personal financial planning software reverses dollar cost averaging
to calculate each periodic withdrawal amount from an IRA or
401K retirement plan to obtain more (not less) than the average
The SACOUT® formula requires the following user inputs:
When a withdrawal is to be made the only input required is the
current price p, just as in dollar cost averaging. The following
inputs are made only when the program is started:
A is the nominal dollar amount to be sold each period. The actual
dollar amount sold will vary, being larger when the price p is
higher and smaller when p is low. More on this later.
Pb is a base price, either today's price or what
you think the average price will be over the selling period. When
the price p equals Pb you will sell the nominal dollar amount,
Ko is a gain factor which establishes a new baseline above the
security price at KoPb dollars. This is the way dollar cost averaging
is reversed. Instead of measuring up from zero to determine the
number of shares to buy, we measure down from KoPb to determine
the number of shares to sell.
Making Ko=2 measures down from two times Pb and produces essentially
the same results as dollar cost averaging, only in reverse. Making
Ko less, for example 1.5, measures down from 1.5 times Pb so price
variations look bigger to the formula and a higher average price
results. The negative side of Ko lower than 2 is that your dollar
amount sold will vary more with price. A lower Ko would be appropriate
for a low volatility investment. Making Ko large, for example 50,
will sell an equal number of shares each period to obtain an average
selling price nearly equal to the average price over time. This
is better than selling an equal dollar amount per period. The program
has a built in default value of 1.5.
If an investment such as an annuity has various funds or no unit
price, then assume an initial unit price, (i.e. $10) and divide
the value by this to determine the unit price. After that find
p by dividing the value by the number of units owned.
When trades are made, adjust units owned by units traded (trade
dollars divided by unit value at trade time).
The SACOUT® method will sell a variable dollar amount per
period. After all, if you were to sell a fixed dollar amount per
period as is now the state of the art, selecting the dollar amount
to be sold is a rather arbitrary decision. If the price increases
more than expected, The SACOUT® method will reach a given total
dollar sales sooner than expected. One then has the option to stop.
If the price falls the SACOUT® method will sell less than expected
and can be continued. Hopefully you will be monitoring the performance
and can make adjustments to A, or Pb before that happens. SACOUT® automatically
increases the withdrawal when the value of the investment is up,
and decreases it when the value is down. This can be desirable
as it is natural to adjust spending as the value of investments
The Microsoft windows software for both Sacout and Sacin
is supplied on a CD ROM that requires as a minimum: Windows 95,
486 CPU, 32 MB RAM, and 5MB available hard disk space.
Sacco Company, Inc.
323 Bittersweet Circle
Williston, VT 05495
2007, Sacco Company, Inc. All Rights Reserved.
The technology underlying SACIN® and
protected under U.S. Patent #7,003,483.
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