After the Turning Point

I used the Scenario Surfer. I looked at withdrawing 6% for 60 years in a Normal Market. We will see this after the next turning point.

The Scenario Surfer

The Scenario Surfer is an advanced Monte Carlo simulator for training purposes. It can be used for accumulation and withdrawal stages alike. It has two forms of Mean Reversion. It allows you to vary your allocation in accordance with valuations (i.e., Professor Robert Shiller’s P/E10).

The Scenario Surfer uses a traditional S&P500/TIPS investment mix.

Approach

I followed the approach found in Long Retirements and the Scenario Surfer. I started with a P/E10=8 Normal Market. I started with an initial balance of $1. I waited until P/E10 rose to 12.0 or higher before investing $100000. To do this, I made a negative withdrawal. I also withdrew $6000. That is, I entered the net amount of ($94000). I withdrew $6000 in all of the years that followed.

I alternated between P/E10=8 Normal Market and P/E10=26 Bear Market conditions according to the instructions in Long Retirements and the Scenario Surfer.

I continued until I went bankrupt or reached Year 60.

My general approach relied heavily on my past learning with the Scenario Surfer. It depended on my experience with Latch and Hold.

Long Retirements and the Scenario Surfer

Data

Run 1.

Intermediate balance: 268,234
Intermediate balance: 396,282
Intermediate balance: 1,519,476
Intermediate balance: 1,500,693
Final balance: 10,773,302
Cumulative number of years: 60

Run 2.

Intermediate balance: 122,142
Intermediate balance: 82,361
Intermediate balance: 223,398
Intermediate balance: 176,642
Final balance: 638,078
Cumulative number of years: 60

Run 3.

Intermediate balance: 318,056
Intermediate balance: 424,651
Final balance: 1,344,747
Cumulative number of years: 60

Run 4.

Intermediate balance: 103,945
Intermediate balance: 16,539
Final balance: bankrupt
Cumulative number of years: 33

Run 5.

Intermediate balance: 134,554
Intermediate balance: 85,538
Intermediate balance: 562,398
Final balance: 661,066
Cumulative number of years: 60

Discussion

Most of the time, I could withdraw 6% (plus inflation) and still end up with a fabulous final balance at Year 60. Nevertheless, I ended up bankrupt at Year 33 in one of my five runs. It was characterized by a very lengthy Bear Market after the initial Normal Market. A real life investor would have been likely to cut back as his balance dwindled.

These results are comparable to the 30 Year Reasonably Safe Withdrawal Rate (see Year 30 SWR button on the left) with a high stock allocation.

Have fun.

John Walter Russell
February 15, 2009