For this last Distribution example let’s again assume the same $100,000 invested with the same hypothetical Average Rate of Return, both reversed sequences of Annual Rates of Return, and a 5% withdrawal rate ($5000) from the initial investment at the END of each year, starting at the end of Year 1 – however, let’s now add in a 3% inflationary “pay raise” to each annual payment, starting with that first year (it’s been 12 months, after all.)
As you would expect, the results are even more pronounced than the figures without inflation added in.
Figure E – This reflects a mathematical total withdrawal value of $187,765.21 over 25 years with a remaining hypothetical account balance of only $47,054.63.
Figure F - This reflects a mathematical estimated total withdrawal value of only $106,271.34 into the 17 year, and then turns negative (that means it runs out of money.) Further, the actual overall hypothetical Average Rate of Return is now closer to 3.4% vs 5% because the last 8 1/2 years of returns are lost due to the depletion of the asset. Well, that’s not so good.
Okay, you’re visual. What’s that look like in a chart? Please click on the "Bringing It All Together” button to continue.