Michael’s assumptions on expanding inflationary pressures later in retirement is correct, however, they don’t take into account the issue of taxation. So, let’s adjust Kitces’ chart and include not only the impact of inflation-adjusted returns but also taxation.
The chart below adjusts the 8% return structure for inflation at 3% and also adjusts the withdrawal rate up for taxation at 25%.
By adjusting the annualized rate of return for the impact of inflation and taxes, the life expectancy of a portfolio grows considerably shorter.
While inflation and taxes are indeed important to consider, those are not the biggest threat to retiree’s portfolios.
There is a massive difference between 8% “average” rates of return and 8% “actual” returns.
The Impact Of Variability
Currently, the S&P 500