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ARVA (Annually Recalculated Virtual Annuity)

Recalculate your withdrawal each year as if you were buying a virtual annuity with your current portfolio, using a blended time horizon to prevent late-life spending collapse.

How It Works​

ARVA was developed by M. Barton Waring and Laurence B. Siegel and published in the Financial Analysts Journal in 2015. Their paper argues that this is the theoretically correct way to spend from a portfolio: each year, calculate the level annual payment an annuity company would offer you, given your current balance, expected real return, and remaining time horizon.

What makes ARVA distinctive is the blended horizon. A naive implementation would use only your remaining life expectancy, but as that number shrinks toward zero the withdrawal percentage spikes to unsustainable levels. ARVA solves this by averaging your remaining life expectancy with the number of years to a maximum age (typically 120). This blend keeps the horizon from collapsing, preventing the late-life withdrawal spikes that plague simpler life-expectancy methods.

The result is a method that behaves like a self-correcting annuity: withdrawals rise when markets perform well and fall when they don't, but the blended horizon acts as a stabilizer that keeps the swings manageable. You get the flexibility of portfolio-based withdrawals with the mathematical rigor of annuity pricing.

The Formula​

Each year:

remainingLE = lifeExpectancy - currentAge
yearsTo120 = 120 - currentAge
blendedHorizon = (remainingLE + yearsTo120) / 2

realReturn = (1 + nominalReturn) / (1 + inflationRate) - 1

arvaRate = realReturn / (1 - (1 + realReturn)^(-blendedHorizon))

withdrawal = portfolio × arvaRate

Key parameters:

  • Life expectancy: Your actuarial life expectancy (from Personal Details)
  • Blended horizon: Average of remaining life expectancy and years to age 120
  • Real return: Nominal portfolio return adjusted for inflation
  • ARVA rate: The annuity-equivalent withdrawal rate for the blended horizon

Pros & Cons​

Advantages:

  • Academically rigorous — derived from optimal consumption theory
  • Blended horizon prevents late-life withdrawal collapse
  • Annuity-style math provides portfolio flexibility without an actual annuity purchase
  • Automatically adjusts to both market performance and aging

Limitations:

  • Spending varies with market returns — no guaranteed income floor
  • The blended horizon is inherently conservative, which may leave a larger estate than intended
  • Requires annual recalculation with updated portfolio values
  • Sensitive to the inflation and return assumptions you choose

Example​

Starting portfolio: $1,000,000 | Age: 65 | Life expectancy: 90 | Nominal return: 7% | Inflation: 2.5%

Real return: 4.39%

AgePortfolioBlended HorizonARVA RateWithdrawal
65$1,000,00040.05.1%$51,000
70$1,040,00035.05.5%$57,200
75$1,010,00030.06.0%$60,600
80$920,00025.06.7%$61,640
85$780,00020.07.6%$59,280
90$590,00015.08.9%$52,510

Notice that even at age 90, the blended horizon is still 15 years (average of 0 remaining LE and 30 years to 120), which keeps the withdrawal rate at a reasonable 8.9% rather than spiking toward 100%.

When to Use This Method​

ARVA works best for retirees who:

  • Want an academically grounded approach backed by published research
  • Value automatic adjustment to both market returns and aging
  • Prefer annuity-like income without actually purchasing an annuity
  • Can tolerate some income variability in exchange for mathematical soundness

It is particularly well-suited for retirees who find the 4% Rule too rigid and VPW too volatile — ARVA occupies a middle ground with its stabilizing blended horizon.

Try It Yourself

Compare ARVA against other strategies using your own numbers in the Scenario Builder.

References​