Sustainable withdrawal but without adjusting for inflation?
The classical assumption for the sustainable withdrawal rate framework is that withdrawals are adjusted for inflation in £/$ terms, every single year until the retiree depletes their portfolio or dies!
But over 90% of annuities purchased are fixed or level annuities, without any protection against inflation! One reason for this is spending in retirement tends to fall progressively in real terms.
So what if we adopt a withdrawal strategy where the income isn’t adjusted for inflation? This enables a meaningful comparison with level annuity but also as a withdrawal strategy in its right.
This idea of fixed or level withdrawal allows the client to spend more in the early part of retirement because the real income adjusts downwards naturally.