Two questions advisers answer every week: how much can a retiree spend, and is harvesting tax losses worth it? Both tools run thousands of simulated markets in your browser.
The “4% rule” spends the same amount, raised with inflation, whatever markets do. Guardrails (after Guyton and Klinger) start higher and adjust: spending is cut when the withdrawal rate drifts too far above where it started, and raised when it falls too far below.
Both plans start with the same spending.
Stocks average 7.5% a year (16% volatility), bonds 4.5% (6%).
Spending each year in today’s dollars, as a share of the first year: the median market (line) and the middle 80% (shaded). The dashed line is the fixed plan, which never changes until the money runs out.
In today’s dollars. Guardrails in copper, the fixed plan dashed.
The rules, simplified from Guyton and Klinger (2006): no inflation raise after a losing year if spending is already above its starting rate; a cut when the withdrawal rate is more than the guardrail width above the starting rate (not in the last 15 years); a raise when it is that far below. Returns are drawn independently each year from a lognormal distribution, which understates long bear markets. Before fees and taxes. For education only.
Selling an investment at a loss and buying something similar keeps the portfolio invested while banking a loss to offset gains. An index fund rarely falls far enough to harvest; its individual stocks often do, even in a good year. That is the case for direct indexing.
Stocks follow the market plus their own ups and downs.
The market averages 7.5% a year with 16% volatility.
As a share of the amount invested, averaged over the markets: stock by stock in copper, a single index fund dashed.
Assumes each sold stock is replaced at once by a similar one that moves the same way, so the 30-day wash-sale rule is not triggered and there is no tracking difference; in practice the replacement differs a little. Losses offset other capital gains first, then up to $3,000 a year of income, and the rest carries forward. Tax saved is invested in the market. Short- and long-term gains are taxed at one rate here. State taxes are ignored. For education only, not tax advice.