yes I should make it clearer that it’s for excel, I’m not very fluent in Google sheets, especially for using VBA macros, so I don’t know that I would ever make a Sheets version.
start with 80% probability of success; if probability of success rises to 100%, increase spending to 80% probability of success; if probability of success falls to 25%, decrease spending so that there is a 45% probability of success. That last part might be a bit too much risk for many.
Yeah there are many riffs on the exact recipe. Here is what it does:
Shoot for a starting spending that would have an 80% change of success in with the current portoflio. This 80% starting success rate is configurable on the top right of the calculator parameters. Aubrey Williams uses 90% in his example, which is more conservative. He mentions in his CampFi video that this has been tested down to 50% if you have the stomach for it. From the screenshot in the post above, that’s $74,605 for a $1.5M portfolio.
If continuing to spend this much causes the risk of success to drop to 70%, or the value you entered in the “Lower Guardrail Success rate”, them it’s starting to be dangerous to consume that much and you need to adjust. The 70% success rate for a $74,605 withdrawal happens when the portfolio reaches $1,33,702.
Aubrey uses 75%, the quote above suggest you would make change until you see a 25% chance of success, I could see 50% being a good choice for the lower rail trigger, after all you still have a 50/50 chance that your current spending will be fine.
When your portfolio hits the lower rail, e.g. there is a 75% chance of success with $,133,702 that $74,605 will run you out of money, it’s time to change your new withdrawal target to increase the odds you’ll be OK. This part is not configurable in the tool: when you right the odds you basically go back to the “starting chance of success” of 80% in this example. an 80% chance of success for a $,330,702 portfolio is $66,151 in spending (or 11% less than you had been spending).
Increasing spending works basically the same way, once you portfolio is large enough that your chance of success is 100% (or whatever you entered in the Upper GuardRail chance of success” parameter, it’s time to reset your spending to an 80% for you portfolio.
The way I would use it in practice is when I hit a guardrail, you simply update your portfolio at the top and hit the button to calculate the new spending and the new guardrails, but that should get you the same numbers the “switch to withdrawing” numbers.
By playing with the success rates, you can adjust how often/how big an adjustment you may have to make. with the 80%/70%/100% parameters in the example picture, you can see the changes in spending are just over 10%, which to me is a sweet spot if you don’t want large jumps, but you can be more aggressive if you want,
As an example here is what starting worth a base success of 60% and only adjusting down when the odds of success are 25%, and adjusting up when success is 95%+ (all other numbers are the same as the original picture)
Your initial spending is much higher ($90,929 or 6.06% SWR) vs the original $74, 605. you also have more margin before you need to adjust, but the change if you hit it is much higher, be ready to spend almost 30% less (but if you hit the upper guardrail you get to spend 30+% more)
The more I play with the tool the more I feel comfortable with starting at a lower chance of success and lower setting for the lower band rail.
One of the thing on the to-do list is to actually simulate using those bands over a (30) year period starting in history. Show how you would you have fared retiring in 1928, or 1969 and show how many tiems you would have to reset your spending and to what levels, as well as the final portfolio value.
That would help people understand how the 3 settings interact.
