Evaluating Retirement Portfolio Withdrawal Rates

When selecting a retirement portfolio withdrawal rate, retirees must consider a number of interesting risk/return tradeoffs. As Baby Boomers approach retirement age, the focus of financial plans shifts increasingly from accumulation to withdrawals. In response to the need for research on this topic, a genre of literature in financial planning has developed that examines the effects of withdrawal rates, portfolio asset allocation, inflation and length of payout periods on portfolio survival. Portfolio survival rates that are derived from financial market returns from January 1946 through December 2005 are reported. The conclusions and applications that are offered by various authors appear to differ primarily in the interpretation of the meaning of sustainability which, at the end of the day, is an individual risk/return tradeoff in which each retiree chooses a portfolio asset allocation, a withdrawal rate and the associated success or failure rate.