Illustrating Sustainable Withdrawal For Different Phases of Retirement

We're delighted to announce that we've now added a new scaled withdrawal feature to Timeline, the sustainable withdrawal rate app. This new feature enables financial planners to illustrrate the impact of scaling up/down income withdrawal from a portfolio at different phases of retirement.


The traditional assumption for sustainable withdrawal rate is that a client will spend the same amount of inflation adjusted income through out their retirement. Yet, the assumption is not supported by cold hard data on spending pattern of retirees.


Research  in the UK shows  spending in retirement declines progressively in real terms. As people get older, they spend progressively less!  From age 65, spending typically declines progressively and is about 35% lower at age 80.

In the US, research found a similar trend among retirees. As finacial planner Micheal Kitces noted, real spending tends to decline a little at the beginning of retirement, accelerates its decline in the middle retirement years, and then slows its decline again in the final decade.  Researchers identified 3 unique phases of retirement dubbed:

The Go-Go years, the active first decade of retirement,
The Slow-Go years, the less active second decade of retirement, and
The No-Go years, the final decade of retirement when most discretionary spending stops
Strangely, it's has been difficult, even impossible for financial planners to take this into account when illustrating sustainable withdrawal from a client's portfolio. 

 

That's until now. 

With this new feature on Timeline, financial planners are able to illustrate the impact of scalling up/down spending at different phases of retirement.

For instance, you can illustrate a scenario where the client wants a withdrawal of £40,000/yr from age 65 to 75, then £30,000/yr from age 76 to 85, and £20,000/yr thereafter from a £1M portfolio.  Here's what  real (inflation adjusted withdrawal looks for all rolling 30 year periods between 1900 and 2016. 

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