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Another peek @ 4% SWR
Old 09-04-2013, 03:04 PM   #1
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Another peek @ 4% SWR

Another article indicating that 4% SWR may be too risky for some retirees.

Quote:
These data might also suggest that the couple should adopt a more conservative portfolio and a lower withdrawal rate (3.75% instead of 4.75%). For example, perhaps they feel that the odds they will run out of money must be kept below 5.00%. In which case, they would adopt an 80%/20% stock/bond mix and an annual dollar withdrawal rate (increased each month by inflation) of $41,920 on their initial $1 million investment. But that conclusion is excessively conservative. Because once they have embarked on their journey of withdrawals during retirement, if they fall too far behind, encountering a rare market crisis (of which there is less than a 5% chance), then they can easily adjust their annual consumption level down.
4% Failure
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Old 09-04-2013, 05:19 PM   #2
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From the article:
Quote:
If the couple shifted from 100% stocks to a 50/50 stock/bond mix, they increased their probability of running out of money from 5.00% to 10.31% at the initial 4.194% starting principal withdrawal rate (the $41,940 figure).
....
However, for withdrawal rates at or above 4.516%, the lowest risk portfolio was 100% stocks.
....
Rob Brown, PhD, CFA
Whenever I see precision like this in an article, it just chaps me. The writer is trying to say something but all that I can see is "See how smart I am." False accuracy. I just wonder how much thought they put into the reset of the article. I would ask scrabbler1 (our resident math head) for any insight.

As a newly minted Literacy Instructor, I wonder how a literacy learner will react when they encounter false accuracies like this.

Thanks for the article. It did get me thinking, just along different lines.
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Old 09-04-2013, 05:19 PM   #3
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This is hard to believe....

>>>>>>>>
Say, if their balance fell below 85% of the glide path amount, they could reduce their monthly withdrawal by 10.3%. If they withdrew $47,500 each year or $3,958.33 each month, for instance, they would bring it down to a sustainable monthly $3,550.62. The couple would only need to do this once during their 353-month withdrawal period, and they would reduce the probability of running out of money to 0.00% (assuming they have an all-stock portfolio).
>>>>>>>>

Also...Who would've their entire portfolio in 100% stocks? It would've been useful had he given adjustment for 50/50 portfolio and how long.
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Old 09-04-2013, 07:07 PM   #4
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Quote:
Originally Posted by Cooked View Post
From the article:
If the couple shifted from 100% stocks to a 50/50 stock/bond mix, they increased their probability of running out of money from 5.00% to 10.31% at the initial 4.194% starting principal withdrawal rate (the $41,940 figure).
....
However, for withdrawal rates at or above 4.516%, the lowest risk portfolio was 100% stocks.
....
Rob Brown, PhD, CFA
A quick test with Firecalc show that with a 5%, 30 year withdrawal plan, 100% stocks has a 30% failure rate while 70% stock/30% bond has about a 26% failure rate. This is similar to other retirement calculators (including my own), as well as the results quoted by many other retirement planners, so I don't have a lot of faith in this guy's results.
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Old 09-05-2013, 11:43 AM   #5
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Too many 'significant figures'. Plus or minus 30% is good enough for me. In fact, 4% vs. 3% is about a 33% difference. Bear this in mind.
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Old 09-05-2013, 01:58 PM   #6
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Quote:
Originally Posted by Cooked View Post
From the article:


Whenever I see precision like this in an article, it just chaps me. The writer is trying to say something but all that I can see is "See how smart I am." False accuracy. I just wonder how much thought they put into the reset of the article. I would ask scrabbler1 (our resident math head) for any insight.

As a newly minted Literacy Instructor, I wonder how a literacy learner will react when they encounter false accuracies like this.

Thanks for the article. It did get me thinking, just along different lines.
Reminds me of:
Is the evidence for austerity based on an Excel spreadsheet error?

I don't trust anybody's spreadsheets, that's why I do my own.
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Old 09-05-2013, 10:17 PM   #7
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'Reminds me of:
Is the evidence for austerity based on an Excel spreadsheet error?'

Interesting discussion on that

Why Reinhart and Rogoff Aren’t the Real Villains | CYNICONOMICS
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Old 09-05-2013, 11:50 PM   #8
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Quote:
Originally Posted by teejayevans View Post
Reminds me of:
Is the evidence for austerity based on an Excel spreadsheet error?

I don't trust anybody's spreadsheets, that's why I do my own.
TJE
I hear you. I NEVER want to review anyone else's spreadsheets or code again. Give me concepts, ideas and raw data. Cooking it up in an article is trying to make the authors bias' my own. No thanks.
I would never say that FireCalc and other calculators were not useful. They are. But with these calculators we can must implement a 'trust but verify' model. Thus your spreadsheet remark.
Internet journalism does not meet the same standard. Eject the 'trust' and replace with 'enjoy'. Especially when it is piled high and deep.
This is just my opinion. I will endeavor to not respond to threads with 4% in the subject in the future. ....must be strong....this is a tough challenge....
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