Withdrawal Stress Test

Base Your Savings on Future Withdrawals

Will Your Savings Meet Your Future Needs?

At a certain point, you stop thinking about building wealth and start thinking about how to appropriately take out money to meet your needs when you are no longer working. The only way to determine if you have saved enough money is to anticipate how much you plan to spend in retirement. By looking ahead and planning for the different variables that affect your withdrawal rate, Brown and Company helps ensure that you are saving for your retirement at an adequate pace.

How the Withdrawal Stress Test™ Works

The Withdrawal Stress Test™ helps determine your portfolio’s sustainability over the course of your retirement and lifespan. Theoretically, a portfolio with a lower withdrawal rate is likely more sustainable over a longer time frame. When accompanied by our private wealth management services, this tool helps determine the optimal asset allocation for your portfolio based on your anticipated future withdrawals.

Your withdrawal rate is calculated by dividing total annual withdrawals by your portfolio value. The lower the withdrawal rate, the more flexible your portfolio allocation and risk can be.
Emotions aside, if you are taking out only 1% of your portfolio every year, you can choose to take on more equity risk for higher future growth potential, or you can take on lower risk with lower corresponding return potential. For most people, a 3% – 4% withdrawal rate is typical, which translates into $30,000 – $40,000 per $1,000,000 per year.

Because inflation is a big factor, some portion of returns is assumed to be reinvested as the cost of living has typically doubled every 20 years. Remember your first new car? Compare what it cost then vs. what it would cost today, and you’ll understand what we mean!

See How the Withdrawal Rate Affects Sustainability
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