Backtesting The Income on Demand Strategy

We can’t see what the future will bring—but we can learn from the past. One of my favorite websites is www.portfoliovisualizer. com. It provides a back-testing tool that lets you see how actual portfolios—and actual withdrawal rates—would have worked over any date range beginning as far back as 1985. I want to show you a purely hypothetical example for illustrative purposes only. If you retired then, at sixty-five, and utilized the income-on-demand strategy, where would you stand in 2019, at age ninety-nine? On the other side of a dot-com bust and the Great Recession?

We start with some assumptions. Let’s say the beginning portfolio balance is $1 million, invested entirely in Vanguard’s S&P 500 index fund. Let’s say you wanted income worth 5 percent of the portfolio’s value every year to help finance your hypothetical retirement.

The results are startling. Over those thirty-plus years, you’d have taken a total of $7,348,554 in income—and your ending portfolio balance would stand at $6,869,081. I’ll let the numbers speak for themselves in these charts.