If a retiree has specific withdrawal needs and a specific investment horizon, he or she will need to know what interest rate will satisfy the equation. Figure 4 provides a table of interest rates needed to reach different investment horizons given different withdrawal levels. As investment horizon and annual withdrawal increase, interest rates needed to reach those goals become increasingly higher. This creates a paradox for retirees. Typically, higher risk investments yield higher interest rates.
Risk implies a greater potential for loss.
There should be a shift to a more conservative portfolio. Figure 3 should be analyzed in the context of reasonable interest rates. It would be foolish for a retiree to count on an historic high return to reach investment horizon. Retirees are concerned with how much they can draw annually. Figure 5 provides a clear table of annual withdrawal levels given different investment horizons and interest rates.