Re: the Magic Number and sustained withdrawals
There is a table entitled "When Averages Don't Work" in a supplemental section called "Encore- A Guide to Life After 55" (page R13) of my edition of today's WSJ that I found interesting and pertinent to this discussion.
"From 1969 to 1999, a balanced investment portfolio (60% S&P 500 Stocks, 30% bonds, 10% cash) had an average annual rate of return of about 12%. What did that mean for a nest egg of $250,000, allowing for annual withdrawals that started at $20,000 and grew 3% a year? In theory, a 12% return would turn $250,000 into about $440,000. In reality, because of weak returns in the early part of that 30-year period, that same nest egg would have been depleted after only 15 years. Had the sequence of annual returns been reversed, the outcome would have been much different: The nest egg would have grown to more than $1.5 million, again assuming annual withdrawals starting at $20,000 and rising 3% a year."
I guess that means reality dictates that one has a buffer built into whatever Magic Number you choose. It also points out that recent returns (what we may have in mind when planning for retirement) have been above the norm. |
