Unexpectedly Intriguing!
31 May 2019
Retirement Savings

What are the odds that your investment in the S&P 500 will last as long as you need in retirement?

The answer to that question depends upon the answers to three additional questions:

  1. What percentage of the balance of your funds invested in the S&P 500 you plan to withdraw from your retirement accounts each year?
  2. How long will your retirement last?
  3. What returns will the S&P 500 deliver over time?

The S&P 500 and its predecessor indices have been around long enough where we have historic data we can use to answer the last question, where we can assume the future will be similar to what has occurred in the past. That leaves the remaining factors, which have been addressed by Wade Pfau in his 2015 update to the 1998 Trinity Study, which estimated what a safe withdrawal rate would be for a variety of retirement portfolios made up of stocks and bonds with historic data from 1926 through 2014.

We've approximated the results of Pfau's math as it would apply for having 100% of your money invested in the S&P 500, where you can estimate the odds that the portion of your retirement nest egg invested in the S&P 500 will last as long as you might need to fund your retirement. If you're reading this article on a site that republishes our RSS news feed, click here to access a working version of this tool! (Alternatively, here's static snapshot of the tool with its results for the default data).

S&P 500 Investment Withdrawal Data
Input Data Values
Inflation-Adjusted Annual Withdrawal Rate
Expected Duration of Withdrawals [years]

Probability Your Retirement Fund Will Last
Calculated Results Values
Estimated Odds of Success

If you're like an average American, you can reasonably expect to live at least 15 years after you retire, so we've set that figure as the shortest period of time you can select in the tool. Meanwhile, the math assumes that you will adjust how much you might withdraw each year to account for the effect of inflation, where you would maintain a steady "real" withdrawal rate from your S&P 500 investment in retirement.

What the tool doesn't address is whether that percentage you might withdraw from your investment will provide the amount of income you would like to spend, where even if you might be successful in sustaining your S&P 500 investment, you might find yourself on the wrong end in the investing equivalent of one of Zeno's paradoxes as the balance of your retirement fund dwindles over time. Ultimately, the figure you have to work with will be set by the total you've accumulated in your investment before you might retire, where the following tools explore different ways to arrive at your personal retirement savings target.

We may come back at a future date to develop a tool that can accommodate having different percentages invested in stocks and bonds. If Pfau's data is any indication, there is a blend of the two types of investment vehicles that can produce better odds of success for a retirement fund that will last as long as your retirement than just the "stocks only" scenario we considered in this tool.

Meanwhile, if you'd like to get a better sense of some of the analysis that drives the math behind this tool, Paul Merriman works through a historical example with real life numbers and returns.


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