| Portfolio returns are
uncertain. Your range of outcomes is similar
to a bell curve that is lop-sided to the right. The
order of uncertain returns is most important when you
are withdrawing money from your portfolio. If 'bad'
years come early, you may run out of money trying to
maintain your withdrawal plan. If 'good' years come
early, you will likely end up with far more money
leftover than you expected.
The "Overall Failure"
rate shown below is less than your Portfolio Failure
rate because there is a chance that nobody will be alive
when that year is reached. Overall Failure combines
mortality and portfolio performance. Crudely put, if
your blood pressure goes to zero before your portfolio
does, your portfolio has met your needs.
But you are not an insurance company insuring
across millions of lives. We suggest you consider the Portfolio
Failure figures (spendingFutureDollars4iving your
money) as the important figures. You will not be 35%
alive at age 90 -- you will either be alive or not. If
you are alive, you want to plan on having 100% of your
planned spending available, not 35% of it. This is a
trap that many online and PC models fall
into.
The first
input area is for 'irregular' withdrawals
or deposits to your portfolio during your savings years.
These are on combine with your desired 'periodic'
spending entered in the second input area below. If an
entry only effects one year, enter that year in the
'Start' box and just leave the 'End' box empty. To remove our default examples, click
Irregular
Flows.
Your desired withdrawals and
reserve can adjusted
for future annual inflation during the years before your
withdrawals start. During your spending years, you can
enter an annual increase in withdrawals and choose
whether your reserve will continue to be adjusted for
inflation. You can see different chances by changing the
Assumed Return.
Tax Rate Note: Your entries
below should be average tax rates (not the marginal rate
on your last bit of income). The "Tax Rate on
Withdrawals" depends upon what type of account you
are testing and your cost basis. If this is a Tax-Exempt
401(k), IRA an employer defined contribution (DC) plan,
the "Tax Rate on Withdrawals" should equal
your "Ordinary Income Tax Rate". For info on
tax rates on personal savings, click "Non-Qualified
Assets".
| 