Using Portfolio Visualizer's portfolio analysis tool I wondered if the "safe withdrawal rate" data could be used as a substitute for an annuity rate. SWR is a historical data point that changes depending on the historical start and end date. An annuity is a guaranteed income based in part on today's low interest rates. Obviously two different approaches to securing income in retirement. I'd like to consider part of my retirement income being derived from a Safe Withdrawal of stocks, bonds, and alternatives.
Exploring some older mutual funds (VWINX, VWELX, PRWCX, and VGHCX) I discovered the following SWRs (found within the Metrics tab
VWINX = 7.18%
VWELX = 8.02%
PRWCX = 9.16%
VGHCX = an astouding 14.31%
In other words, for each $1,000 invested in these four funds, each could safely pay out their SWR each year of:
VWINX = $71.80
VWELX = $80.20
PRWCX = $91.60
VGHCX = an astounding $143.10 (close to double VWINX's SWR)note: the annual dollar amount would adjust based on the annual mutual fund's dollar value at the end of each year:
Using VWINX's SWR (I set the annual withdrawal of a fixed percent of 7.18%) and I tested all four funds over the past 35 years (back tested from 1986 - 2021). All four survived a 7.18% annual withdrawal. Both VWINX and VWELX ending "cash value" were impacted by inflation. The 2021 (inflation adjusted value) of VWINX being only $567 of its original $1,000 value. Both PRWCX and VGHCX value stayed ahead of inflation while paying out 7.18% annually. VGHCX's value grew four fold over the last 35 year time frame. As a result it paid out larger and larger amounts annually compared to the other three fund choices. While VWINX paid out a pretty steady amount over the 35 year time frame (between $70 - $100), VGHCX's pay outs grew from $70 in year 1 (1987) to over $400 - $600 annually (years 13 - 35).
Most annuities don't provide inflation riders and many do not offer a cash value upon death. So strictly speaking even VWINX would be a good substitute for an annuity that pays out 7% with a ending cash value of $1,351 (equivalent to $567 back in 1986). The other three funds were an even better "annuity income" choice at that SWR.
None of these funds busted (went to zero) at this 7.18% Safe Withdrawal Rate. In fact, VGHCX's inflation adjusted cash value was $4,141...four times what was invested back in 1986. In addition, VGHCX provided larger and larger annual income pay outs that kept up with (exceeded inflation). Will the healthcare sector, and more importantly this fund, continue to offer such great performance?
Here's the link to PV with these four funds. The "Metrics" tab has the data on SWR (Safe Withdrawal Rate). Let me know if you find a fund with a SWR higher than VGHCX (14.13%).PV Link