CAPE-based Calculator
A withdrawal rate set from the cyclically-adjusted earnings yield, the inverse of Shiller’s CAPE ratio, so the rate falls when stocks are expensive.
Part of the FIRE simulator, a historical backtest calculator that replays your plan across every rolling window of market history since 1871.
How the CAPE-based strategy works
This valuation-aware rule sets the withdrawal rate as a base amount plus a multiple of the cyclically-adjusted earnings yield, which is the inverse of Shiller’s CAPE ratio. When stocks are expensive the CAPE is high, the earnings yield is low, and the rate falls; when stocks are cheap the rate rises. It responds to the sequence-of-returns risk that valuations foreshadow.
What the CAPE-based strategy trades off
Setting the rate from the cyclically-adjusted earnings yield ties spending to how expensive stocks are at retirement, the signal that foreshadows a bad sequence. It cuts withdrawals during a boom, when a cut is hardest to accept, and the result depends on CAPE data and the chosen coefficients.
Pros and cons
Pros
- Responds to valuation-driven sequence-of-returns risk
- Spends more when markets are cheap
- Grounded in the widely-cited Shiller CAPE research
Cons
- Depends on CAPE data and the chosen coefficients
- Can feel counterintuitive to cut spending in a boom
- Valuation timing is imperfect
Parameters you can adjust
- Base withdrawal rate (a): The fixed floor of the rate formula (rate = a + b × CAPE earnings yield), in percentage points. It sets the baseline withdrawal rate before valuations adjust it.
- CAPE earnings-yield weight (b): How strongly cheap markets raise the withdrawal rate. The rate is a + b × the CAPE earnings yield (100 ÷ CAPE), so a higher b lets valuations move spending more.
Backtest CAPE-based against market history
Opens the simulator with CAPE-based already selected, so you only set your portfolio and horizon.