In Search of the Numbers; A Practical Application of Withdrawal Rate Research For Pre-Retirees and its Possible Implications

Abstract

A thought experiment based on applying "First Generation" withdrawal rate research to PRE-retirees. (First Generation is defined as an initial withdrawal rate with subsequent simple inflation adjustments only applied to the initial dollar amount withdrawn, i.e., no reference back to what that dollar withdrawal's current withdrawal rate is nor associated probability of failure of the current withdrawal rate). Executive Summary: • This paper will discuss a methodology that applies Withdrawal Rate Research (WRR) for pre-retirees, years or preferably decades, before retirement. • Pre-retirees should understand the methods, terminology and practical application of WRR well before reaching retirement when, at that time, they would be more capable to implement their withdrawals. • The difference between longevity based on birth as a reference age, versus the probability of living to some older age based on their current age is discussed. • There is an overlap of two withdrawal groups, one planning to retire at some Planned Retirement Age, and the other already retired with a Current Retirement Age, which raises questions and implications about the application of initial withdrawal rates, versus current withdrawal rates of these overlapping groups of people. • Standardization of the ages are aligned with research distribution periods using a single, logically defined, Mortality-Base Age paradigm; versus non-alignment of ages, since not everyone retires at the same age, that result from a Retirement-Base Age approach.

Keywords: retirement portfolios, Monte Carlo simulation, portfolio longevity, personal longevity, current life tables, pre-retirement, post-retirement, withdrawal rates

JEL Classification: D11, D91, E2, Z00