R16- Exhibit 3

Does anyone understand Exhibit 3 in Reading 16? I don’t get the idea what stands behind these numbers. Please help.

probability of ruining one’s nest egg if spending is continued. e.g. a 65 year old male, retiring today can spend 4% of his nest egg - and if he does so, there is a 9% probability that he will be ruined. if he spent 5% instead - his chance of getting ruined is 15.8%.

Should I understand how are these probabilities calculated?

I do not think there is enough material available to calculate those. and if you read the paragraph on pg 231 at the bottom, they mention: Milevsky and Robinson… developed a method to calculate sustainable … Exhibit 3 represents an example of Ruin probab… (it is a substitute of the monte carlo simulation). takeaway - a lower ruin probability means the spending rate is sustainable…