A friend of mine asked me once "what is even the point? How would you use this?" with respect to a heat map that I created for portfolio longevity for a whole slew of different spend rates (see below). First of all, when I first created it years back it wasn't really about functional utility at all for (my or others') retirement finance it was more just plain curiosity and, as is often the case for me, I wanted to see what it looked like. The looking was its own utility. Second, I kinda liked the eventual outcomes that became more evident the closer I looked:
- Spending is almost certainly sustainable for 2% spend rates which effectively creates a perpetuity. This is a point about endowments that Ed Thorpe made in one of his books.
- Spending somewhere near to or less than what one expects to earn or earns -- where the long run "earn" is going to be the geometric mean at N periods or maybe infinity -- has pretty good odds of lasting a very long time (maybe too long given our horizons but then again this is not a human scaled fail study). This is common sense, right? Higher spend works too but to an increasingly lesser and potentially painful degree as the "portfolio longevity years" come back into the meat of a human life scale.
