From: Tad Borek 
Newsgroups: misc.invest.financial-plan
Subject: Re: study of withdrawal rules, asset allocation, and annuities
Date: Thu, 24 Aug 2006 13:01:21 -0500
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beliavsky@aol.com wrote:
> The paper I cited discusses this strategy and is generally positive
> about it. One's expected lifetime (denoted E(T)), decreases as one
> ages, so it makes sense to consider a strategy where the proportion of
> remaining assets spent each year increases proportionally to 1/E(T).
> The paper studies this also.

I think it may be appropriate that the paper is on TIAA-CREF's site. One 
more practical aspect of this question is that the typical 
withdrawal-rate assumptions used in these studies seem more appropriate 
for an institutional manager rather than an individual - someone who by 
contract is guaranteeing a certain stream of payments over the lifespan 
of an individual or, really, a pool of individuals. Individuals are able 
to plan things differently and so I see these studies as being useful 
only for getting a ballpark estimate of maximum-but-conservative 
withdrawal rates, for burning through all your savings during retirement.

The primary flaws in the assumptions that I've seen, as compared to the 
behavior of actual retirees, are:
* increasing withdrawal rates for inflation, irrespective of the 
principal amount, while variations in retiree spending year to year have 
little or nothing to do with the change in CPI
* assuming full depletion of the nest egg over a lifetime, while many 
retirees (and especially, those who have been "good savers" over a 
lifetime) plan to leave something behind
* not accommodating the desire of many retirees to spend at a higher 
rate in their earlier retirement years, to enjoy retirement while they 
are able to travel & be more active

I like that 4% observation - taking out 4% per year - similar to that 
idea of walking, repeatedly, 1/2-way towards a wall (you never get 
there). The key is making sure you can live off with a 
4%-of-a-much-smaller-principal withdrawal rate.

-Tad