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Glossary

Asset Allocation​

The split between stocks and bonds (and other asset classes) in your portfolio. A "60/40" allocation means 60% stocks and 40% bonds. Asset allocation is one of the most important inputs in any withdrawal strategy.

Bootstrap Sampling​

A statistical method that builds new return sequences by randomly drawing from actual historical data rather than generating synthetic returns from a theoretical distribution. SafeWithdrawls uses this instead of Monte Carlo simulation. See Our Methodology.

CAPE Ratio (Shiller P/E)​

The Cyclically Adjusted Price-to-Earnings ratio, calculated by dividing the current stock price by the average of the past 10 years of inflation-adjusted earnings. It is used by valuation-based methods to adjust withdrawal rates based on whether markets appear expensive or cheap.

Crisis Scenario​

A projection that replays the actual historical sequence of returns starting from a specific year (1929, 1972, 2000, 2007, or 2020). Unlike bootstrap simulations, crisis scenarios are deterministic -- they show exactly what happened.

Drawdown​

The peak-to-trough decline in portfolio value during a downturn, expressed as a percentage. A 40% drawdown means the portfolio fell from its peak to 60% of that peak value before recovering.

Equity Risk Premium​

The additional return that stocks are expected to earn over risk-free investments (like Treasury bonds) to compensate investors for the higher risk. Historically, this has averaged roughly 4-6% per year for U.S. equities.

Fat Tails​

The tendency of real market returns to produce extreme events more frequently than a normal (bell-curve) distribution would predict. The 2008 financial crisis, for example, would be nearly impossible under normal distribution assumptions but is part of the actual historical record.

Fixed-Rate Strategy​

A withdrawal approach that uses a predetermined rate or dollar amount, with inflation adjustments but no response to market conditions. Examples include the 4% Rule and Fixed Dollar.

Guardrail Strategy​

A withdrawal approach that sets upper and lower bounds on the withdrawal rate, triggering spending increases or cuts when the portfolio crosses a threshold. Examples include Guyton-Klinger and Floor-Ceiling.

Inflation Adjustment​

The process of increasing withdrawal amounts each year to maintain purchasing power as prices rise. Most strategies use CPI (Consumer Price Index) to determine the annual adjustment.

Life Expectancy​

The estimated number of remaining years of life, used by several withdrawal methods to calibrate spending. Methods like VPW and RMD divide the portfolio by remaining years (or a factor derived from them) to determine each year's withdrawal.

Monte Carlo Simulation​

A simulation method that generates thousands of random return sequences from a statistical distribution (typically normal). While widely used, it underestimates extreme events because real returns have fatter tails than the assumed distribution. See Our Methodology for why SafeWithdrawls uses bootstrap sampling instead.

Need Coverage​

One of SafeWithdrawls' two success metrics. Need Coverage measures whether your withdrawal strategy generates enough income to meet your stated annual spending needs each year. A strategy can keep the portfolio alive (high Portfolio Health) but still fail if withdrawals fall below your required expenses.

Nominal vs Real Returns​

Nominal returns are the raw percentage gain or loss before accounting for inflation. Real returns subtract inflation, reflecting actual purchasing power. A 7% nominal return with 3% inflation produces roughly a 4% real return. SafeWithdrawls reports results in real (inflation-adjusted) terms.

Overall Score​

The combined metric that incorporates both Portfolio Health and Need Coverage into a single number. It captures both whether your money lasts and whether your spending needs are met throughout retirement.

Portfolio Health​

One of SafeWithdrawls' two success metrics. Portfolio Health measures how well the portfolio survives over the projection period -- whether it runs out of money, barely survives, or finishes with a substantial balance.

Real Return​

The investment return after subtracting inflation. If your portfolio gains 8% in a year when inflation is 3%, the real return is approximately 5%. Real returns reflect the actual change in purchasing power.

Required Minimum Distribution (RMD)​

IRS-mandated minimum annual withdrawals from tax-deferred retirement accounts (401k, traditional IRA) starting at age 73. The RMD method uses the IRS divisor tables as a withdrawal strategy, dividing the portfolio by a factor that decreases with age.

Safe Withdrawal Rate (SWR)​

The maximum initial withdrawal rate (as a percentage of the starting portfolio) that historically would not have depleted the portfolio over a given time period. The most cited figure is 4%, based on William Bengen's 1994 research using a 30-year retirement horizon and a 50/50 stock/bond portfolio.

Sequence-of-Returns Risk​

The risk that a retiree experiences poor returns early in retirement, when the portfolio is at its largest and withdrawals have the greatest relative impact. Two retirees with identical average returns can have very different outcomes depending on the order of those returns.

Social Security Bridge​

A strategy that uses higher portfolio withdrawals early in retirement to delay claiming Social Security benefits, resulting in a larger guaranteed income later. The SS Bridge method models this trade-off.

Success Rate​

The percentage of simulated scenarios in which the portfolio survived the full projection period without running out of money. A 95% success rate means the portfolio lasted the full term in 95 out of 100 simulated sequences.

TIPS (Treasury Inflation-Protected Securities)​

U.S. government bonds whose principal value adjusts with inflation (CPI). They provide a guaranteed real return, making them useful for retirees who need predictable inflation-adjusted income. Used in strategies like Bond Ladder and LDI.

Volatility Clustering​

The tendency of large market moves (up or down) to occur in clusters rather than being evenly distributed over time. After a large daily decline, the probability of another large move the following day is higher than normal. Bootstrap sampling from historical data preserves this pattern; Monte Carlo simulation does not.

Withdrawal Rate​

The percentage of the current or initial portfolio value taken as income in a given year. A $40,000 withdrawal from a $1,000,000 portfolio is a 4% withdrawal rate. Different methods calculate this rate differently -- some fix it, some adjust it dynamically, and some derive it from external factors like age or market valuations.