conservative spending assumptions

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patnemma
Posts: 1
Joined: Sat Mar 23, 2013 10:23 am

conservative spending assumptions

Post by patnemma » Sat Mar 23, 2013 10:31 am

I'm new to the site, but am impressed already. I have a very simple question for which I haven't found an explanation. Re the flexible spending option, your support says "Basically, in any year where the portfolio shrinks and the portfolio balance is smaller than it was at the start of retirement...". My question is does the algorithm make the comparison after the spending amount in question is deducted or before?
Thanks.

jimr
Posts: 557
Joined: Thu Feb 28, 2008 6:48 pm

Re: conservative spending assumptions

Post by jimr » Sat Mar 23, 2013 11:43 am

patnemma wrote:I'm new to the site, but am impressed already. I have a very simple question for which I haven't found an explanation. Re the flexible spending option, your support says "Basically, in any year where the portfolio shrinks and the portfolio balance is smaller than it was at the start of retirement...". My question is does the algorithm make the comparison after the spending amount in question is deducted or before?
Thanks for posting. The comparison is done after the spending amount is deducted and portfolio growth is computed for the year.

Keep in mind that the simulation deals with spending policies using a running 'percent of expenses to fund' variable. This variable starts at 100% in the first year of each simulation iteration and then, starting in the retirement year, can be nudged up or down each year (depending on portfolio performance) by a multiple of the inflation rate (usually 1x inflation rate, see spending multiplier in planner settings). If the spending policy is stable, the variable stays fixed at 100%, otherwise it can grow or shrink above or below 100%. This makes the withdrawal amount in any given year highly dependent on what has happened in previous years.

The detailed output table shows the median for the percent of expenses funded for each year.

Jim

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