Fractional Withdrawals
The Fractional Withdrawals calculation is based on an article titled "How to Survive Retirement - Even if You’re Short on Savings" by Jonathan Clements. We suggest that you read this article to understand where this calculation fits in.
The article describes a two step retirement strategy in which in the first stage 85 % of a portfolio is spent down over the years that remain until age 85 and the other 15 % is invested in a mix of stocks and inflation-indexed Treasury bonds.
The calculation lets you figure out how much can be withdrawn over a number of years to completely draw down a balance, while at the same time taking into account the effect of the interest that is generated on the remaining balance.
Withdrawals are calculated as fractions of the starting balance. For instance, when withdrawals are made for 20 years, 1/20th will be withdrawn the first year, 1/19th in the second year, and so on until a final withdrawal of 1/1 in the ast year is made.
To see the amortization schedule, select the Show Details command in the Calculation menu.
To toggle between date and year/period view, click the header of the first details column.
To change the start date, select the Start Date command in the Edit menu to open the Date Options dialog.
Input
| • nominal annual rate | |
| • compounding frequency | |
| • withdrawal frequency | |
| • number of years or withdrawals | |
| • current balance |
Results
| • total withdrawn |
| • total interest |
Example
| • | Fred retires at age 65. He plans to spend 85% of his portfolio over the next 20 years. If Fred's portfolio is worth $100,000, how much can
he withdraw if interest is at 3 % compounded
annually?
Answer: Fred can withdraw a total of $134,351.87. To see what the withdrawal for the last year is, look up the last payment in the details table: $8,767.53. |
Related topics
| Periodic Withdrawals |
| Nominal annual rate |
| Compound interest |