By JLP | October 3, 2012
I posted a similar piece the other day but Jack pointed out that it accounted for inflation twice. So, I removed that post and went back and looked at the numbers.
The attached PDF is a summary of what I found. It was an interesting study. I’m going to go back and include a fixed income class and see where that leads.
To run these numbers, I used the following assumptions:
• I assumed $1,000,000 on the first day of retirement.
• I deducted an income amount based on the initial withdrawal rate (3% – 10%).
• I invested the remainder in the S&P 500 Total Return Index (no fees are transaction costs were deducted as this was based on the actual index and not a product).
• At the end of each year, I calculated the inflation amount based on the CPI for that year and adjusted the next year’s income based on that number. I deducted that income from the current balance and invested the rest in the S&P 500.
• I performed this calculation for each thirty year period.
• For those periods when the funds were exhausted before the thirty years was up, I took the balance available as income for the final year. Sometimes that number was really low.
Here is the summary of all the data:
UPDATE: For those who are interested, here is a 15-page PDF that looks at the numbers in depth at a 4% inital withdrawal rate. I was going to make them all available until I found out how big the files are.