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You are saving and investing to finance an old-age retirement. A very basic question you need to have an answer to is — How much do you need to save to be sure your retirement will be a comfortable one?

We turn to The Retirement Risk Evaluator for the answer. The calculator tells us that, if your retirement begins at a time of fair-value prices, the safe withdrawal rate for an 80 percent stock portfolio is 5.41. That means that, if you start retirement with a portfolio of $1 million, you may take out an inflation-adjusted $54,000 each year to cover living expenses and be 95 percent sure that you will not run out of money for 30 years.

The assumption here is that you will retire at 65 and that it is unlikely that you will live past 95. A plan that works for 30 years is a plan that works, period, according to this assumption.

But there are circumstances in which the assumption is not a good one. More people are choosing early retirement all the time. And life expectancies have increased dramatically in recent decades. What if you retire at age 40 (I know people who have done this!) and believe that you may live to 100. You need a plan that works not for 30 years, but for 60 years.

The intuitive thought is that you are going to need twice as much money to put together an equally safe plan. You are going to need $2 million! Oh, my!

It’s not so.

One of the choices you make with the Risk Evaluator is the amount of the portfolio you want to insure will remain at the end of the retirement. The default choice (the one I went with in the calculation above) is a portfolio balance of zero. This is the choice made in all safe-withdrawal-rate studies and calculators. But the Risk Evaluator permits you to change the portfolio balance assumption and see how that changes the safe withdrawal rate.

How much do you think it will change the withdrawal rate to change the portfolio balance choice so that 50 percent of the initial portfolio balance remains at the end of 30 years? No one guesses right re this one.

$4,000.

Lower your annual takeout from $54,000 to $50,000 and you can be 95 percent sure of having $500,000 remaining in your portfolio at the end of 30 years. Pretty cool, huh?

Let’s take it a step farther.

What if you want to have a permanent retirement plan, one that will not run our of money in 30 years or 60 years or even in 300 years or 600 years? How much more will you have to reduce spending to achieve that goal?

Guess. Again, you won’t get it right. But it’s fun to try.

It would take another $4,000 spending reduction.

Reduce spending to $46,000 and your retirement portfolio is guaranteed (95 percent certainty) to have the full $1 million starting-point value (inflation adjusted) at the end of 30 years. At the end of another 30 years, it would of course still have the full $1 million remaining. Add on as many 30-year periods as you like and the result will never change. You could live as long as Methuselah and never run out of money if only you could manage to get by on $46,000 rather than on $50,000 (which yields 60 years of safe retirement) or $54,000 (which yields 30 years of safe retirement).

What’s going on?

The safe withdrawal rate is an extreme number. It is the number that works in a worst-case scenario. That’s the right number to use when calculating what is safe because, after all, you really might see a worst-case returns sequence in your retirement and this is not something that you get to do over if you happen to be unlucky. But it’s important to understand that, in the typical case, using the withdrawal rate that works in the worst possible case is going to leave you with a big portfolio balance rather than with a portfolio balance barely big enough to put food on the table.

Change the realities just a little bit — by spending a small amount less than originally assumed — and you end up with a large portfolio balance. A counter-intuitively large portfolio balance. That balance earns compounding returns for as long as the retirement remains in place. The result is that spending a little less can extend the life of the retirement for a large number of years into the future.

This all makes sense.

Remember that stocks provide an average long-term return of 6.5 percent real. So in ordinary circumstances the safe withdrawal rate should be 6.5 percent. No, it should be more than that. The 6.5 number is the number that would apply if you were using only gains to finance your retirement and  not depleting the portfolio value at all. The typical assumption in these studies is that you deplete the account to zero over 30 years. So we should expect the safe withdrawal rate to be a number well in excess of 6.5 percent real.

The reason why it is not is that we are making sure that the retirement will survive even a worst-case scenario. Change the spending number just a bit and the portfolio does more than survive. Long strings of bad return years (worst-case scenarios) are always followed by long strings of good return years (investor emotion swings from one extreme to the other). So retirement plans that are set back by a worst-case scenario but survive are retirement plans that will be growing at a quick pace in the following years. Cutting spending enough to cause your retirement plan to survive 30 years usually permits it to survive for time-periods far, far longer than that.

We live in exciting times for investors. We are learning new things about the realities of stock investing risk all the time.