Data Dependence and Sustainable Real Withdrawal Rates

Blanchett, David H.; Blanchett, Brian C.
September 2008
Journal of Financial Planning;Sep2008, Vol. 21 Issue 9, p70
Academic Journal
Past research on sustainable real withdrawal rates has been overwhelmingly based on past market returns. Such research ignores the possibility, and consequently the implications, that future market conditions will vary from those in the past. This paper will explore the impact of varying returns and standard deviations on a distribution portfolio in order to provide the reader with information on appropriate sustainable real withdrawal rates for various market conditions. Experts predict that the future market return for a balanced 60/40 portfolio is likely to be 1-2 percent less than historical averages. Over longer distribution periods the return of a portfolio becomes increasingly important in maintaining the likelihood of success of a distribution portfolio. A 1 percent decrease in portfolio return is likely to result in an increase in the probability of failure that is approximately 4 times greater than a 1 percent increase in portfolio standard deviation.


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