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Calculate your own safe withdrawal rates.

"2002 Edition" Safe Withdrawal Calculator
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This article was first posted on June 26, 2000, updated December 9, 2002.

The 2002 Edition of the Retire Early Safe Withdrawal Calculator includes several improvements:

1) The ability to spread the annual withdrawal between the beginning and the end of the year. Most of the safe withdrawal studies done in the past assume that the retiree withdraws the full amount of the annual distribution on January 1st and earns no interest on that amount between then and the time the money is actually spent. In practice, most retirees keep their money in interest bearing accounts until it is actually spent, so the money is withdrawn more or less evenly throught the year. Similiarly, the management expenses for a mutual fund are not front-end loaded. You don't pay a full year's worth of management expenses on your mutual fund at the start of the year. Mutual funds actually withdraw their fee from an account throughout the year on a daily basis.

Assuming that 50% of the annual retirement distribution and 50% of the annual investment expenses is withdrawn on January 1st and the remainder at year end closely models this phenomenon. For a 30-Year pay out period and 60% stock/40% fixed income, taking 100% of the withdrawal at the start of the year yields an initial "100% safe" historical inflation-adjusted withdrawal rate of 3.95%. Assuming 50% on January 1st and the remainder at year end improves it to 4.12%. Taking everything out on December 31st moves the safe withdrawal rate up to 4.28%.

2) Accommodates the difference between TIPS and I-Bonds. The Treasury calculates the inflation adjustment slightly differently for TIPS and I-Bonds. If you sell TIPS before maturity, you may get back less than your initial investment. I-Bonds, on the other hand, will always return the accumulated value of the bond (minus a small interest penalty if redeemed in the first 5 years.) For a more detailed explanation of the difference between TIPS and I-Bonds, click here..

3) Retirement start dates other than January 1st. Most historical studies assume that the pay out period begins on January 1st. The spreadsheet has been modified to accommodate any monthly starting date from January to December. Not surprisingly, there is a small difference in the safe withdrawal rate and optimal asset allocation depending on which month you start. Here's the initial "100% safe" inflation-adjusted withdrawal rates for a 30-Year pay out period, 60% stock/40% fixed income, and withdrawals split 50% at the beginning of the year and 50% at year end:

"100% Safe" Withdrawal Rate - Different Starting Months
30-Year pay out period

60% S&P500/40% fixed income, 0.20% expense ratio, inflation indexed to CPI-U,
50% of annual withdrawal at start of year, remainder at year end
Rate at
60% stock
30-Year Period
Starts in
January4.12% 60%4.12% 1966
February4.12% 60%4.12%1966
March4.18% 59%4.19%1965
April4.17% 53%4.20%1965
May4.19% 52%4.24%1965
June4.28% 53%4.32%1968
July4.31% 61%4.32%1937
August4.09% 55%4.13%1929
September3.94% 50%4.02%1929
Sept. 16, 19293.91% 50%3.99%1929
October4.22% 62%4.23%1936
November4.19% 59%4.20%1965
December4.22% 58%4.24%1968
Annual Average4.22% 55%4.24%1965

The September value of 3.94% coincides with a retiree starting retirement in September 1929, just before the stock market "Crash of October 1929". If we assume that the retiree began his retirement on exactly the worst possible date (September 16, 1929 when the S&P500 index was at its high of 31.86), the withdrawal rate drops slightly to 3.91%.

Looking at month-to-month retirement pay out periods other than January-to-January greatly expands the number of periods examined. There are 102 30-Year pay out periods from 1871 to 2002. Looking at each of the 12 months of the year separately means we examined (102 x 12 = 1224) 1224 separate overlapping pay out periods. Despite more than 10 times the amount of data, the 30-Year historical withdrawal rate only varied from 3.94% to 4.32% around the January-to-January value of 4.12%. That's not much difference.

If you are contemplating a longer retirement, here's the same analysis for a 40-Year pay out period.

"100% Safe" Withdrawal Rate - Different Starting Months
40-Year pay out period

70% S&P500/30% fixed income, 0.20% expense ratio, inflation indexed to CPI-U,
50% of annual withdrawal at start of year, remainder at year end
Rate at
70% stock
40-Year Period
Starts in
January3.70% 70%3.85% 1966
February3.93% 70%3.85%1966
March4.01% 87%4.08%1965
April4.13% 67%3.88%1965
May4.11% 64%3.91%1965
June4.14% 65%4.04%1965
July4.13% 65%4.02%1964
August3.67% 60%3.70%1929
September3.52% 57%3.57%1929
Sept. 16, 19293.49% 56%3.55%1929
October3.85% 64%3.86%1929
November4.06% 53%3.94%1965
December4.13% 58%3.96%1965
Annual Average3.94% 66%3.95 %1965

For a 40-Year pay out period, many of the worst case months are for a retirement starting in 1964-1966. We won't know the actual 40-Year safe withdrawal rate for these periods until 2006, but even if we assume the S&P500 continues to decline 20% per year through 2006, it still won't breech the 3.52% withdrawal rate for a 40-Year retirement starting in September 1929.

If you're wondering, the "safe" withdrawal rate drops to 3.26% for a 50-Year pay out period starting on Sept. 16, 1929 and 3.11% for a 60-Year pay out period.

4) Changing Asset Allocations in response to valuation (i.e. "market timing"). Some people continue to believe that there is a way to move in and out of stocks and improve returns over the long term despite the wealth of academic research to the contrary. For users that are still not convinced, the ability to adjust the asset allocation in response to changes in the price/earnings ratio of the S&P500 is included in the 2002 update. As the table below shows, maintaining the optimal asset allocation yields the highest "100% safe" withdrawal rate. Switching the asset allocation back and forth reduces it.

Note: The P/E ratios for the S&P500 used in the spreadsheet are based on Shiller's "10-Year Average Earnings" for the S&P500.

"100% Safe" Withdrawal Rate - Market Timing
30-Year pay out period,
0.20% expense ratio, inflation indexed to CPI-U,
50% of annual withdrawal at start of year, remainder at year end
. P/E less than 10 P/E from 10 to 20 P/E more than 20 "100% safe"
withdrawal rate
Percent Stock 50% 60% 70% 3.85%
Percent Stock 55% 60% 65% 3.98%
Percent Stock 60% 60% 60% 4.12%
Percent Stock 65% 60% 55% 4.03%
Percent Stock 70% 60% 50% 3.91%
Percent Stock 80% 60% 40% 3.64%
Percent Stock 100% 60% 0% 2.31%

5) Inflation-Adjusted Terminal Value of the Portfolio. The Terminal Value of the portfolio is now shown both in "nominal" dollars and in "inflation-adjusted" dollars expressed as the purchasing power of the portfolio brought back to the start of the pay out period. This allows users to judge the effect of 10 to 60 years worth of inflation on their "real" portfolio value.

Database used in the calculator.

The calculator uses a data series developed by Professor Robert J. Shiller of Yale University that tracks stock market returns from 1871 to 2002. This data series is described in the footnotes of Shiller's book Irrational Exuberance, Page 235. It's available on his web site. (See, Historical Stock Market Returns.)

The following series from Shiller's "Irrational Exuberance" (IE) data were used; (1) the annual series of January values of the Standard and Poors Composite Stock Price Index from 1871 to 2002, and (2) dividend yield on the S&P Composite Index. Shiller spliced data from several sources to assemble a data series covering the 1871 to 2000 time span.

CPI data was from Shiller's IE datbase. The PPI data series was obtained from Shiller's previous work, Market Volatility. (See link: http://www.econ.yale.edu/~shiller/data/chapt26.html )

Nominal interest rates in the form of 4-6 month prime commercial paper were obtained from Shiller's Market Volatility (MV) data series. Interest rate data after 1998 is based on the 3-month AA Financial Commercial Paper rate from the US Treasury's FRED database.

A Microsoft Excel spreadsheet was constructed to determine the "survivablity" of a 75% stock/25% fixed income portfolio for pay out periods from 10 to 60 years using the same methodology as the Trinity Study. As a check, the results for the Shiller data series for the years 1926 to 1995 were compared to the Trinty study. They appear in the table below.

Trinity Study (1926-1995)
$1,000 initial value, 30 yr. payout
75% stock/25% fixed income,
invest exp. = 0.00%
Retire Early Study (1926-1995)
$1,000 initial value, 30 yr. payout
75% stock/25% fixed income,
invest exp. = 0.00%
Annual Withdrawal not inflation adjusted 4% 5% 6% 7% . 4% 5% 6% 7%
Terminal Value p=25% $6,998 $5,461 $3,490 $1,962 . $7,658 $5,825 $4,290 $2,645
Terminal Value p=50% $8,515 $6,868 $5,586 $3,745 . $8,696 $7,257 $5,445 $3,942
Terminal Value p=75% $10,893 $9,037 $7,804 $6,486 . $10,240 $8,850 $7,654 $6,373
Survivability 100% 98% 95% 88% . 100% 95% 93% 88%

The results for the two studies are similiar. The Trinity study uses long term, high grade corporate bonds as its fixed income series, while the Retire Early study uses 4-6 month commercial paper. The Retire Early indexes withdrawals for inflation using the PPI, while the Trinity Study uses the CPI. This may explain why the terminal values for the Trinity study have a wider range than the corresponding Retire Early study values.

The annual withdrawals in these two instances above were not inflation adjusted. Results for the survivability of inflation adjusted withdrawals were also compared. They were similiar and appear in the table below.

Trinity Study (1926-1995)
$1,000 initial value, 30 yr. payout
75% stock/25% fixed income,
invest exp. = 0.00%
Retire Early Study (1926-1995)
$1,000 initial value, 30 yr. payout
75% stock/25% fixed income,
invest exp. = 0.00%
Annual Withdrawal
inflation adjusted
4% 5% 6% 7% . 4% 5% 6% 7%
Survivability 98% 83% 68% 49% . 98% 85% 59% 51%

Download Free Software

Readers interested in running their own "safe withdrawal" scenarios are invited to download a copy of the Retire Early Safe Withdrawal Calculator. It's a Microsoft Excel workbook (Version 7.0 for Windows 95) that allows the user to input his own asset allocation and withdrawal rate. The calculator returns the percent survivablity for the portfolio and the terminal values of the portfolio at the end of 10,20,30,40,50 and 60 year pay out periods.

Note (1): Some readers have reported difficulty downloading the calculator using Netscape. Downloads using Microsoft Internet Explorer appear to be problem free.

Note (2) Posted Nov. 7th: The bug that was reported in the "rebalancing" function on Nov. 5th has been corrected. Version 1.61 of the spreadsheet dated Nov. 7, 2002 is the corrected version.

Earthlink Mirror Site
Download Safe Withdrawal Calculator (Version 1.61) (re2002i.zip size = 1,444 kb)

Remember, you need PKUNZIP.EXE to unzip this file and return it to Excel format. (re2002i.xls size = 3,727 kb)

Problems downloading the calculator? -- Do to the popularity and bandwidth usage of the Retire Early site, our Internet provider frequently blocks access to the downloadable files. There's an alternate on-line calculator based on the Retire Early methodology at http://capn-bill.com/fire/.

User Instructions

Retire Early
Safe Withdrawal Calculator Version 1.61
Revised Nov 7, 2002
Initial Balance $1,000 .
Payout Period 3 1=10yrs, 2=20yrs, 3=30yrs, 4=40yrs, 5=50yrs, 6=60yrs
Stock Allocation 60.0% Balance of Portfolio in Fixed Income, Total = 100%
Fixed Income Series 1 1 = 4 to 6 month Commercial Paper Rate 2 = 5 yr US Treasury Note, 3 = US Treasury Bond, 4 = TIPS 5 = I-Bonds, 6 ="Stock Switch" Model
. . TIPS Coupon = 2.00%
(Assumed rate)
Initial Withdrawal Rate 4.120% of Initial Balance
Front End/Back End? 50% 100% = Front-End Annual Withdrawal & Investment Expenses, 0% = Back-End
Shiller Data Selected 1 1=Jan,2=Feb,3=Mar,4=Apr,5=May,6=Jun,
Inflation Series Selected 2 1=PPI, 2=CPI
Adjust Annual With- . .
drawal for Inflation? 1 1 = Yes, 2 = No
Investment Expenses 0.20% Percent of Assets per Annum
ReBalance Portfolio? 1 1 = Yes, 2 = No
"Stock-Switch" Model Switches Portfolio Asset Allocation when P/E ratios exceeds this level. (Enter "6" in "Fixed Income Series" and "0%" in "Stock Allocation" above)
PE Criteria for Switch 10.0 ="Low" PE to "Mid" PE Yrs 20.0 =Switch to "High" PE Yrs
PE Switching Asset Allocation 50% =Stock Allocation for "Low" PE Yrs 50% ="Mid" PE Yrs 50% ="High" PE Yrs
(Note: You'd probably want a higher allocation to stocks when P/E's are "Low")
Pay Out Period = 30 Years . 10 Years 20 Years 30 Years 40 Years 50 Years
Survivability = 100% . 100% 100% 100% 95% 82%
Terminal Values Nominal Inflation-
. . . . .
Max 100% $5,888 $5,363 $2,615 $7,108 $5,888 $17,645 $53,495
90% $4,262 $2,791 $2,145 $3,552 $4,252 $9,990 $19,478
80% $3,581 $2,184 $1,958 $2,491 $3,581 $7,758 $15,419
70% $3,265 $1,781 $1,650 $1,953 $3,265 $5,660 $9,703
60% $2,806 $1,290 $1,463 $1,808 $2,806 $4,481 $7,926
Median 50% $2,330 $1,014 $1,328 $1,727 $2,330 $3,685 $4,676
40% $2,101 $838 $1,243 $1,626 $2,101 $2,991 $3,507
30% $1,768 $680 $1,147 $1,459 $1,768 $2,379 $2,685
20% $1,252 $536 $1,018 $1,315 $1,252 $1,056 $2,685
10% $713 $348 $951 $1,002 $713 $464 $ (1,690)
Min 0% $20 $4 $700 $555 $20 $(1,632) $(10,987)


1) Enter the desired values for the input fields in blue.

2) Depending on the speed of your computer, it may take a few seconds for the spreadsheet to "CALC" after data is entered.

3) Read the Survivability and Terminal Values in the table below the input fields.

Note (1): The Retire Early Safe Withdrawal Calculator lists 5 choices for the fixed income series, but only selection 1, "4-6 month commercial paper", selection 4, "TIPS", and selection 5, "I-Bonds has data for 1871-2002. If you choose selection 2 , 5-yr US Treasury Notes or 3, US Treasury Bonds errors will result. I'm still looking for a source of US Government securities data that goes back to 1871. A future update may include this data.

Selection 6 "Stock-Switch Model" includes data from 1871-2002.

Note (2): Why don't the results from the on-line calculator match the Excel spreadsheet?

The on-line calculator (http://capn-bill.com/fire/ ) makes the withdrawal at the start of the year. You need to set the "Front End/Back End?" switch to "100%" on the the Excel spreadsheet (see Safe Withdrawal Calculator ) to withdraw the full annual distribution at the beginning of the year.

For more details on retirement withdrawals, check out the 68 page report How much can you safely withdraw from your retirement portfolio? (2nd Edition) available in our Retirement Reports Center

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Copyright 2002 John P. Greaney, All rights reserved.

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