Part 3 - Asset Allocation and Portfolio Longevity with High Spend Rates

 This is an addendum to the last post

• Part 2 - Asset Allocation and Portfolio Longevity with High Spend Rates

It is also going to be a chart-crime so get out the yellow tape. 

The point here is to take my return assumptions from the last two posts

N[3.5,4]

N[8,25]

and say "those are bogus 'real return' assumptions, esp for the lower risk portfolio in, say, a 3% inflation world." I still can't say what a good assumption is but let's temper the above a bit and see what happens to the percentile chart (PL in years) in the last post but now with the tempered portfolio assumptions. This is just to get a visual for what happens in general without nitpicking too hard on details. So, maybe:

N[1,4]

N[7,25]

My prediction, which might seem obvious, is that: 

1. Portfolio longevity at any percentile of the distribution for any portfolio will be shorter, and 
2. Fewer portfolios will last forever for any portfolio, especially for the lower risk portfolios.

The revised output for the two assumption sets, laid over one another -- and this is where the chart-crime occurs -- looks like this with the first higher return assumptions in grey and the lower return assumptions in red

Figure 1. 

Each line (and dots, say grey) represents a percentile (10-90th, y axis) -- of
each portfolio (1-11, x axis) where 11 is the high risk portfolio.
90th %tile is the top line (and dots) and 10th is the bottom one.

Ok, yeah that's a very ugly chart, yes, but at least the prediction was true and the general movement of grey to red gives at least a micron of insight...I hope.