What Can I Take Out When I’m Retired?

Updated April 22, 2021

"Do Not Confuse High Returns With Sustainability"

The most important measure of portfolio performance for those in or approaching retirement is return relative to drawdowns. The higher this ratio, the higher the withdrawal rate the portfolio can sustain.

The financial services industry uses a Monte Carlo simulation of possible historical outcomes to construct a "Safe Withdrawal Rate". I use what I believe to be a far more conservative approach which uses historical Compound Annual Growth Rates and historical Maximum Drawdowns.

I begin with every investor's worst fear ... a Bear Market which begins immediately upon making the investment rather than one which “possibly” occurs sometime in the future.

Sustainable Withdrawal Rate Calculation

The calculation is both simple and conservative.

  1. Account Balance – Maximum Drawdown = Remaining Balance
  2. Remaining Balance x Compound Annual Growth Rate = Average Return
  3. Average Return x .667* = Sustainable Annual Return
  4. Sustainable Annual Return / Account Balance = Sustainable Withdrawal Rate

*Leave 1/3 as a safety net for inflation, portfolio growth, and contingencies

The Conservative Logic of our Sustainable Withdrawal Rate

  • We assume the worst case of an immediate Bear Market decline
  • The Bull Market which follows the Bear Market is likely to produce returns above the CAGR for the full Bear+Bull cycle

In short, we are building a Sustainable Withdrawal Rate which assumes the worst case for drawdowns and less than best case for returns.

Example Calculation Vanguard Balanced Index Fund (VBINX)

Time Period: two Full Market Cycles Januray 2000 through March 2021
Compound Annual Growth Rate: 6.5%
Maximum Drawdown Calculated: 32.6% (10/31/2007 to 02/27/2009)

  1. $100,000 – $32,600* = $67,400 (assume an immediate Bear Market reduces portfolio)
  2. $67,400 x .065 = $4,381 (apply the Compound Annual Growth Rate to reduced portfolio)
  3. $4,381 x .667 = $2,922 (assume we can withdraw 2/3 of the CAGR)
  4. $2,922 / $100,000 = 2.9%

Had the Maximum Drawdown been limited to 7%+-, the Sustainable Withdrawal Rate would be significantly higher.

  1. $100,000 – $7,000* = $93,000
  2. $93,000 x .065 = $6,045
  3. $6,045 x .667 = $4,032
  4. $4,032 / $100,000 = 4.0%

Example Calculation using two of our strategies

Adaptive Global strategy

Time Period: two Full Market Cycles January 2000 through March 2021
Compound Annual Growth Rate: 14.9%
Maximum Drawdown Calculated: 7.7% (04/30/10 to 09/30/10)

  1. $100,000 – $7,700* = $92,300
  2. $93,000 x .149 = $13,753
  3. $13,753 x .667 = $9,173
  4. $9,173 / $100,000 = 9.2%

Adaptive Income strategy

Time Period: two Full Market Cycles January 2000 through March 2021
Compound Annual Growth Rate: 10.0%
Maximum Drawdown Calculated: 3.9% (05/30/03 to 12/31/03)

  1. $100,000 – $3,900* = $96,100
  2. $96,100 x .100 = $9,610
  3. $9,610 x .667 = $6,410
  4. $6.410 / $100,000 = 6.4%


  • Do Not Confuse High Returns With Sustainability
  • Given identical rates of return, the portfolio with the smallest Maximum Drawdown will provide the highest Sustainable Withdrawal Rate.
  • The Sustainable Withdrawal Rate is based on very conservative assumptions

A Caveat

A 35+ year secular bull market in both equities and bonds began in 1982. The last cyclical bull market in equities (and to a lesser extent, bonds) began 10 years ago. Returns during these periods have been historically exceptional. Market returns for the next 10 years are highly unlikely to approach those of the past 10. In fact, there is at least some evidence that market returns have a high probability of being significantly lower and that bonds and equities (which have risen together) may actually begin working at cross purposes.

Investors should not use the statistics shown for our strategies to establish expectations of specific levels of returns or drawdowns. Investors should, however, appreciate that we believe the principles which underlie the Tactical Adaptive Global, Tactical Adaptive Income, and Tactical Adaptive Innovation Strategies are enduring enough to significantly outperform the market in the future, both in lowering risk and in improving returns.