The ratio is the "asset to withdrawal" ratio. If you have $100,000 and withdrawing $5,000 each year, indexed to CPI, then your asset to withdrawal ration is 20. ($100,000 / $5,000). It is the reciprocal of the initial withdrawal rate, in this case 5%.
In round numbers, for a 65-year old person, if your asset/withdrawal ratio is under 20, then you will likely run out of money -if you were to hold a portfolio- during retirement. The only sure way of having a lifelong income is purchasing a CPI- indexed life annuity.
Again in round numbers, for a 65-year person, if your asset/withdrawal ratio is over 30, then you do not need to buy any annuity, your portfolio is large enough to cover the three financial risks of retirement; longevity, market and inflation risks.
In between 20 and 30, you do need to export the risk - only as much as necessary- but still can hold some investment portfolio.
In round numbers, for a 65-year old person, if your asset/withdrawal ratio is under 20, then you will likely run out of money -if you were to hold a portfolio- during retirement. The only sure way of having a lifelong income is purchasing a CPI- indexed life annuity.
Again in round numbers, for a 65-year person, if your asset/withdrawal ratio is over 30, then you do not need to buy any annuity, your portfolio is large enough to cover the three financial risks of retirement; longevity, market and inflation risks.
In between 20 and 30, you do need to export the risk - only as much as necessary- but still can hold some investment portfolio.
