Financial Opinion and Insights

How Long Will Your Money Last

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

If you plan on withdrawing from your retirement savings for a long period of time, it is important to examine the effect various withdrawal rates may have on a portfolio.

Several factors need to be examined when determining an investor’s withdrawal rate. The answer may depend upon the portfolio mix, how long an investor expects to withdraw from the portfolio, and the investor’s risk aversion and consumption patterns.

This image looks at a hypothetical 50% stock/50% bond portfolio and the effect various inflation-adjusted withdrawal rates have on the end value of the portfolio over a long payout period. The hypothetical portfolio has an initial starting value of $500,000. It is assumed that a person retires on Dec. 31, 1972, and withdraws an inflation-adjusted percentage of the initial portfolio wealth ($500,000) each year beginning in 1973.

How Long Will Your Money Last?

How Long Will Your Money Last?



The reproduction of this Morningstar slide leaves a lot to be desired – where’s a nine-year-old when you need one? –  but the withdrawal rates from left to right are 9%, 8%, 7%, 6%, and 5%.  As you can see, the higher the withdrawal rate, the greater the chance of potential shortfall.   The lower the rate, the less likely you are to outlive your portfolio.  Therefore, early retirees who anticipate long payout periods may want to consider assuming lower withdrawal rates.  For me personally, the comfort zone begins at 4%.  Naturally, 3% or less is better.

Government bonds are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest,  but have not proven to be a hedge against inflation.   Meanwhile stocks are not guaranteed and have been more volatile than the other asset classes, yet have proven over time to provide real returns in excess of inflation and taxes.  The key, of course, is determining the mix of assets that ‘s right for your needs and risk profile.

As you know, it all begins with a plan.




About the data  

Stocks in this example are represented by the Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the five-year U.S. government bond and inflation by the Consumer Price Index. An investment cannot be made directly in an index. Each monthly withdrawal is adjusted for inflation. Each portfolio is rebalanced monthly. Assumes reinvestment of income and no transaction costs or taxes.


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.