Super Segur

The ‘Super Safe Retirement rate ”calculator then estimates the equivalent yields of certainty and the participation of Merton.

You can use these equivalent yields of certainty as ultraconservative insurance withdrawal rates. And the participation of Meton as the optimal assignment to the actions in its portfolio.

Click Calculate to see example calculations using historical averages. Or follow the instructions under the calculator to make their own personalized calculations.

Note: Initial default inputs use Historical Real Historical Volatility of US. I established this entry in 0 (zero) to match the treatment of typical textbooks.

How the calculator works

The super safe retirement rate calculator passes through three calculations.

First, the expected average geometric yields of the shares and assets without risks are required and adjusts these percentages, so they approach the arithmetic average yields. (Mechanically, the formulas add half of the square volatility).

Second, the calculator estimates the equity premium. (If the shares return 7 percent and the risk -free bonds return 2 percent, the capital premium is equal to 5 percent).

Thirdly, finally, the Super Safe Retirement rate calculator estimates the equivalent yields of certainty (CER), as well as the “capital allocation” actions of merton suggested for the standard set of risk tolerances.

Custom Supervolutive Retirement Rate

To calculate a personal rate of super safe withdrawal, replace the predetermined annual average yields of “geometric mean” for actions and bonds without risks with their planned yields. And then also estimate volatism, or standard deviation, for both kinds of assets.

You can have estimates for these tickets. But you don’t? No problem. Large investment services also provide this information regularly. (See here, for example, for the December 2024 market perspectives as avant -garde.)

Equivalent returns and merton returns shares an image

A simple line picture shows precisely how the operation of Merton and equivalent certainty returns (see below).

The blue line shows the average expected arithmetic yields for portfolios using a variety of actions of shares: 0%, 10%, 20%, 30%, etc. If the portfolio only has assets without risks, for example, the expected performance is equal to the performance without risks. If the portfolio has only shares, the expected yield is equal to the capital yield. Among those capital percentages, the expected yield reflects a weighted average.

The line chart suggests that the wallet runs the risk of using those two discontinuous gray lines. They show the yields of the 25 and 75 percentile to 5%).

That green line shows the equivalent yields of certainty, or CERS, and graphically shows the utility that the investor enjoys in several actions of shares. The green line is flattened as the investor increases the allocation to the shares. Which visually indicates the diminished marginal utility. Indeed, the formulas assume that there is a risk sanction that decreases the expected value.

By the way, the green line reflects a good assumption about utility. The Python script that draws the line chart uses the standard utility function or the formula, economists believe it does a fairly good job. But the main conclusion here for non -economic ones? Of course, you and I obtained greater returns by assigning increasing percentages to the shares (see the blue line). But the risks explode while doing this (see the two gray discontinua lines). The utility we enjoy (see the green line) essentially exceeds merton share.

The historical context helps

Using historical predetermined numbers, which is what the line chart does, the merton share formula suggests an allocation of 62.5% to actions based on a constant relative risk aversion equal to 2. (More about this constant in a minute ). Orthodox stocks of 60 percent and the assignment of assets of 40 percent of the bonds. In addition, equivalent certainty performance according to the formula is equivalent to approximately 3.56%. Which is curiously close to the safe withdrawal rate of four percent cannon.

Customize your relative risk aversion

For practical purposes, the previous super safe abstinence calculator assumes that their personal risk of relative risk is equal to 1, 2, 3, 4 or 5. The way in which the formulas of Merton and CER work, those values ​​are a kind of “standard shoe sizes.

Most people, according to research, feel a constant relative risk aversion equal to 2 or 3.

A constant aversion to relative risk equal to 1 could indicate someone comfortable with an leveraged portfolio in many economic scenarios. (At the end of December 2024, a constant aversion to relative risk equal to 1 would mean that an investor that only focuses on US actions could invest between 60 and 65 percent of its portfolio in US actions).

A constant aversion to relative risk equal to 4 or 5 would suggest in the current market an allocation to US actions of perhaps 10 percent to 15 percent.

Use closed as a super safe retirement rate?

The $ 64 question: can you really use equivalent certainty yields as a safer “safer” safe withdrawal? Good question. And one is worth chewing a little.

Equivalent certainty yields can provide a good Safe Retirement Rate Number. As noted, if you perform the calculations using historical averages? The resulting merton shares and CER are combined with the almost canonical rule of 4 percent and the popular shares of 60 percent and the assignment of assets of 40 percent of bonds. But you must be careful here.

It is true that the use of CER as a super safe withdrawal rate offers some unique benefits. The approach considers the risks of a particular portfolio. Explicitly addresses the periods in which the expected yields in the future will probably be lower. (If you do not like the idea of ​​forecasting the lowest expected capital yields, you can surely see that it makes sense to predict the yields of the lowest expected bonds if interest rates have decreased). Also for investors with long retirement and who wishes to preserve their wealth? The ultraconservative nature of the CER means that they are almost guaranteed to not fail. (If this sounds unlikely, consider that the percentages of CER begin lower. And then if the portfolios are reduced in value, that percentage of CER probably increases, but it is also multiplied by the lowest portfolio value of the new year).

However, using the CER as a super safe withdrawal rate may not make sense in many situations. Currently, the formula returns a very low withdrawal rate for investors that limit their capital investments to US shares. (The equivalent of certainty at the end of 2024 could suggest a super safe withdrawal rate of less than 2 percent for an investor of all US actions). The CER formula would also result in investors simply not spending much of their retirement egg. (That really doesn’t make sure). And the formula would tend to restrict the expense of a retiree. (That doesn’t sound great).

Two final thoughts

A couple of other thoughts before finishing.

First, if you have been using the safe removal rate of four percent, a way to benefit from the super safe retreat rate calculator is to make the calculations for your wallet. And then think of an average of the CER percentage and that four percent figure. That hybrid approach takes on your bets a bit.

A second idea: calculating CERS and Merton actions can help you think about diversifying US actions. And doing arithmetic can also help him calibrate his portfolio risks more emotionally. (CERS and Melton share mathematics help you quantively adjust the risk of your portfolio). Those effects? Possibly good good.

Related resources

This calculator and complementary discussion can be interesting since he is learning about these things: Merton Share Estimator.

This related discussion of the variability of portfolio returns can provide a good context: retirement plan B: why one needs.

I like the ideas that the participation of Meton and the equivalent yields of certainty provide when thinking about retirement. But personally? I think it makes more sense to simulations of Monte Carlo to think about the risks. That topic is discussed in more detail here: Segura Retiro Reto de Monte Carlo for Low expected yields.

Finally, if you are struggling with mathematics and the logic of equivalent certainty returns and how you can help lower performance bonds. See this blog post: The simulations of Monte Carlo show how the bonds cushion the risk of retirement. It provides a visual approach to explore how risk -free assets can mainly increase their risks during retirement.