Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Another article on the 4% rule
Old 07-08-2018, 04:57 AM   #1
Recycles dryer sheets
Gunny's Avatar
 
Join Date: Oct 2013
Location: Grant
Posts: 94
Another article on the 4% rule

https://clark.com/personal-finance-c...le-retirement/

A short article with a more positive slant on the validity of the 4% rule going forward than others I've read recently. Seems like every other day there's a piece published refuting the 4% rule in the face of current high market valuations and low bond rates. I would like to have seen more of the details/numbers, e.g. exact AA used in a his article.
__________________

__________________
FIRE'd and loving it.
Gunny is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-08-2018, 10:54 AM   #2
Full time employment: Posting here.
 
Join Date: May 2015
Location: Atlanta suburbs
Posts: 597
Quote:
Originally Posted by Gunny View Post
https://clark.com/personal-finance-c...le-retirement/

A short article with a more positive slant on the validity of the 4% rule going forward than others I've read recently. Seems like every other day there's a piece published refuting the 4% rule in the face of current high market valuations and low bond rates. I would like to have seen more of the details/numbers, e.g. exact AA used in a his article.
And from the article:

"Here is a brief rundown of our findings:

70% of the time (58 of 82 scenarios) retirement funds lasted 50 years or more.
30% of the time, the money “ran out” – with the worst-case scenario in our study being 29 years.
Our conclusion: Yes, the 4% Rule still works."
__________________

DEC-1982 is offline   Reply With Quote
Old 07-08-2018, 10:54 AM   #3
Recycles dryer sheets
 
Join Date: May 2016
Location: Orange County Ca
Posts: 141
Thanks for posting! I had seen the WSJ article, but not the Clark Howard response. Personally will likely only end up needing roughly a 2.5% withdrawl rate for retirement but I like to see the 4% Trinity study continue to hold up. It will help me when I want to splurge a bit!
SpinDr is offline   Reply With Quote
Old 07-08-2018, 05:10 PM   #4
Thinks s/he gets paid by the post
Red Badger's Avatar
 
Join Date: Jan 2017
Location: Piedmont Region
Posts: 1,349
As I became financially literate all too late in life, I went from an avid reader of the WSJ to holding it in disdain. I read way too many articles there about needing 80-100% of gross income to retire, as well as the need for an FA to safely navigate investing.

This forum, and other blogs, helped me educate myself to the point of retiring at 60 with no worry or stress about our financial future.

Getting by nicely on ~50% of w*rking income.

My complicated portfolio is 4 funds; two asset and 2 equity. Zzzzzzzzzz. Oh, and a CD ladder to get us from 2017 to 2019 when we'll break open the SS piggy bank.

I like Clark. He gives sage advice. WSJ? Not so much.
__________________
Never let yesterday use up too much of today.
W. Rogers
Red Badger is offline   Reply With Quote
Old 07-08-2018, 05:41 PM   #5
Moderator
samclem's Avatar
 
Join Date: May 2004
Posts: 12,971
I, too, think Clark Howard gives good advice and is one of the "good guys" in the financial/consumer advice biz. Still, it doesn't appear that this analysis by his team addressed the specific points of the WSJ article (that high present stock valuations, low interest rates, and longer retirements may spell trouble for the 4% rule). It looks like he did exactly what most of us do: ran something like FIRECalc (or actually FIRECalc) using the historical asset return data and then looked at the results. To address the conclusion of the WSJ article, he'd have to do something different (e.g.. what's the % success for 40 year retirements with data sets that start with stock valuations and interest rates similar to today? etc). It appears he didn't do that.
But the data sets he did use included some of the rosiest years of the most robust economy in the post WW-II world. And, even with that, for 50 year retirements he found that taking 4% resulted in failure 30% of the time. So, I don't know that a present 40 YO ER who wants to take 4% per year adjusted for inflation should take a lot of comfort in this report. I don't.
samclem is online now   Reply With Quote
Old 07-09-2018, 04:05 PM   #6
Full time employment: Posting here.
Cut-Throat's Avatar
 
Join Date: Jan 2007
Posts: 806
Quote:
Originally Posted by samclem View Post
So, I don't know that a present 40 YO ER who wants to take 4% per year adjusted for inflation should take a lot of comfort in this report. I don't.

4% is a good 'planning tool', I don't know of anyone that actually follows this as a 'Withdrawal tool'.



If you want a Withdrawal Tool, use VPW, which is what I use. It will work 100% of the time and will probably allow you to spend more money. And no; it does not cause 'Wild withdrawal Fluctuations' that will have you eating cat food in down market years. That is easily mitigated by higher Bond Allocations and Delaying Social Security.


Think of VPW as Selling less when the Market is Low and Selling More when the Market is High..
Cut-Throat is offline   Reply With Quote
Old 07-09-2018, 04:20 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 2,085
Quote:
Originally Posted by DEC-1982 View Post
And from the article:

"Here is a brief rundown of our findings:

70% of the time (58 of 82 scenarios) retirement funds lasted 50 years or more.
30% of the time, the money “ran out” – with the worst-case scenario in our study being 29 years.
Our conclusion: Yes, the 4% Rule still works."
Well, 4% (of initial) would work for 25 years if you just put all your assets under a pillow. 4% of total remaining would work that way to infinity.
gerntz is offline   Reply With Quote
Old 07-09-2018, 04:22 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 2,085
Quote:
Originally Posted by Red Badger View Post
As I became financially literate all too late in life, I went from an avid reader of the WSJ to holding it in disdain. I read way too many articles there about needing 80-100% of gross income to retire, as well as the need for an FA to safely navigate investing.

This forum, and other blogs, helped me educate myself to the point of retiring at 60 with no worry or stress about our financial future.

Getting by nicely on ~50% of w*rking income.

My complicated portfolio is 4 funds; two asset and 2 equity. Zzzzzzzzzz. Oh, and a CD ladder to get us from 2017 to 2019 when we'll break open the SS piggy bank.

I like Clark. He gives sage advice. WSJ? Not so much.
Love the WSJ. Best paper going imo. But don't read it for its personal finance advice.
gerntz is offline   Reply With Quote
Old 07-09-2018, 04:43 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,987
Quote:
Originally Posted by gerntz View Post
Well, 4% (of initial) would work for 25 years if you just put all your assets under a pillow. 4% of total remaining would work that way to infinity.
Not really... what you are missing is that the withdrawals under the 4% rule start at 4% of the retirement date balance but then increase for inflation each year.... so 4% the first year, becomes 4.1% the second year, 4.2% the third year, etc. so it will definitely NOT last for 25 years if your assets were under a pilliow.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 07-09-2018, 04:44 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,987
Quote:
Originally Posted by gerntz View Post
Love the WSJ. Best paper going imo. But don't read it for its personal finance advice.
+1
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 07-09-2018, 10:39 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 20,193
Quote:
Originally Posted by gerntz View Post
Well, 4% (of initial) would work for 25 years if you just put all your assets under a pillow. 4% of total remaining would work that way to infinity.
The 4% rule withdrawals adjust for inflation to maintain constant spending power. Sticking your money under the mattress and spending 4% of the original value each year does not.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 07-10-2018, 05:47 AM   #12
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 2,346
Quote:
It doesn't appear that this analysis addressed the specific points of the WSJ article (that high present stock valuations, low interest rates, and longer retirements may spell trouble for the 4% rule). It looks like he did exactly what most of us do: ran something like FIRECalc (or actually FIRECalc) using the historical asset return data and then looked at the results. To address the conclusion of the WSJ article, he'd have to do something different (e.g.. what's the % success for 40 year retirements with data sets that start with stock valuations and interest rates similar to today? etc).
But the data sets he did use included some of the rosiest years of the most robust economy in the post WW-II world. And, even with that, for 50 year retirements he found that taking 4% resulted in failure 30% of the time. So, I don't know that a present 40 YO ER who wants to take 4% per year adjusted for inflation should take a lot of comfort in this report. I don't.
The underlined portion is why I cannot have any comfort with a 4% WR. I see little that suggests we can expect past returns going forward. I also would not live with a 30% failure rate. I am totally satisfied (all our needs and plenty of wants) at 2% WR, and know that I can spend more from time to time.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 07-10-2018, 06:00 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 20,193
I never expected 4% traditional SWR to be a good choice for a 50 year retirement. Too few data sets, even though the “rosy times” after WWII are counterbalanced by horrible times before WWII in Firecalc. We’ve read many times here that 3.3% or thereabouts gets closer to a “perpetual withdrawal rate”.

A huge goal of the traditional 4% approach was to create a constant inflation-adjusted income stream for a 30 year retirement. I pretty much decided that %remaining portfolio withdrawal method was a more sensible approach, especially as I didn’t care about constant income and was not comfortable with blindly adjusting income for inflation.

2%? Your heirs will be very happy.
__________________

__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Another Study Challenging the 4% SWIP Rule chinaco FIRE and Money 49 07-04-2011 08:37 AM
Yet another article on kids & allowances Nords FIRE and Money 22 02-22-2007 05:52 PM
Yet another article on Universal Healthcare tomz Other topics 16 07-09-2006 04:23 PM
Another "How to retire happy" article REWahoo Life after FIRE 13 06-19-2006 09:22 AM
Another article on our inability to save REWahoo Other topics 49 03-10-2006 10:59 AM

» Quick Links

 
All times are GMT -6. The time now is 04:32 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.