Updated Trinity Study Results for 2019 – More Withdrawal Rates!

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Updated Trinity Study Results - More Withdrawal Rates!

Would you like to know exactly which withdrawal rate is safe and will sustain your lifestyle for a very long time? You will find the answer in this post with updated results from the Trinity Study!

I have recently talked in details about The Trinity Study. This study researched different withdrawal rates for retirement. Although the original research was not about early retirement, it is referred a lot in the Financial Independence and Retire Early (FIRE) movement!

However, for me, there are two caveats with the original study. First, they are only covering the period until 1995. And then, they are not covering more than thirty years of retirement. Thirty years is not enough for some people wanting to retire early.

Therefore, I decided to reproduce all the results of the original study. I used much more recent data from 1871 to 2018. I have also considered periods as long as 50 years.

In this post, you will find how I did it, and all the results I have been able to gather from this data!

The Trinity Study

I have already talked in great length about the Trinity Study. It is an excellent research paper done by three professors of Trinity University.

The goal of their research paper was to see which withdrawal rates should be used to sustain a particular lifestyle for up to 30 years. It is important to note that the original research was not about early retirement but official retirement.

They tested the success rates of withdrawal rates from 3% to 12%. Also, they tested portfolio with between 0% and 100% stocks, by jumps of 25%.

The authors also took inflation into account in the results. Indeed, it is interesting to compare the results with and without inflation. Finally, they also provided with the terminal values of the portfolio.

If you want more information, I wrote a detailed article about the Trinity Study.

The 4% Rule (of Thumb)

The Trinity Study is the source of the 4% Rule. This rule states that if you only withdraw 4% of your initial portfolio every year, you will be able to sustain your lifestyle for a very long period. And your withdrawal is adjusted for inflation every year.

Some people believe that the original study shows that this will sustain forever. But this is not what the original research was about. They only tested simulations for up to 30 years.

I think it is better to call it THe 4% Rule of Thumb. Because if you plan to retire very early, you will probably need a lower withdrawal rate. Moreover, your withdrawal rate will highly depend on your portfolio and how much stocks and bonds you have.

Why did I do it again?

If the study is great, why did I want to redo it? I have several reasons for that.

First, I wanted to see how this was working with recent stock market returns. The original study was only covering years up to 1995. I wanted to have more recent data. I wanted to make sure that the results were holding with more recent stock market behavior.

Secondly, the original study was only covering up to thirty years of retirement. I wanted to be sure that the portfolio can sustain withdrawals for much more extended periods. For people retiring early, I think that 50 years is not unreasonable.

Finally, I have to admit that I like to write code. So it was cool to write code related to this blog. Overall, it was a lot of fun preparing the data for this article. And being a big geek, now I can run many simulations with the data I want.

Ultimately, I want to extend the Trinity Study for the European markets. It will be challenging to obtain the data. But I will try to find it for as many years as possible.

My simulation

My simulation is using monthly withdrawals. I think most people in retirement will withdraw money monthly. It is also possible to withdraw money at the end of the year instead. But I believe that it is not common.

All the returns are also calculated monthly. And the monthly withdrawal is updated with inflation every month as well. For the time being, each simulation starts at the beginning of a year. I will collect more data later.

For this simulation, I have not done any rebalancing. I plan to check the difference with this in a future installment of the series.

But withdrawals are made based on the current allocation. For instance, if your base allocation to stocks is 60%, but your current allocation is 80%, 80% of the withdrawal will be taken from stocks. I may use different withdrawal techniques in the future.

Based on this simulation, I will collect the same results than the original study: success rates without inflation, success rates with inflation, and terminal values.

Success Rates

I am going to start the simulation with the entire data, from 1871 to 2018.

Let’s see what success rates we have when we ignore inflation. Let’s start directly with 20 years since I do not think anybody is going to care about a ten years long simulation. I will begin at 3% withdrawal and go up to 12%, increasing by 1% at a time.

Updated Trinity Results - 20 years - 1871 - 2018 - No Inflation
Updated Trinity Results – 20 years – 1871 – 2018 – No Inflation

We can see what we already expect:

  • Increasing the withdrawal rate decreases the chances of success
  • Any withdrawal rate higher than 8% does not make any sense in the long-term, even without inflation.
  • A small allocation of bonds can help with lower withdrawal rates
  • Generally, a 100% stocks portfolio will perform better than the other portfolios.

Let’s see what happens when we push the simulation to 30 years.

Updated Trinity Results - 30 years - 1871 - 2018 - No inflation
Updated Trinity Results – 30 years – 1871 – 2018 – No inflation

We can see that increasing the number of years decrease the likelihood of success. It is logical since you are more likely to run out of money.

With 30 years of retirement without inflation, 6% withdrawal rate with a significant allocation to stocks still makes a lot of sense!

Taking Inflation into Account

But, let’s get serious. It is much better to take inflation into account in our simulation! Let’s see again with 20 years to compare the results:

Updated Trinity Results - 20 years - 1871 - 2018 - With Inflation
Updated Trinity Results – 20 years – 1871 – 2018 – With Inflation

As we can see, inflation makes a major hit to our chances of success! Before inflation, an 8% withdrawal rate made some sense, now 6% is the limit. And even 6% is barely over 75% chance of success!

Let’s see what happens with 30 years.

Updated Trinity Results - 30 years - 1871 - 2018 - With Inflation
Updated Trinity Results – 30 years – 1871 – 2018 – With Inflation

We can now see that anything higher than a 6% withdrawal rate is very dangerous, with less than 75% chance to succeed even with 100% stocks.

More withdrawal rates

Since we see that reasonable withdrawal rates are in the range of 3% to 6%, let’s try more withdrawal rates. I have simulated increments of 0.1% of withdrawal rates.

Updated Trinity Results - 30 years - 1871 - 2018 - Inflation - More Rates
Updated Trinity Results – 30 years – 1871 – 2018 – Inflation – More Rates

With a large allocation to stocks, withdrawal rates between 3% and 4% are very safe. Some people would even dare withdrawal rates of about 4.5%. But even a portfolio with 100% has only 80% chance of success after 30 years.

Longer simulation time

One of the caveats of the original study is that they stopped at 30 years. Let’s run the same simulation again but with 40 years this time.

Updated Trinity Results - 40 years - 1871 - 2018 - Inflation
Updated Trinity Results – 40 years – 1871 – 2018 – Inflation

After 40 years, we are starting to see lower success rates, even for the 4% withdrawal rate that is used by most people. Unless you have 100% of stocks, your success rate will be less than 90%.

Let’s see what happens with more than 50 years.

Updated Trinity Results - 50 years - 1871 - 2018 - Inflation
Updated Trinity Results – 50 years – 1871 – 2018 – Inflation

As expected, we see lower success rates. But it is still not bad at all with reasonable withdrawal rates. A 100% allocation to stocks and a 3.5% withdrawal rate still have more than a 98% success rate.

It shows that the original conclusion of the study can still hold for a much more extended period than 30 years. It is great news!

Terminal Values

Another interesting thing from the study was that they also compared the terminal values of the different withdrawal rates and portfolio.

So let’s see what would be the terminal values of a 1000$ portfolio after 30 years. I did the simulation for a portfolio of 100% Stocks. For the sake of display, I have reduced the number of withdrawal rates.

Terminal Value of a 1000$ portfolio - 30 Years - 1871 - 2018
Terminal Value of a 1000$ portfolio – 30 Years – 1871 – 2018

The minimum values are not impressive since there is a chance of failure. However, the average and median values are quite remarkable. We are going to focus on the median since it is generally more representative than the average.

For a withdrawal rate of 3.5%, which is my current target, the median terminal value after 30 years is about 6500 dollars! Not only did your portfolio sustain your lifestyle, but it also increased six-fold! Let me repeat this. After 30 years of doing nothing but withdrawing money, you have six times more money than when you started!

The maximum values do not mean a lot. But it is crazy to see that after 30 years, you could have about 30 times more money than when you started! And this is with a 3.5% withdrawal rate!

Let’s see what happens when we extend to 40 years.

Terminal Value of a 1000$ portfolio - 40 Years - 1871 - 2018
Terminal Value of a 1000$ portfolio – 40 Years – 1871 – 2018

How did I do it?

My U.S. data s based on the data made available by Big ERN in its Safe Withdrawal Rate series. It is a great dataset that has been tested several times already. Big ERN made all this available for free. Thanks a lot to his work!

As for the code, I wrote entirely in C++. The reason I used this programming language is simply that it is my favorite! And it is blazing fast! I have not especially optimized my code, and it takes less than a second to generate thousands of simulations.

I plan to release the code as well in a future blog post. I need to find a way to anonymize it. For the time being, it is too easily identifiable as being mine with my real name. But I fully intend to make it available to everybody!

If you want to use the graphs present in this post, I would ask that you cite this article as the source of the image!

Conclusions

With all these results, we can have several important conclusions.

First of all, the original conclusions of the paper still hold even with much more data taken into account. And it still stands accurate up to 2018! It is great since it shows that the 4% rule of thumb still works!

If you increase the simulation time to more than 30 years, a 4% withdrawal rate is not safe anymore. With 50 years of retirement, you have a 90% chance of success with a 4% withdrawal rate at most. A withdrawal rate of around 3.5% would be safer for most people.

If you want real chances of success, you will need more than 50% of your portfolio allocated to stocks. The stocks are what allow us to fight inflation and cover the withdrawal rate year after year.

If you choose a reasonable withdrawal rate, you are very likely to end up with much more money than when you started! For instance, a 3.5% withdrawal rate over 30 years with 100% stocks would leave you about six times more money than when you started!

For information about the original study, ready my detailed article about the Trinity Study.

Future of the series

It was very interesting to reproduce these results. And it was very insightful as well. I have learned many things from the results. It is great to see the confirmation that the original conclusions hold for more than 50 years.

And it also shows that my current withdrawal rate (3.5%) is a safe bet. I may switch to 3.75% maybe. I will have to run more simulations. And this will have to wait until I get Europe and Switzerland data for more results.

Since I plan to make a few more posts like this one with more simulation, I would like to get your point of view on this article! Please let me know what you think in the comments below! What should I improve?

Now that my code is ready for computations, I plan to try to get the data for other indexes. I want to run these simulations for a European investor. First, I will try to see if I can find all the values necessary for a pure Swiss portfolio. But it is not easy to find all this information. I would also need to get the inflation data for Switzerland.

What do you think of these results? Would you like me to run more simulations like this? Do you have ideas on what kind of simulations I should run next?

About the author

Mr. The Poor Swiss

Mr. The Poor Swiss is the main author behind thepoorswiss.com. In 2017, he realized that he was spending more and more every year, falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2018, he saved more than 40% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

31 thoughts on “Updated Trinity Study Results for 2019 – More Withdrawal Rates!”

  1. Hi Mr The Poor Swiss! Absolutely great post, and in general great blog. I really enjoy reading your thoughts.

    Just a couple of questions and considerations:

    1) Did you keep the 4% withdrawal rate on the basis of the initial amount ($1000) + inflation, or every month/year you took the new principal as the reference number?

    2) Could we think of a smart rule to exploit the lucky years without reducing the chances of going broke? I understand the desire to be safe, but also ending up with 6-7 times the initial sum without enjoying it is not a desirable outcome for me…

    2) When we think about 30+ years forward how should we account for the money we will get from the Swiss federal pension system? How much safer does it make the whole situation?

    Thank you and, please, keep writing!

    1. Hi Matt,

      I am glad you liked it :) Thanks for the kind words!!

      1) Yes, on the basis of the initial amount. And then updated for inflation, month after month.
      2) There are a few things we can do yes. You could use a higher withdrawal rate (and as such lower amount) but be ready to be flexible in your expenses. If you know you can cut 50% (extreme example) of your expenses when the market gets down, you are safer. Another complex way is to use CAPE to adjust your withdrawals: https://earlyretirementnow.com/2017/08/30/the-ultimate-guide-to-safe-withdrawal-rates-part-18-flexibility-cape-based-rules/
      3) I think it will make it much safer! However, there is an important thing to consider: if you are officially retiring in 30 years, you may not get a first pillar pension anymore. This may change. I don’t think it will go away, but I am pretty sure it will go down and return lower :)

      Does that answer your questions?

      Thanks for stopping by!

      1. Thanks for your reply!

        You really nailed my questions. The link on CAPE-based withdrawals is really interesting. I use CAPE as a way to decide how to allocate my investments among countries, but I never thought of taking it as a guide to spending in the retirement phase.

        As for the first pillar thing, I definitely agree with you. It is something nice to have, but I would not bet my future lifestyle on its reliability.

        Looking forward to your next posts.

        Bests from sunny Ticino!

  2. Great idea, and a really great post. This will bring you some nice links ;)
    What would be interesting to see is, what happens when you only use more recent data? For example, using 50 years of data from 1968 to 2018 for the simulation.

  3. Great post as usual.

    As Marco mentioned, a focus on more recent data, such as 40 or 50 years including rebalancing would be very interesting. Also, do you have any posts related to rebalancing in general?

    1. Hi Peter,

      Thanks for letting me know! I will definitely include rebalancing and more recent data on the next posts using this data.

      No, I do not have any posts on this subject in particular. But I should try to get something done about that. Thanks for the suggestion!

      Thanks for stopping by!

  4. Hi Mr The Poor Swiss,
    Great article and great conclusions as well!

    Did you already think to simulate for some different portfolio? For instance the Permanent Portfolio could be a good candidate (25% gold, 25% stock, 25% long term bond, 25% cash).

    Congrats for the huge work on this site!

    1. Hi Daniele,

      Thanks a lot for your nice message!

      Now, I didn’t think of other portfolios. It’s easy to do the computation but it’s difficult to find the data, unfortunately!
      I know where to find the data for cash but I do not know where to find the data for gold. I would have to look it up!

      Are you trying to become FI?

      1. Thanks for the reply. Yep trying but it’s still a long way to go.
        Testing right now Bali as a possible geo arbitrage place to live :)

    1. Hi Kevin,

      That’s an excellent question!

      I do not think that 98% is necessary. I would think that 90% is already very safe. I want to confirm that by doing the analysis once again on only recent data later.
      As for the 2% (or the 10%), I think it boils down to flexibility. If you are able to limit your expenses while in retirement or generate some income, you should be able to compensate. Of course, this is still a risk.

      Actually, even if the simulation shows 100% chance of success, nothing indicates that retirement will not fail. It’s just historical. If we get a recession worse than the Great Depression, a lot of retirement plans are going to be ruined!

      How high of success chance are you aiming for?

      Thanks for stopping by!

    1. Hi Jean,

      That’s a very interesting as well. Thanks for sharing.

      The article is right, spending is very dynamic by nature. It’s not totally correct to assume that spending will not change during retirement.
      However, as the author mentions, it is also difficult to properly account for dynamic spending in such calculations.

      Thanks for stopping by!

  5. The Apollo Program had this great saying, “In god we trust, all others bring data.” My engineering training has only reinforced that. So, thank you for showing this data and your results. I too will be grabbing that data. If you ever post that code on GitHub, I would happily contribute to it. Regardless, I am going to grab that data and start writing my own version of that program for my own use.

    I will also like to add that the runs I do with personal capitol show the same results with regards to adjusting the % withdrawal rates.

    Overall your information just reinforces my 3.5 to 4% range which will be decided when we get closer to the mark.

    Side note, if you haven’t been to Huntsville to see the museum dedicated to the US space program, it’s worth a trip.

    1. Hi GenX FIRE,

      Thanks :)

      I plan to release it on Github. I will probably have to create a second Github account for my blog. The problem is that I am using my own libraries. I have to remove these dependencies and make it easier. I have to work on that!

      Thanks for the information. I will be sure to check out this museum if I am ever close to Huntsville. But I have never been to Alabama so far.

      Thanks for stopping by!

  6. Danke für die ganze Mühe mit dem Datensammeln!

    Mich würden Zahlen in Zusammenhang mit der Rentenbesteuerung interessieren: Wie hoch ist der jeweilige Anteil an ursprünglich eingesetztem Kapital (bereits versteuert) und Kapitalertrag (Zuwachs, muss bei Entnahme versteuert werden) an der monatlichen Entnahmerate?
    Zweite Frage:
    Könntest Du mal diesen Beitrag https://frugalisten.de/entsparen-shiller-cape/ lesen und eine Berechnung mit Entnahme nach dem Shiller CAPE laufen lassen? Oder ist das zu kompliziert?
    Dankeschön für die interessanten Auswertungen!

  7. This is a great article, really insightful and interesting to do this kind of study over a recent time period indeed. It’s quite crucial to know what is the current success rates, without blindly assuming that historical results will still be valid today!

    1. Hi, Radical FIRE,

      Thank you for your kind words!

      Talking about recent times, I plan to do the same study with only 50 or 60 most recent years to see if there is a difference recently.

      Thanks for stopping by!

  8. Hi,
    Thank you for this update!
    Is it possible to run a simulation over 20 or 30 years with a specific withdrawal rate for each year. I also have several moments in time where I would start withdrawing from multiple account. Is it possible to add these into the simulation?

    Greetings from the Netherlands!

    1. Hi Stefan,

      I am not sure I understand. Do you want to change the withdrawal rate each year? Why would you like to do that?
      For now, I cannot handle multiple portfolios. I cannot run every single possible combination of simulation ;)

      Thanks for stopping by!

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