4% rule gone for good?

[bingybear]

The 4% "rule" isn't really a rule; it's a factual statement: "If the future is no worse than the past, then you can withdraw 4% per year for 30 years and probably not run out of money".

The problem occurs when people try to turn this fact into a rule by removing the part in italics.

+1
and the part in italics weakens the rule.

not that I'm proposing this... but look at RMDs... withdraws designed to start at 70.5 and end I think at 115 years old. You always pull a % of what is left... so should not run out of money.
It's real easy to blow your budget.. I did (RE in March)... bought an outback. But then I don't have a really firm ... defined WR. I hand waved a 1.5% which will be difficult to keep within with this purchase and medical expenses. I likely should decide to follow some withdraw method. But typically I under spend.

 

[Midpack]

Thought this comparison between SWR, VPW & RMD withdrawal methods might interest some here. Hindsight is a wonderful thing (e.g. past performance from historical results is no guarantee of the future), but FWIW.

I wouldn't expect it to change anyone's outlook, it's only one data point - if anything it will probably reinforce whatever withdrawal method views the reader already holds.

Safe Withdrawal Rates, Part 2: Variable Withdrawals | Seeking Alpha

 

[haha]

Perhaps these rules and systems are a really good idea for someone with no common sense. However, this person would have no considerable assets to retire on anyway. I cannot see their relevance for the sophisticated and dedicated retirees like those at this site, other than that which could easily be summed up in a short essay.

LBYM, save more than you think necessary, try to remember that some unknown unknowns just may exist, live conservatively before and after retirement, If you need to spend a bit more than planned because you or a family member are sick, go ahead, but maybe not for your 4th tour of Italy, or at least not often.


If one insists on a formal system, very likely a smoothed series of Buffet's portfolio look-through earnings would at last approach the problem from a different angle than FireCalc and other well vetted withdrawal methods that implicitly assume using up the cash vale of a portfolio over one's expected lifetime. This of course rests an action plan on four unforcastable variables-lifespan, portfolio return, portfolio price path, and necessary expenses.

Ha

 

[Texas Proud]

I really do not think that the current research has disproved the 4% rule....


I have not read all the articles, but I do not think there has been any failures yet. Have there been


I think that the current state of affairs is temporary.... it will eventually go back to 'normal'... I do not know what the stock market has done for the past 15 years, but Vanguard says that for the past 10 years I am up 8.9% per year... doing well to meet the 4% rule...

 

[Midpack]

I really do not think that the current research has disproved the 4% rule....


I have not read all the articles, but I do not think there has been any failures yet. Have there been


I think that the current state of affairs is temporary.... it will eventually go back to 'normal'... I do not know what the stock market has done for the past 15 years, but Vanguard says that for the past 10 years I am up 8.9% per year... doing well to meet the 4% rule...

Maybe I'm misinterpreting your statement, but the classic 4% SWR methodology is based on a 95% success rate...IOW 5% failure rate.

 

[RunningBum]

Thought this comparison between SWR, VPW & RMD withdrawal methods might interest some here. Hindsight is a wonderful thing (e.g. past performance from historical results is no guarantee of the future), but FWIW.

I wouldn't expect it to change anyone's outlook, it's only one data point - if anything it will probably reinforce whatever withdrawal method views the reader already holds.

Safe Withdrawal Rates, Part 2: Variable Withdrawals | Seeking Alpha

Good article. Makes it clear that VPW is geared towards someone who doesn't care about leaving anything behind, while SWR most likely will leave a lot for your heirs in most normal scenarios.

And I neglected to mention that my #1 concern with VPW is that it does go to 0. It may be extremely unlikely that I live to 100 (which is the end date for the examples I've seen), but I don't want my money gone if that does happen. Unlike one poster on here, I don't consider my plan a failure if I die with money.

I'm more likely to set my end date to something like age 115, which I think essentially turns it into the RMD plan. I'm happy to leave something behind, and like the assurance that I won't outlive my money. I haven't even been spending 4% since retirement much less what VPW or RMD would give me, but I think I like using those as my upper bound.

 

[Major Tom]

Perhaps these rules and systems are a really good idea for someone with no common sense. However, this person would have no considerable assets to retire on anyway. I cannot see their relevance for the sophisticated and dedicated retirees like those at this site, other than that which could easily be summed up in a short essay.

I always enjoy these types of bold, dare I say, blunt statements from you Ha. I think that very, very few retirees here follow any of these "rules" to the letter. Perhaps none. Most (all?) seem to use them as a rough guide, so they have a sense of when they might be about to get too far off course.

If that's the case, then why all the discussion? Well, we are an analytical bunch - we just can't help ourselves. A lot of the minutiae discussed here is very possibly also driven by folk who haven't yet retired, or are very early into the retirement, and are still fretting a bit - or by those who are sailing close to the wind by not having quite enough money, or with an ardent desire to spend as much as their portfolio will allow. The folk who are trying to "squeeze the most" out of their portfolios have an impossible task ahead of them but hey - we all love numbers, and we love to speculate what the future may hold.

LBYM, save more than you think necessary, try to remember that some unknown unknowns just may exist, live conservatively before and after retirement, If you need to spend a bit more than planned because you or a family member are sick, go ahead, but maybe not for your 4th tour of Italy, or at least not often.

Ha

This almost reads like that Baz Luhrman song that was incorrectly attributed to Kurt Vonnegut (except you left the part about wearing sunscreen out). It's what we should be doing though; hopefully, most of us are.

 

[daylatedollarshort]

I am not so sure 100 years of investing past for a single country accurately predicts 50 years of the future, which personally brings me back to the Triumph of the Optimists multi-country conclusions (a country has one past and many possible futures), a liability matching strategy and continuing to live below my means in retirement.

 

[wingfooted]

I am planning to retire in 2016 at age 60

According to actuarial tables, the probability of me living to 90 is 2 in 10, to 95 is about 1 in 20.

According to simulations (FIRECALC) , the probability of a starting portfolio with 4.5% SWR having a balance greater than zero - for a period of 30 years (until age 90) is 90%

Shrouds have no pockets

YMMV

 

[Midpack]

I am not so sure 100 years of investing past for a single country accurately predicts 50 years of the future, which personally brings me back to the Triumph of the Optimists multi-country conclusions (a country has one past and many possible futures), a liability matching strategy and continuing to live below my means in retirement.

If the whatever you define as the "past" bears no relationship whatsoever to the future, how would you know you are 'living below your means in retirement?'

 

[daylatedollarshort]

If the whatever you define as the "past" bears no relationship whatsoever to the future, how would you know you are 'living below your means in retirement?'

Matching strategy + low baseline expenses in relation to retirement income. I like Bobcat2 posts over at Bogleheads.

Added:

Actually I don't think the past bears zero relationship to the future, but looking at the stock market over many countries like they did in TofTO, may be more insightful than using 100 years of past history in one country to predict 50 years into the future, especially with a more global economy than we had in the past.

 

[nash031]

4% relates to a 30 year period which matches a someone retiring at 65. Dropping it to 3.5% or thereabouts is for a 40 year period which better matches an early retiree.

Exactly my understanding and exactly why my aim point is 3% for a planned 40-50 year retirement. If I find I have more money when I'm 65 and 20 years into retirement, I can always take another vacation or buy a Maserati with a vanity plate that reads 3PCTSWR or something.

 

[Major Tom]

Exactly my understanding and exactly why my aim point is 3% for a planned 40-50 year retirement. If I find I have more money when I'm 65 and 20 years into retirement, I can always take another vacation or buy a Maserati with a vanity plate that reads 3PCTSWR or something.

+1

I think it would be fun to squander some money when I'm older - or have the luxury of being able to give away some during the course of my everyday life. I'm thinking things such as bigger tips, footing bills in stores for strangers in need, donating to charities etc.

 

[RetireBy90]

so for many who post here, a rule like 4% or 3.5% doesn't work. For me (I am not retired yet, about 20 months away) the 4% gave me a starting point. I've run several spreadsheets projecting a 6% and 4% return on my investments, and having a starting figure helps think through the numbers. Like many my sources of income will vary over my retirement years and so my needs from the investments will change over the years. Plan is to retire at 60 with a mortgage and a military pension. At my age 63 my DW will start SS, at my age of 67 I'll file and suspend my SS and pick up a spousal draw, then at m age of 70 I'll revert to my enhanced SS. At age 80 my mortgage will be paid off and I'll have less expenses.


I think this mix of different sources of income and expenses is more likely the norm rather than needing a fixed number of dollars over a 30-40 year period.


So nothing wrong with starting with a somewhat reliable rule, and making changes to fit your needs.


When you drive a car on a 45mph speed limit road, that doesn't mean you can always drive 45 safely, and doesn't mean that doing 50 is unsafe. Who besides me sometimes goes faster than 45 and sometimes slower? Of course the problems start when folks dive in a manner that gets in my way.

 

[haha]

So nothing wrong with starting with a somewhat reliable rule, and making changes to fit your needs.

This is undoubtedly a persuasive pitch, but to me there is one huge flaw. What is the reliable way that you will know that you are failing? How can you differentiate the expected ups and downs from those that may de destined to be a fatal slide?

One thing I usually (always) see being ignored is-"what is our starting point?" Is a portfolio of stocks and bonds with a price of $1 mm at todays PE10 of ca.27 the same value to a retiree as a portfolio valued at about 7 in 2080, or 15 in 2009?

To me it is impossible that it is. And this single fact invalidates everything based on past comparisons with nothing more than the market value of the portfolio. Anybody can do anything they want, but making reasonable justifications for some of these actions is not so easy.

Anyway, this will be clear enough in due time, unless Dame Janet is a lot more clever and lucky too than she appears to be so far..

Ha

 

[Independent]

I am planning to retire in 2016 at age 60

According to actuarial tables, the probability of me living to 90 is 2 in 10, to 95 is about 1 in 20.

According to simulations (FIRECALC) , the probability of a starting portfolio with 4.5% SWR having a balance greater than zero - for a period of 30 years (until age 90) is 90%

Shrouds have no pockets

YMMV

Depends on which actuarial table you use.

The table recently developed for individual annuities, which seems like a good fit for upper income people in excellent health, says that a male turning age 60 in 2016 would have a 47% chance of surviving to 90.
A female would have a 54% chance.

 

[mathjak107]

we have been gaining one year of life every 4 years since 2000. here is an updated chart.

 

[RetireBy90]

One thing I usually (always) see being ignored is-"what is our starting point?" Is a portfolio of stocks and bonds with a price of $1 mm at todays PE10 of ca.27 the same value to a retiree as a portfolio valued at about 7 in 2080, or 15 in 2009?

To me it is impossible that it is. And this single fact invalidates everything based on past comparisons with nothing more than the market value of the portfolio. Anybody can do anything they want, but making reasonable justifications for some of these actions is not so easy.

Anyway, this will be clear enough in due time, unless Dame Janet is a lot more clever and lucky too than she appears to be so far..

Ha

So I'll bite, how would you suggest one answer the question "How do I know if I have enough to retire?"

 

[David1961]

in numbers we can relate to , the common denominator to all failures is they maintained less than a 2% average real return the first 15 years and with out spending adjustments made ran out of money before they ran out of time.

I'm curious where the common denominator comes from. Makes sense. I just don't remember reading this anywhere.

 

[Jack_Pine]

Or we're simply being conservative.

I began retirement with a 2.5% WR, which is now standing at 2% of my current portfolio value. I am expecting to increase my withdrawals later on in my retirement, and being conservative now suits me fine - it's what I need to make me feel comfortable early on in what I hope will be a long retirement period. I may continue with the current WR for a while - who knows?

We are not all looking to maximize the income from our portfolios. Some of us like the comfort that a conservative WR gives us. There are plenty of people and causes I can leave my money to when I go.

I am torn between the comfort of being conservative and absoulte zero desire to have a ton of money left when I go.

 

[hnzw_rui]

I am torn between the comfort of being conservative and absoulte zero desire to have a ton of money left when I go.

Unfortunately, unless you can predict exactly when you'll die (or commit suicide once you run out of money), those goals are somewhat at odds with each other.

If I'm lucky enough to have my savings outlast me, I'm leaving majority of what's left to my former alma mater. I was on full academic scholarship with stipend for high school and college so I'd be quite happy to "pay it forward" and help deserving students.

 

[meierlde]

I am not so sure 100 years of investing past for a single country accurately predicts 50 years of the future, which personally brings me back to the Triumph of the Optimists multi-country conclusions (a country has one past and many possible futures), a liability matching strategy and continuing to live below my means in retirement.

It would be interesting to put together a time series for Germany from 1871 (which coincidentally was when it was unified) to the present. Give that there were several wipeouts of the market (WWI/the post war inflation) and WWII. I wonder what a german based firecalc would do.

 

[Jack_Pine]

Unfortunately, unless you can predict exactly when you'll die (or commit suicide once you run out of money), those goals are somewhat at odds with each other.

If I'm lucky enough to have my savings outlast me, I'm leaving majority of what's left to my former alma mater. I was on full academic scholarship with stipend for high school and college so I'd be quite happy to "pay it forward" and help deserving students.

Agree those thoughts are at odds. That's the challenge.

No kids and paid my own way through school. So, besides a good no kill shelter, can't think of a place I would want to leave a ton of money.

Obviously one can't run it down to zero. It does not need to keep growing either. We will see.

 

[daylatedollarshort]

Agree those thoughts are at odds.

No kids and paid my own way through school. So, besides a good no kill shelter, can't think of a place I would want to leave a ton of money.

Isn't a no kill shelter enough? We got our dog from one. He is the sweetest little guy and was due to be euthanized if our local shelter had not taken him in from the pound.

 

[Fermion]

Is a portfolio of stocks and bonds with a price of $1 mm at todays PE10 of ca.27 the same value to a retiree as a portfolio valued at about 7 in 2080, or 15 in 2009?

To me it is impossible that it is. And this single fact invalidates everything based on past comparisons with nothing more than the market value of the portfolio. Anybody can do anything they want, but making reasonable justifications for some of these actions is not so easy.

Anyway, this will be clear enough in due time, unless Dame Janet is a lot more clever and lucky too than she appears to be so far..

Ha

But if you really are convinced we are on the eve of destruction (market) why not design a portfolio that is short the market and short bonds? Then your 1mm would be worth a lot more than 1mm.

Or you could hedge and sell calls against your stocks, betting that at best we see minimal gains over the next several years. The call premium + dividends might still net you 4% real returns in a flat market.

If you don't want to do either of the above, then admit that you really don't know if the market is overvalued. We may see DOW 30,000 before the party ends.