Quote:
Originally Posted by NJblue
I'm not sure I'm following your numbers. Depending upon the inflation rate, at some point the amount that you will need to live on will be greater than the amount that you will be getting from the annuity. At that point you will be eating into whatever reserves you may have accumulated by your initial plan to live under your means. How soon you begin eating into the reserves and how long they last is a function of the inflation rate.
If you assume only a 2.5% inflation rate, that may not be adequate over a long horizon. By my back-of-the envelop calculations, a 5% inflation rate will deplete your reserves by year 10. If we get to a hyper-inflation as some are predicting based on deficits, etc. (say 10%) your reserves will be depleted by year 6. Even if we could go on at 2.5% inflation indefinitely, by year 19 your reserves would be negative.
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I'm not using an annuity. That was my point.
I start the first year at a 4% withdrawal but then increase it at a reasonable inflation rate of 2.5%. If inflation goes much higher than 2.5% couldn't I just buy a 30 year treasury bond to protect the inflation rate? In other words if inflation goes up you can expect your returns to keep up. Let's compare envelopes. (Even at 5% inflation you run out at 26 years
If your annual rate of return is higher than the initial withdrawal you should be ok
investment annual earnings withdrawal
1000000 0 5% (increase 2.5%)
year1 1010000 50000 40000
year2 1019500 50500 41000
year3 1028450 50975 42025
year4 1036797 51423 43076
year5 1044484 51840 44153
year6 1051452 52224 45256
year7 1057637 52573 46388
year8 1062971 52882 47547
year9 1067384 53149 48736
year10 1070798 53369 49955
year11 1073135 53540 51203
year12 1074308 53657 52483
year13 1074228 53715 53796
year14 1072799 53711 55140
year15 1069920 53640 56519
year16 1065484 53496 57932
year17 1059378 53274 59380
year18 1051482 52969 60865
year19 1041670 52574 62386
year20 1029808 52084 63946
year21 1015753 51490 65545
year22 999358 50788 67183
year23 980463 49968 68863
year24 958902 49023 70584
year25 934498 47945 72349
year26 907065 46725 74158
year27 876406 45353 76012
year28 842315 43820 77912
year29 804570 42116 79860
year30 762943 40229 81856