Retirement Planning - 6 Sustainable Withdrawal Rate Methodologies

Question 1

Which method includes retirees withdraw a fixed amount over a certain amount of time (usually annually), and that fixed amount increase or decrease the following years based on the portfolio value at the time?

Answer 1

Fixed Dollar Amount Withdrawals

Question 2

Which method involves annual withdrawals that is calculated based on the remaining portfolio of each year?

Answer 2

Fixed Percentage Withdrawals

Answer 3

Life Phase Withdrawal Model

Question 4

Which method involves annual withdrawals where the ceiling refers to a maximum percentage increase in spending each year, while the floor refers to a maximum percentage drop in spending for each year.

Answer 4

Floor and Ceiling Withdrawals

Question 5

Baseline Concept

Answer 5

Condition: When the current withdrawal rate (CWR) is WITHIN 20% of the
initial withdrawal rate (IWR)

Action: Increase prior year withdrawal by inflation as measured by
the Consumer Price Index (CPI) capped at 6% per High Inflation
Rule

Example: For an Initial Withdrawal Rate of 5%, the range of acceptable
withdrawal rates would be 4% - 6% (20% above and below 5%)

Question 6

What is the High Inflation Rule?

Answer 6

The High Inflation rule states that you cap the inflation adjustment at 6%

Question 7

Bull Market Concept

Answer 7

Condition: When the current withdrawal rate is LESS THAN the initial withdrawal rate by 20% or more

Action: Increase prior year withdrawal by10% after adjusting for
inflation

Example: For an Initial Withdrawal Rate of 5%, a Current Withdrawal Rate in any year of 4% OR LESS

Question 8

Bear Market Concept

Answer 8

Condition: When prior year’s return is negative

Action: No increase in withdrawal from previous year

Example: If the total return on the portfolio is negative for the year, maintain the same level of withdrawal as the previous year.

Question 9

Flat Market Concept

Answer 9

Condition: When current withdrawal rate is GREATER THAN the initial withdrawal rate by 20% or more

Action: Reduce current year withdrawal by 10%.

Example: For an Initial Withdrawal Rate of 5%, a Current Withdrawal Rate in any year of 6% OR GREATER

Question 10

Inflation Concept

Answer 10

Condition: High inflation

Action: Cap the inflation adjustment at 6%

Example: Inflation as measured by the CPI is GREATER THAN 6%, cap the inflation adjustment on the withdrawal amount at 6%