Sustainable distributions decision matrix.

1. As a pilot in the U.S. Air Force, we would spend time in the simulator every year. We didn’t cover routine
operations while in there. We covered situations we may rarely, if ever, see … emergency procedures.
2012 Life Expectancy Based on Outlive
Oldest Birth Year: 1955 Note: Expected Longevity = 50% % and Retiring at Age 55
Youngest Birth Year: 1955 Joint Female Male
Longevity Percentile 50% 89 85 81
Target POF 10% 34 30 26
Portfolio % Decline Probability of Failure (POF) @ WR%:
LTP Equity ~ 60% Required: WR%: POF Sustainable @ Lowest
Current LTP Value= $631,894 3.70% 10.00% POF @ Port. Value
$582,423 7.8% 4.00% 15.00% $1,282 Sustainable
$539,830 14.6% 4.30% 20.00% $1,187 Dist. $$ per
Routine Operations
$508,627 19.5% 4.55% 25.00% $1,118 month.
Reserve Mos. 36
Monthly Distr. 1,470 $17,640.00 <Ann Distrib. Target ($Y) Emergency Procedures
The same should be done with retirees living on their savings and investments.
From the top … this is looking at how much a couple, pre-retirement both born in 1955, may be able to
withdraw today from their portfolio if they needed to. Routine Operations (Green Values) = $1,470/mo or
$17,640/yr.
A couple this age have a joint life expectancy of age 89, or 34 years total. If their portfolio value declined either
due to unforeseen withdrawals, or bad market returns, then three decision points have be pre-calculated so they
know ahead of time how much less they may withdraw (Emergency Procedures) monthly.
Note that research based on sustainable distributions suggests that changing portfolio allocation as a result of
poor markets does not change the sustainability significantly enough to avoid taking too much out over any
given year. Thus, changing the withdrawal amount is the most effective method to sustain distributions into the
future. During your working years, this is equivalent to the employer saying you’re not fired, but wages need to
be reduced until company operations improve again.
Thus, one needs to ask themselves, under programs, products or schemes that suggest otherwise, where is that
extra money to avoid running out of money coming from?
A properly structured plan should not only consider when everything goes according to plan, but include the
emergency procedures when they don’t.