pkcrafter:

 Hi Chin,

You and I were posting at the same time above. What you are calling the flexible rate, Bernstein calls the fixed percentage rate. From your link:

 What happens if instead we withdraw a fixed percentage (as opposed to a fixed amount) of our principal? In other words, if we start with a nest egg of $1,000,000, and withdraw 7% each year, we will begin withdrawing at a rate of $70,000 per year. If our principal then falls 50%, we are left with only $465,000, so we can now only withdraw payments at a rate of .07 x $465,000 = $32,550 per year. This approach has the advantage that we never run out of money, although the stipend amount will fall dramatically in some years.

I don't use it. I started with the 4% initial WD and increased by inflation—at lease in most years. With this method your withdrawals are more predictable. And if you begin in any market that provides some gains, your actual WD percentage begins to decrease. After 4 or 5 years, you build up a cushion and instead of withdrawing 4% you will be withdrawing closer to 3%, even with the inflation adjustments..  

Here is a link to another study that looks at things a little differently, although pretty much comes to the same conclusion as other studies—there is no substitute for using some common sense when withdrawing money in bad markets.

http://online.wsj.com/article/SB121259350492445223.html?mod=hpp_us_inside_today 

 

Hi Paul,

You are offering a more conservative, but I guess along the same lines as what I offered. I suggest taking a bonus in the good years, but stick some back to increase the safety of the withdrawal rate.

And, I agree whole-heartedly with common sense. However, I did not like the article or what they were saying,. Most likely, it was Monte Carlo Simulator results Otar is looking at here. There is a problem with the MCS maybe this example can illustrate;

Next, Mr. Otar compares a person's chosen withdrawal rate with what he calls "sustainable withdrawal rates" -- those rates that, based on his research, give a nest egg a 90% probability of survival. Here are some examples:

If you will look at the actual data;

(Thanks Gummy)

You will see that the withdrawal rate that lasted 20 years in the worst period, 1929 would have lasted the entire period. 4.4% wouldn't have lasted for 20 years starting in 1966 either. What good is a 9 in 10 chance anyway? Are you going to be satisfied with a 1 in 10 chance of starving in your old age?

One of the things wrong with the Monte Carlo Simulator is it does not take into consideration the fact investors are not going to allow stocks to go below a point in valuation. It doesn't represent actual market conditions.

I doubt Mr. Otar understands the MCS any more than he understood the other retirement calculators he used in his earlier years as a CFP. ;o),

Chin