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Lesson 10 Q&A

Go to the Retire Early Homepage Safe Withdrawal Calculator. Scroll down to the chart showing the comparison of the inflation-adjusted withdrawals of the Trinity Study against those of the Retire Early Home Page study and answer the following questions:

1. What was the payout period used for the comparison?
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2. How was the rate of survivability determined? (Note: As used in the studies, the term "survivability" means a portfolio has an ending value greater than zero.)
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3. What was the survivability rate in the Trinity Study for 30-year payouts using an initial inflation-adjusted withdrawal rate of 7%?
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4. What does that survivability rate mean? Scroll down the page to the example of the calculator's inputs and results found in the "Instructions" section. What was the initial withdrawal rate used in the example contained in these instructions?
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5. How was the example portfolio allocated?
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6. What was the survivability rate for a 30-year payout?
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7. What was the survivability rate for a 50-year payout?
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8. What was the maximum and the minimum ending portfolio values for a 50-year payout?
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   Go to the Retire Early Home Page Study on Safe Withdrawal Rates. After you read the article, use your internet browser to return to the lesson and finish answering the questions.

9. According to the study, the use of a "100% safe" withdrawal rate by a retiree with a $1 million starting portfolio has what chance of ending up with a $16 million portfolio after 50 years?
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10. Using a "90% safe" instead of a "100% safe" withdrawal rate allows a retiree to increase the initial withdrawal from what percentage to what percentage?
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1. What was the payout period used for the comparison?
   Answer: 30 years
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2. How was the rate of survivability determined?
   Answer: The total number of portfolios having a value greater than zero at the end of 30 years was divided by the total possible number of 30-year periods between 1926 and 1995. There were 41 possible 30-year investment periods between 1926 and 1995 (i.e., 1926 through 1955; 1927 through 1956; 1928 through 1957; etc.). If 15 portfolios using a particular withdrawal rate ended the 30-year period with a value greater than zero, then a portfolio using that rate had a 50% survivability rate. If you got this one right, your last name must be Greenspan.
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3. What was the survivability rate in the Trinity Study for 30-year payouts using an initial inflation-adjusted withdrawal rate of 7%?
   Answer: 49%
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4. What does that survivability rate mean?
   Answer: It means that during the period 1926 through 1995, a portfolio of 75% stocks and 25% fixed income (or bonds) had a 49% chance of lasting for 30 years when 7% of the starting value of that investment was taken in year one with that starting dollar amount increased by the inflation rate each year thereafter. The initial withdrawal rate used in the example contained in these instructions was 3.81%
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5. How was the example portfolio allocated?
   Answer: 74% in stock, and the rest in 4- to 6-month commercial paper.
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6. What was the survivability rate for a 30-year payout?
   Answer: 100%
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7. What was the survivability rate for a 50-year payout?
   Answer: 95%
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8. What was the maximum and the minimum ending portfolio values for a 50-year payout?
   Answer: The maximum was $85,253, while the minimum was zero (-$3,834).
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9. According to the study, the use of a "100% safe" withdrawal rate by a retiree with a $1 million starting portfolio has what chance of ending up with a $16 million portfolio after 50 years?
   Answer: 50%
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10. Using a "90% safe" instead of a "100% safe" withdrawal rate allows a retiree to increase the initial withdrawal from what percentage to what percentage?
    Answer: The "90% safe" level allows the withdrawal to increase from 3.35% to 4.5%, an increase of $115 per $1,000 of portfolio dollars.
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