Reaching for 5%

We routinely exceed a 5% (plus inflation) withdrawal rate with the Dividend Blend and related strategies. What about conventional strategies, those that include selling shares?

With conventional strategies and in today’s market, 5% is beyond our reach.

Best Results

Here is what to expect when P/E10=26. This is very close to today’s stock prices.

We achieve our best outcomes by training on the Scenario Surfer. Our worst decision for today would be 100% stocks.

Scenario Surfer

Single withdrawal amount: 4.5% (easily achieved with training).

Varying withdrawals from Easing into 5%: 4% for five years followed by 5%.

Year 30 SWR Calculator

20% Rebalancing: 3.92%.

50% Rebalancing: 3.65%.

80% Rebalancing: 3.12%.

100% stocks: 2.28%.

Switching A: 4.21%.

Switching B: 4.37%.

Baseline

TIPS at 2%: 4.46%.

Summary

The best withdrawal rates for conventional strategies are 4.5% (plus inflation) or 4% for five years followed by 5% later on.

Training on the Scenario Surfer is important. Varying allocations with valuations is essential.

Have fun.

John Walter Russell
December 13, 2007