Among lots of good stuff,
PV provides:
Fixed Annual Withdrawal
SWR (Inflation Adjusted) – This is the initial %withdrawal from the initial lump-sum that is inflation adjusted annually and will exhaust the portfolio (final value FV = 0).
Fixed Annual Percentage
PWR – This is the fixed annual % from annual balances that will leave the final value FV that is at least equal to the inflation-adjusted initial lump-sum.
More info on PV can be found here,
https://ybbpersonalfinance.proboards.com/post/1086/thread
Comments
Period 01/1985-05/2023 (as far back as free PV goes)
Fund SWR PWR
VWINX 8.76% 5.53%
VWELX 9.77% 6.64%
ABALX 9.35% 6.29%
VFINX 10.93% 7.52%
So, in this period of about 37.5 years, the realized SWRs were much higher than Bengen's 4% rule. Equities did well and more equities, the better. PWRs weren't that much lower - remember that with PWRs, your or your heirs would also have the inflation-adjusted initial lump-sum on hand.
Period 01/2000-12/2009 (a tough decade)
Fund SWR PWR
VWINX 13.28% 4.14%
VWELX 12.31% 3.41%
ABALX 12.88% 2.98%
VFINX 7.42% 0.00
SWRs look high but remember that the initial balance is also exhausted in 10 years, and that alone at 0% return will be SWR of 10%. PWRs are low and more meaningful for this period. If some more aggressive funds are included, those may fail and would just show the PWR of 0.00% (as for VFINX/SP500).
PV PWR is less commonly used, so I have stopped using it in more recent data.
PV SWR is the percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment without the portfolio running out of money (dollar amount withdrawals).
New SWRM is the percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment but at the end of the term, the leftover amount is inflation-adjusted original principal (dollar amount withdrawals).
Three examples below use the start dates of 01/2007 (Pre-GFC), 01/1987 (Year of 1987 Crash), 01/2000 (Year of Dot.com bubble burst). Idea is to select "bad" starts of withdrawal programs in recent history and see how various hybrid funds did; VFINX/SP500 is included for benchmark comparison. The end date is common 10/2023 (so, these data are not comparable to those in the examples in the June 2023 Post).
Example 1 - Period 01/2007 - 10/2023 that included GFC 2008-09 and pandemic 2020.
FUND SWR SWRM SWRM (corrected)
VWELX 8.63% 4.35% 4.37%
FBALX 8.17% 4.28% 4.09%
ABALX 8.27% 3.92% 3.99%
VFINX 8.05% 5.02% 4.82%
Example 2 - Period 01/1987 - 10/2023. Limited by 11/1986 inception for FBALX, although the (free) PV data goes back to 01/1985.
FUND SWR SWRM SWRM (corrected)
VWELX 7.89% 7.03% 7.035%
FBALX 7.43% 6.58% 6.545%
ABALX 7.63% 6.69% 6.70%
VFINX 8.82% 8.15% 8.106%
Example 3 - Period 01/2000 - 10/2023 captured the dot.com bubble burst and was possibly the worst start for withdrawal programs in the recent history.
FUND SWR SWRM SWRM (corrected)
VWELX 7.25% 4.80% 4.82%
FBALX 6.83% 4.58% 4.47%
ABALX 7.40% 4.83% 4.865%
VFINX 4.34% 2.52% 2.40%
If higher withdrawal rates than indicated are used, then the goals would be missed. But if lower withdrawal rates are used, then the balances at the end would be higher than the goals. The goal for the SWR is $0 balance; goal for the SWRM is the inflation-adjusted original principal.
It is interesting that all-stock SP500 did the best in Examples 1 and 2, but the worst in Example 3. That is the danger in using all-stock portfolios in withdrawal programs - they may work much of the time, but may bite occasionally.
Another point is that the "bad" times are more recent, and don't go back to 1920s or 1930s that included even worse times. And the withdrawal rates these funds sustained in the recent history are higher that the typical Bengen Rule of 4% inflation-adjusted withdrawal.
https://ybbpersonalfinance.proboards.com/post/1249/thread
Edit/Add, 11/19/23. SWRM (corrected)
For data consistency, the PV runs should be to 2022 (recent full year), not 2023 (partial year in 11/2023). While SWR is unaffected, SWRM is affected and is corrected.
From a long time FBALX patron.
Catch
- the SWR gives the "initial" withdrawal for that period? Does it increase yearly for inflation? And finally, it is the withdrawal that would have taken the original balance to zero in 2023?
- SWRM, same questions but this withdrawal rate would take the balance to the original staring balance in 2023?
Very interesting that these withdrawals are mostly above the 4%. Contrary to opinions now that starting withdrawals should be 3.5% or lower.
So, for SWR, the balance would be near zero at 2022 yearend AFTER the withdrawal, but that would feed monthly withdrawals through 2023.
Similar for SWRM, but that original amount would be inflation-adjusted. So, if the starting amount was $100,000 on 1/1/20, the ending amount at 2022 yearend AFTER the withdrawal would be near $182,883. One can do whatever with that amount.
It seems to me the HC sector historically has offered higher upside capture with lower and fewer drawdowns.
A retiree seeking a higher SWR might try and seek out funds with stock like SD (standard deviation), but tend to have lower MaxDD.
M* monitors this factor as a fund's “upside/downside capture”.
Basically, If you can capture more of the upside and less of the downside, a higher SWR should be possible.