Variable percentage withdrawal
Variable percentage withdrawal (VPW) is a method which adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of the portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.
Methodology
The VPW method uses an increasing percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal.
The VPW method and retirement planning spreadsheets were collaboratively developed and improved by a group of Bogleheads members, some of which are also member of the Financial Wisdom Forum.[1]
The VPW Accumulation And Retirement Worksheet calculates variable portfolio contributions, during accumulation, and variable portfolio withdrawals, during retirement, while taking into account current and future pensions with and without cost-of-living adjustments.
The VPW Backtesting Spreadsheet contains two data sets: Canada (1970-2022)[2] and U.S. (1871-2022)[3][4].
How to use variable percentage withdrawals during retirement
VPW is best used in conjunction with guaranteed base income from Old Age Security (OAS), Canada Pension Plan (CPP) or Québec Pension Plan (QPP), a pension (if any), and (if necessary) a life annuity (possibly with annual cost-of-living adjustments).
Portfolio withdrawals are preferably calculated with the VPW Accumulation And Retirement Worksheet. Users who don't want to use a spreadsheet can calculate portfolio withdrawals with the VPW table instead.
With the VPW Accumulation And Retirement Worksheet
Steps
- Open the worksheet.
- Click on the Instructions tab and read its content.
- Click on the Retirement tab and:
- Each year:
- Enter (or update) your Age (or, for a couple, the age of the younger spouse), Portfolio Balance, Portfolio Allocation, and the desired withdrawal frequency (annual, quarterly, or monthly).
- Note that it is important to update the Age and Portfolio Balance, every year of retirement, as they change.
- Enter (or update) the Monthly Payment of all current and future pensions, including CPP/QPP, and OAS.
- Note that it is important to update monthly pension payments every year when they change due to cost-of-living adjustments.
- On the chosen frequency, withdraw the suggested amount and, once during the year, rebalance your portfolio.
- Note that the suggested withdrawal amount changes every year as soon as the age and portfolio balance are updated.
- Enter (or update) your Age (or, for a couple, the age of the younger spouse), Portfolio Balance, Portfolio Allocation, and the desired withdrawal frequency (annual, quarterly, or monthly).
- Every few years, you should review your overall retirement plan.
- At age 80, if you're still alive, it's important to consider using part (but not all) of your remaining portfolio to buy a life annuity (possibly with annual cost-of-living adjustments) so that the estimated Income Floor After 100 is sufficient to live comfortably, independently of future portfolio withdrawals. This aims to reduce financial risks associated with living past age 100.
- The withdrawal percentage stops growing when it reaches 10%.
- Each year:
The worksheet provides for missing payments between retirement and the start of pensions as part of its suggested withdrawal amounts. There's no need for managing a high-interest savings account or GIC ladder to provide these payments.
Detailed Example
A detailed illustration of how to use the the VPW Accumulation And Retirement Worksheet during retirement to generate monthly income is presented in Financial Wisdom Forum post: "A Simple Retirement Using Variable Percentage Withdrawals (VPW Forward Test)".
With the VPW Table
- To simplify calculations when using the VPW Table with a pen and paper, missing payments between retirement and the start of a pension such as OAS or CPP/QPP (possibly delayed to age 70[5][6]) can be provided by using a simple high-interest savings account or a guaranteed investment certificate (GIC) ladder. For the purposes of VPW calculations, the money set aside in the savings account or GIC ladder should not be considered as part of the portfolio.
- The following procedure should be repeated each year of retirement:
- Lookup the withdrawal percentage for your age (or, for a couple, the age of the younger spouse) and the planned asset allocation of your portfolio for the upcoming year in the table below. (For example, a 65-years old retiree with a 30% Stocks / 70% Bonds portfolio would find 4.4% on line 65 under the appropriate column).
- Note that the withdrawal percentage changes every year. It must be looked up, as your age has increased by one since the previous year.
- Multiply the current balance of your portfolio by the looked up percentage to calculate the withdrawal amount. (For example, if the portfolio Balance is $1,200,000 and the percentage is 4.4%, the withdrawal amount is $52,800).
- Note that the withdrawal amount changes every year. It must be recalculated because both the portfolio balance and the withdrawal percentage have changed since the previous year.
- Withdraw the withdrawal amount and rebalance your portfolio.
- Lookup the withdrawal percentage for your age (or, for a couple, the age of the younger spouse) and the planned asset allocation of your portfolio for the upcoming year in the table below. (For example, a 65-years old retiree with a 30% Stocks / 70% Bonds portfolio would find 4.4% on line 65 under the appropriate column).
- Every few years, you should review your overall retirement plan.
- Around age 80, if you're still alive, it is important to consider using part (but not all) of your remaining portfolio to buy a life annuity (possibly with annual cost-of-living adjustments) so that total non-portfolio income (including OAS, CPP/QPP, pension, and other lifelong income) is sufficient to live comfortably, independently of future portfolio withdrawals. This aims to reduce financial risks associated with living past age 100.
- It is suggested to limit the withdrawal percentage to no more than 10%.
VPW Table
(Note: Information about how percentages were calculated can be found in Bogleheads forum post: "VPW Table construction".)
| Age | Withdrawals | 30% Stocks 70% Bonds |
40% Stocks 60% Bonds |
50% Stocks 50% Bonds |
60% Stocks 40% Bonds |
70% Stocks 30% Bonds |
|---|---|---|---|---|---|---|
| 40 | 60 | 3.4% | 3.6% | 3.8% | 4.1% | 4.3% |
| 41 | 59 | 3.4% | 3.6% | 3.9% | 4.1% | 4.3% |
| 42 | 58 | 3.4% | 3.7% | 3.9% | 4.1% | 4.3% |
| 43 | 57 | 3.5% | 3.7% | 3.9% | 4.1% | 4.4% |
| 44 | 56 | 3.5% | 3.7% | 3.9% | 4.1% | 4.4% |
| 45 | 55 | 3.5% | 3.7% | 3.9% | 4.2% | 4.4% |
| 46 | 54 | 3.5% | 3.8% | 4.0% | 4.2% | 4.4% |
| 47 | 53 | 3.6% | 3.8% | 4.0% | 4.2% | 4.4% |
| 48 | 52 | 3.6% | 3.8% | 4.0% | 4.2% | 4.5% |
| 49 | 51 | 3.6% | 3.8% | 4.1% | 4.3% | 4.5% |
| 50 | 50 | 3.7% | 3.9% | 4.1% | 4.3% | 4.5% |
| 51 | 49 | 3.7% | 3.9% | 4.1% | 4.3% | 4.6% |
| 52 | 48 | 3.7% | 3.9% | 4.1% | 4.4% | 4.6% |
| 53 | 47 | 3.8% | 4.0% | 4.2% | 4.4% | 4.6% |
| 54 | 46 | 3.8% | 4.0% | 4.2% | 4.4% | 4.7% |
| 55 | 45 | 3.8% | 4.1% | 4.3% | 4.5% | 4.7% |
| 56 | 44 | 3.9% | 4.1% | 4.3% | 4.5% | 4.7% |
| 57 | 43 | 3.9% | 4.1% | 4.3% | 4.6% | 4.8% |
| 58 | 42 | 4.0% | 4.2% | 4.4% | 4.6% | 4.8% |
| 59 | 41 | 4.0% | 4.2% | 4.4% | 4.6% | 4.9% |
| 60 | 40 | 4.1% | 4.3% | 4.5% | 4.7% | 4.9% |
| 61 | 39 | 4.1% | 4.3% | 4.5% | 4.7% | 5.0% |
| 62 | 38 | 4.2% | 4.4% | 4.6% | 4.8% | 5.0% |
| 63 | 37 | 4.3% | 4.5% | 4.7% | 4.9% | 5.1% |
| 64 | 36 | 4.3% | 4.5% | 4.7% | 4.9% | 5.1% |
| 65 | 35 | 4.4% | 4.6% | 4.8% | 5.0% | 5.2% |
| 66 | 34 | 4.5% | 4.7% | 4.9% | 5.1% | 5.3% |
| 67 | 33 | 4.6% | 4.8% | 5.0% | 5.1% | 5.3% |
| 68 | 32 | 4.7% | 4.8% | 5.0% | 5.2% | 5.4% |
| 69 | 31 | 4.8% | 4.9% | 5.1% | 5.3% | 5.5% |
| 70 | 30 | 4.9% | 5.0% | 5.2% | 5.4% | 5.6% |
| 71 | 29 | 5.0% | 5.1% | 5.3% | 5.5% | 5.7% |
| 72 | 28 | 5.1% | 5.3% | 5.4% | 5.6% | 5.8% |
| 73 | 27 | 5.2% | 5.4% | 5.6% | 5.7% | 5.9% |
| 74 | 26 | 5.3% | 5.5% | 5.7% | 5.9% | 6.1% |
| 75 | 25 | 5.5% | 5.7% | 5.8% | 6.0% | 6.2% |
| 76 | 24 | 5.6% | 5.8% | 6.0% | 6.2% | 6.3% |
| 77 | 23 | 5.8% | 6.0% | 6.2% | 6.3% | 6.5% |
| 78 | 22 | 6.0% | 6.2% | 6.3% | 6.5% | 6.7% |
| 79 | 21 | 6.2% | 6.4% | 6.5% | 6.7% | 6.9% |
| 80 | 20 | 6.4% | 6.6% | 6.8% | 6.9% | 7.1% |
| 81 | 19 | 6.7% | 6.9% | 7.0% | 7.2% | 7.4% |
| 82 | 18 | 7.0% | 7.1% | 7.3% | 7.5% | 7.6% |
| 83 | 17 | 7.3% | 7.4% | 7.6% | 7.8% | 7.9% |
| 84 | 16 | 7.6% | 7.8% | 8.0% | 8.1% | 8.3% |
| 85 | 15 | 8.0% | 8.2% | 8.4% | 8.5% | 8.7% |
| 86 | 14 | 8.5% | 8.7% | 8.8% | 9.0% | 9.1% |
| 87 | 13 | 9.0% | 9.2% | 9.4% | 9.5% | 9.7% |
| 88 | 12 | 9.7% | 9.8% | 10.0% | 10.1% | 10.3% |
| - | 11 | 10.4% | 10.6% | 10.7% | 10.9% | 11.0% |
| - | 10 | 11.3% | 11.4% | 11.6% | 11.7% | 11.9% |
| - | 9 | 12.4% | 12.5% | 12.7% | 12.8% | 13.0% |
| - | 8 | 13.8% | 13.9% | 14.0% | 14.2% | 14.3% |
| - | 7 | 15.5% | 15.6% | 15.8% | 15.9% | 16.1% |
| - | 6 | 17.9% | 18.0% | 18.1% | 18.2% | 18.4% |
| - | 5 | 21.1% | 21.3% | 21.4% | 21.5% | 21.6% |
| - | 4 | 26.1% | 26.2% | 26.3% | 26.4% | 26.5% |
| - | 3 | 34.3% | 34.4% | 34.5% | 34.6% | 34.7% |
| - | 2 | 50.7% | 50.8% | 50.8% | 50.9% | 51.0% |
| - | 1 | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
VPW Accumulation And Retirement Worksheet
Here are the links to the latest VPW Accumulation And Retirement Worksheet (version 2.9):
Online
Google Sheets
Read the following instructions before clicking on the link!
- Click on the link below.
- Sign into your Google account (if not already signed in).
- Make a copy of the file as follows: File -> Make a copy...
- The copy is yours to modify.
- Here is the link: VPW-Accumulation-And-Retirement-Worksheet
Download location
Microsoft Office Excel
LibreOffice Calc
Backtesting Spreadsheet
Here are the links to the latest VPW Backtesting Spreadsheet (version 2.6):
Online
Google Sheets
Read the following instructions before clicking on the link!
- Click on the link below.
- Sign into your Google account (if not already signed in).
- Make a copy of the file as follows: File -> Make a copy...
- The copy is yours to modify.
- Here is the link: VPW Backtesting Spreadsheet
Download location
Microsoft Office Excel
LibreOffice Calc
Compatibility
The spreadsheet is developed using the open-source LibreOffice Calc software, available here. As a result, some compatibility issues may arise when using other spreadsheet products.[note 1]
Microsoft Excel
- Microsoft Excel may raise an Office File Validation security error. This is because the spreadsheet was not built using Microsoft software; it was built using OpenOffice Calc and saved as Microsoft Excel format. Consequently, Excel raises a warning to the user. This error can be safely ignored.
- There is a difference in the way Excel and LibreOffice Calc displays charts. Excel does a nicer job.
Screenshots
Support
On-going discussion and support is in Financial Wisdom Forum topic: "Variable Percentage Withdrawal (VPW) for Canadians".
Notes
- ^ Details on LibreOffice calc can be found here. Another open-source spreadsheet is from Apache OpenOffice
See also
- Withdrawal strategies (overview)
- Sustainable withdrawal
- Bogleheads:Variable percentage withdrawal, Bogleheads wiki, for the US version
- Bogleheads:Accumulation-dynamic decumulation, Bogleheads wiki
Further reading
- Financial Wisdom Forum topic: "A Simple Retirement Using Variable Percentage Withdrawals (VPW Forward Test)"
References
- ^ VPW was developed in the Bogleheads forum topic: Variable Percentage Withdrawal.
- ^ Libra Investment Management, returns spreadsheet.
- ^ Simba's backtesting spreadsheet, Bogleheads wiki.
- ^ Robert Shiller, long term stock, bond, interest rate and consumption data since 1871.
- ^ Financial Wisdom Forum topic: "Delay OAS to 70, spend 8.8% more at 65!"
- ^ Financial Wisdom Forum post: "Delay CPP to 70, spend 42% more at 60!"
External links
- Mark Seed (May 13, 2019). "How to draw down a portfolio using Variable Percentage Withdrawal (VPW)". My Own Advisor. Retrieved May 13, 2019.
- Norm Rothery, A more generous retirement planning strategy than the stingy 4-per-cent rule, The Globe and Mail, February 24, 2020
