Retirement Income Planning Should Focus On Saving, Not Withdrawing
In my last article, I discussed “safe savings rates.” The following case study illustrates the safe savings rate concept using someone saving for retirement during the final thirty years of her career, and she earns a constant real income in each of these years. A fixed savings rate determines the fraction of this income she saves at the end of each of the thirty years.
Savings are deposited into an investment portfolio which is allocated to an annually-rebalanced 50/50 portfolio of the S&P 500 and shorter-term bills. Retirement begins at the start of the thirty-first year and is assumed to last for thirty years. Altogether, the accumulation and decumulation lifecycle is sixty years.
Withdrawals are made at the beginning of each year during retirement. The underlying 50/50 asset allocation remains the same during retirement, as does the annual rebalancing assumption. Withdrawal amounts are defined as a replacement rate from final pre-retirement salary.