrawal rates.

Continue reading…