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Withdrawal Studies with Updated PV in 2 Steps

yogibearbullyogibearbull
in Other Investing
Withdrawal Studies with Updated PV in 2 Steps

This 2-STEP trick will work with the updated PV. This month is 05/2024 (May), so the free PV will run without issue from 5/1/2014 - 4/30/2024 (the new 10-yr limit). But the PV will also run without limit for start and end dates prior to 5/1/14 (i.e. no limitations on older data beyond the recent 10-yr window; this was found by experimentation with the updated PV). So, the current month provides the unique break point (10 years ago) for these 2 steps.

In this demo, the PV run for Bengen-type 4% withdrawal with annual COLA will be from 1/1/1985 - 4/30/2024 (the maximum possible at PV) in 2 steps.

STEP 1, PV Run 1/1/1985 - 4/30/2014 (dates beyond recent 10 years)
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3qDAqcuhRZT8zHPzoUQlPT

Initial Principal Amount $100,000, initial Monthly Withdrawal $333 (= 4,000/12 rounded).

A limitation of PV is that these inputs must be integers; to reduce the effect of rounding errors, $100,000 initial was used instead of the default $10,000. 3 funds used were VWELX, FPURX, DODBX and 1 benchmark used was VFINX.

STEP 2, PV Run 5/1/2014 - 4/30/2024 (recent 10 years), with VWELX only (asset % for FPURX and DODBX were cleared to avoid confusion). To start the 2nd PV run, use the VWELX balance and Monthly Withdrawal on 4/31/2014.

“Initial” Principal Amount $1,264,742, “initial” Monthly Withdrawal $745 (=$2,979/4 rounded; this is the payment for 4 months in 2014 divided by 4).
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=6Hbd9noxhDMxTtlIuqR4ns

On 4/30/2024, Final Balance $2,530,484, Monthly payment $978 (=$3,911/4 rounded; payment for 4 months in 2024 divided by 4).

Step 2 can be repeated for FPURX (Step 3), DODBX (Step 4), VFINX (Step 5).

This is more complicated and tricky than the old single-step PV runs. One can subscribe to PV to still have that capacity.

LINK

Comments

  • beebee
    edited May 21
    If one were "back testing a portfolio to forward implement" a retirement Withdrawal Strategy using PV as @yogibullbear has outlined above, what funds would you choose?

    We can't count on the same results going forward but the hope is past performance at least rhymes with future performance and we adjust as we go.

    Criteria:
    ER under 1%
    3 Fund Portfolio
    4% WD Yearly
    Minimum 7% total return on a 3,5,10 and 15 yr basis
    No COLA - I prefer the portfolio's yearly balance and 4% WD be the determinant of the dollar amount of the WD

    Here are some funds for consideration and comment:

    90% + Equity Portfolio (VFINX, FBGRX, PRMTX, FSMEX, PRNHX)
    Other Choices:
    - I often see these choices as being index funds that capture the market as well as sector funds that attempt to capture the outsized gains of a sector.
    aggressive-allocation

    70/30 or 80/20 Allocation Funds (PRWCX, TSAIX, looking for more choices )
    Other Choices:
    - Manager risk can be a larger dynamic with these investments. When these funds get it right they often captures more of the upside while reducing some of the downside risk.
    moderately-aggressive-allocation

    60/40 or 50/50 Balanced Funds (FBALX, VBINX, VWELX, FPURX, VGSTX, GAOZX, DODBX, RBAIX, RGPAX, VGWAX)
    Other Balanced Funds:
    - Not all balance fund are created the same. This article separate balance funds into three categories - US-centric, Global, and Diversified
    balanced-funds

    Other considerations:
    Low Draw Down / Low Volatility Funds
    - Funds that focus on Bonds, Utilities, Preferred stock might fit in this category.
    12-battle-tested-low-volatility-funds
    and with ETFs:
    7-yield-solution-4-etf-portfolio
    (JEPI, NUSI, HNDL, HIPS)
    These funds should consistently produce a minimum 7% total return that I'll call The 7% Solution - where a retiree "spends down" (WD 4% yearly) while allowing the remaining 3% to grows the portfolio for future inflation adjusted 4% WDs.
  • yogibearbullyogibearbull
    No consistent relationship has been found between point-to-point TR and safe-withdrawal-rates (SWR). Dave Ramsey recently fell into this trap.

    Bengen-type withdrawals should be seen as benchmarks. Not many use them as described - 4% initial withdrawal with annual COLA. PV does have the capability of withdrawals with or without COLA.

    Flexible withdrawal approaches are popular. I have my own - keep withdrawal amounts fixed for 5 years & then reevaluate the portfolio & reset the withdrawals. This can lead to 5-6% withdrawals that often keep rising (at 5-yr intervals).

    I have another variation of SWR, called SWRM. It's the max withdrawal rate sustainable that also returns the inflation-adjusted principal at the end. Then, the withdrawal program can be restarted. Obviously, SWRM << SWR.
  • beebee
    edited May 21

    No consistent relationship has been found between point-to-point TR and safe-withdrawal-rates (SWR)
    Yes, I can see how this relationship is inconsistent.

    ISTM there are a number dynamics at work and inflation is one that devalues our savings and diminishes buying power.

    I'm perfectly capable of doing that myself without any help from inflation.
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