The article was first posted on August 3, 2000, updated August 10, 2000.
Retire Early reader Gus Smedstad modified the Retire Early Safe Withdrawal Calculator to handle some new scenarios of his choosing. This nifty calculator is available for download below. Here's a description:
Gus wrote a version of the calculator in C++, and changed a lot of the assumptions. The data is straight out of the REHP Safe Withdrawal Calculator. What's different is the approach to asset management.
Instead of a percentage, you specify bonds in terms of number of years of expenses (i.e. 2-5 years). Expenses are paid out of bonds only, instead of a mix of stocks and bonds. Bonds get replenished at the start of a year when either 1) the stock market is at a 5 year high or 2) your expenses for this year are less or equal to your withdrawal percentage - you can choose either method.
You can also use margin if you wish when the bonds are exhausted. Margin is assumed to vary directly with interest rates used for bonds, with a premium you can specify (default is +2%). A margin call occurs if the margin + this year's expenses exceed half the value of the stocks.
Download Gus's Calculator
This calculator is in the form of a small executable file. You'll need pkunzip.exe or an equivalent program to expand it to its original format.
Version 2 of Gus Smedstad's Caculator
Attached is an updated version of the retirement calculator that adds an option to replenish bonds every year, instead of only when the market is doing "well" (i.e. 5 year high, or your expenses <= withdrawal percentage). Gus also corrected the width problem on some of the result fields, and added a couple of spin buttons to make fiddling with withdrawal rates / bond years easier.
Some interesting figures for 100% safe withdrawal rates for 50 years:
Replenishing every year: 3.50%, 1 year of bonds.
Replenishing on a 5-year high: 3.77%, 5.5 years of bonds.
Never replenishing bonds: 3.97%, 15.6 years (!) of bonds.
Replenishing when expenses <= withdrawal rate: 3.99%, 15.3 (!) years of bonds. Not significantly different from never replenishing.
Replenishing at 5 year high, using margin when bonds are exhausted: 4.11%, 1.3 years of bonds.
Replenishing when expenses <= withdrawal rate, using margin when bonds are exhausted: 4.99%, 5 years of bonds.
Note that for some methods, it's important to look at all the columns, since there is no 40+ year period from 1965.
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Copyright © 2000 Gus Smedstad, All rights reserved.