HFWR80 refers to a portfolio consisting of 80% stocks and 20% commercial paper. It is rebalanced annually. Its expenses are 0.20%. The initial balance was set to $100000. Withdrawals were adjusted to match inflation in accordance with the CPI. I have determined the maximum withdrawal rates (in increments of 0.1%) that would have kept portfolio balances above $50000 (in real dollars) for an entire 30-year period.
This is similar to the conventional Safe Withdrawal Rate strategy that is investigated most frequently. The difference is that I have limited the portfolio's balance to fall to one half of its original value instead of zero. I refer to such an occurrence as a Half Failure. I refer to these withdrawal rates as Half Failure Withdrawal Rates (HFWR). The corresponding rates when the threshold is zero dollars are the Historical Surviving Withdrawal Rates (also known as the Historical Database Rates).
HFWR80 and HDBR80 are identical except for the threshold. HFWR80 has a threshold of one half of its original balance. HDBR80 has a threshold of zero.
To collect these data I used my latest modification of the Retire Early Safe Withdrawal Calculator, Version V1.61, dated 7 November 2002. I call this update the Deluxe Calculator V1.1A02. [The 02 refers to minor changes including some debugging.] You can download this version from the special SWR Research section of this site.
I have tabulated the 30-year Half Failure Withdrawal Rates along with the percentage earnings yield (100E10/P) for 1871-1980. [E10/P is 1/[P/E10]. P/E10 is Yale Professor Robert Shiller's measure of valuation. He and Dr. Campbell have shown that it has a reasonable amount of capability for predicting long-term stock market returns. P/E10 is the current price of the S&P500 divided by the average of earnings over the previous decade.]
I have made a (straight line) linear curve fit to the 1923-1980 Half Failure Withdrawal Rate data versus the Percentage Earnings Yield 100E10/P. The equation that it produces is y = 0.6822x + 0.5298%, where y is the Half Failure Withdrawal Rate and x is the Percentage Earnings Yield. R squared was 0.6669. I have not calculated confidence limits yet. Using an eyeball estimate, they are likely to be slightly wider than plus and minus 2%.
I wrote the following in From Earnings Yield:
There is a tremendous amount of similarity between these two sets of results. The equations for HFWR80 and HDBR80 have almost identical slopes and values of R squared (a measure of the goodness of fit). Their intercepts differ.With the 80% stock portfolio, the Historical Database Rate (HDBR80) equation is HDBR80 = 0.6685x+1.6424%, where x = 100*(E10/P) or 100/[P/E10] = the earnings yield in percent and R squared equals 0.7274. The standard deviation of HDBR80 using this formula is 0.9649. The 90% confidence limits are plus and minus 1.58%.
This suggests that previous estimates based upon Historical Surviving Withdrawal Rates are still useful if one wants to set a floor for his portfolio's balance other than zero. To an excellent first approximation, the Half Failure Withdrawal Rate (for an 80% stock portfolio) equals the Historical Surviving Withdrawal Rate minus 1.1% [or, more precisely, the difference of the intercepts: 1.6424% - 0.5298%].
Have fun.
John R.