Botched Early Retirement Special Example A-1

Suppose that you retire early using a dividend strategy. Suppose that your investments do much worse than you had expected. You require a continual income stream of 5.0% of your initial balance (plus inflation).

Going back to work for 5 years solves your problem.

Analysis

I used the TIPS Income Stream Allocator B.

This excursion assumes disappointing dividend growth from Stock A and no growth at all from Investment B.

The retiree was seeking a 5.0%+ withdrawal rate that lasts more than 50 years. His investments performed much worse than expected. He had been counting on 8% growth from Stock A. He had initially hoped for 4% growth from Investment B.

Instead, he received:
Stock A: 4% plus 6% growth.
Investment B yields 6% plus 0% growth.

To maintain a 5.0%+ withdrawal rate, the retiree went back to work for five years. He withdrew zero dollars in years 9-13.

He succeeded. In fact, his income from Stock A alone exceeded 5.0% of his initial balance (plus inflation) year 46. His combined withdrawal rate at Year 50 exceeded 6.0% of the initial balance (plus inflation) and it was growing.

Spreadsheet

I have posted a copy of the (truncated) spreadsheet in the “Allocators” folder in my Yahoo Briefcase. It is a Microsoft Word Document. It is the “Special Example A-1” file.

Have fun.

John Walter Russell
February 15, 2007

Yahoo Briefcase