http://www.slideshare.net/Tosabob/otar-zone-guyton-withdraw-rules

1. Retirement Funds:
Will You Still Love Me Tomorrow?
A look at Otar’s Zones and Guyton’s Rules
Robert Schramm
MKE Bogleheads
November 4, 2014

4. Zone Strategy
 1. How much do I want?
 Called Withdrawal Rate (WR).
 2. Mr. Portfolio, How much can you pay?
 Called Sustainable Withdrawal Rate (SWR).
 3. Mr. Insurance, if I give you all my money,
How much will you pay me?
 Called the Annuity Rate (AR).
 Full CPI-Indexed Annuity

5. 65 yr male
$1,000,000
AR: 5.3%
SWR: 3.8%

10. CHARITABLE ANNUITY PAYOUT RATES
http://www.annuityquickquote.com/

11. 4.65% x 926,000 =
43,059
3.35% x 926,000 =
31,021
Annuity Rates (AR)
age 60 age 65 age 70
Male 4.65% 5.30% 6.30%
Female 4.25% 4.80% 5.80%
Joint 3.85% 4.30% 5.15%
Sustainable Withdrawal Rates
(SWR)
age 60 age 65 age 70
USA 3.35% 3.70% 4.25%

12. age 60 age 65 age 70
USA 3.35% 3.70% 4.25%
5.8% x 53.8850,0%0 0x = 3 28253,30000
= 22,330
4.25% x 385,000
= 16,363
Annuity Rates (AR)
age 60 age 65 age 70
Male 4.65% 5.30% 6.30%
Female 4.25% 4.80% 5.80%
Joint 3.85% 4.30% 5.15%

13. Conversion Numbers
% Rate to Multiplier
 Annuity Rate (AR) to Life Annuity Multiplier (LAM)
 AR 5.3% = LAM 20
 100% / 5.3% = 20
 5.3% x 20 = 106%
 Sustainable Withdrawal Rate (SWR) to Sustainable Asset
Multiplier (SAM)
 SWR 3.7% = SAM 27
 100% / 3.7% = 27
 3.7% x 27 = 99.9%

18. Mike Box

21. 40,000 – 20,540 = 19,360

23. Red Zone Strategies
 You must export risk
 If Retired:
 Slow down withdrawals
 Cut expenses
 Part-time work
 CPI-indexed Annuity to cover inflation risk
 If Working:
 Delay Retirement
 A few extra years might be enough to buy
annuity

24. Decision Rules and Maximum
Initial Withdrawal Rates
 By Jonathan T. Guyton, CFP, and William J. Klinger
Cornerstonewealthadvisors.com/files/08-06_Websitearticle.pdf

25. Guyton Withdrawal Rules
 Portfolio Management Rule
 Inflation Rule
Withdrawal Rule
 Capital Preservation Rule
 Prosperity Rule

26. Guyton Withdrawal Rules
 Portfolio Management rules
 If an asset class exceeds its target allocation, invest
excess in cash.
 Withdraw first from excess equities, then from
excess bonds, then from excess cash.
 Do not withdraw equity following a year of
declining stock market.

27. Guyton Withdrawal Rules
 Inflation rules
 Withdrawals increase by the annual rate of
inflation, measured by the CPI, to maintain
purchasing power up to a maximum of 6%.
 There is no make-up for a missed increase.

28. Guyton Withdrawal Rules
 Withdrawal rule
 Withdrawals increase from year to year in
accordance with the inflation rule, except there is
no increase following a year where the portfolio’s
return is negative and when that year’s
withdrawal rate would be greater than the original
withdrawal rate.
 There is no makeup for missed increases.

29. Guyton Withdrawal Rules
 Capital Preservation rule
 For the first 15 years, reduce
withdrawal rate by 10% if it
would have risen by 20%
over initial rate.
 Expires 15 years before the
maximum age.
 This decreased withdrawal
becomes the basis for the
following year’s withdrawal.

30. Guyton Withdrawal Rules
 Prosperity rule
 In years with a withdrawal rate more than 20% below the
initial withdrawal rate, the current year’s withdrawal rate is
increased by 10%.
 Other decision rule in effect are applied to this increased
amount.
 This increased withdrawal amount becomes the basis for
determining the next year’s amount.

31. Guyton Withdrawal Rules
Prosperity Rule Example
Year Inflation WR Withdrawal Account Balance
Start 4.00% $ 20,000 $ 500,000
1 3.00% 4.12% $ 20,600
7 3.00% 4.92% $ 24,600 $ 820,000
24600 / 820000 = 3%
4% - 20% = 3.2%
4.92% + 10% = 5.41%
7 new 5.41% $ 27,050

32. Decision Rule Summary
 Condition:
 Prior year ‘s return is
negative
 Current WD rate w/I 20%
of initial WD rate
 Current WD rate > initial
WD by 20%
 Current WD rate < initial
WD rate by 20%
Action:
 Apply Withdrawal Rule
 Increase prior year WD by
CPI
 Apply Capital
Preservation Rule
 Apply Prosperity Rule

33. Guyton Withdrawal Rules
Conclusions
 Withdrawal rates of 5.2%-5.6% sustainable with
99% confidence with 65% equities.
 80% equities provides greater purchasing power
with lower success rates.
 50% equities drops maximum initial withdrawal
rates as low as 4.6%.
 Aside: 65yo couple 17.6% probability of 30 years-life
expectancy just under 24 years.

35.  http://www.retirementoptimizer.com/ Jim Otar’s site for his
book and sample his retirement program
 http://cornerstonewealthadvisors.com/files/08-
06_WebsiteArticle.pdf Guyton and Klinger’s decision rules
and withdrawal rates

 http://www.forbes.com/sites/lawrencelight/2014/04/24/how-to-
withdraw-your-retirement-money/ Article and sample link
to a Withdrawal Policy Statement

 http://www.kitces.com/?s=annuities+versus+saf Comparing
annuities with safe withdrawal rates

36.  http://assetbuilder.com/SCOTT_BURNS/HOW_TO_OVERCOME_FEAR_
OF_REQUIRED_DISTRIBUTIONS?utm_source=feedburner&utm_medium
=feed&utm_campaign=Feed%3A+Assetbuilder+%28AssetBuilder+In
c.%29 Using RMD’s as a way of annuitizing retirement income.
Links to RMD calculators.
 http://www.bogleheads.org/wiki/Required_Minimum_Distribution_vs
_annuitization A look at IRA minimum distributions in the light of
annuities.
 http://www.bogleheads.org/wiki/Safe_Withdrawal_Rates
Considerations of safe withdrawal rates

 http://www.esplanner.com/ Economic security planner from
Lawrence Kotlikoff (Try free version)
 http://firecalc.com/ Retirement Calculator