What does the Spending Multiplier (in the Settings window) do?
In each simulation trial, the program decides year-to-year whether the amount the retiree gets to spend should stay the same, go down, or go up. The decision is based on whether the portfolio is bigger or smaller than it was at retirement start, and based on whether the portfolio went up or down in value since last year. The program implements this by adjusting the “percent of expenses to fund” variable. If things are going badly, the program doesn’t cut the percent of expenses all the way back to the floor right away. Instead, it starts withholding the yearly spending COLA (cost of living adjustment), which will require the retiree to cut spending in the next year by the inflation rate. The multiplier magnifies this effect so that the spending gets cut (or increased) by multiples of inflation rate instead of just by the inflation rate. The result is that a multiplier greater than 1 speeds up the adjustment process and usually causes the floor of simulation to be hit more quickly. (Not
