Search the site for discussions of "Pfau."
Although we are going to go with a fixed percentage (aka "variable") withdrawal, we've put the date off until our assets are anticipated to reach "we could do it if we really had to" on 1% SWR. So, yeah, ZIRP and Schiller P/E have definitely had an influence on our planning.
Search the site for discussions of "Pfau."
Although we are going to go with a fixed percentage (aka "variable") withdrawal, we've put the date off until our assets are anticipated to reach "we could do it if we really had to" on 1% SWR. So, yeah, ZIRP and Schiller P/E have definitely had an influence on our planning.
On second thought, it seems to me that the SWR is calculated on ups and downs of the market over decades. Some years--decades--the markets run wild and other years not so much but if we're looking out 30 years or so, I wonder if such musings could be dangerous.
Back in the late 70's with 15% inflation, I wonder what the pundits would've suggested as a SWR.
Holy smokes. 1% WR seems like total overkill to me.
4% worked through the great depression. If folks need to be conservative (and I do believe in being careful), go to 3% (that is our WR).
At 2% you should never have to sell anything, as dividends should pay the bills.
I use my own spreadsheet with inflation and returns as variables and run it with returns of 0 - 1% over inflation. A zero real return over 40 years would allow a 2.5% withdrawal rate, and a TIPS ladder as of this writing would provide more than a zero real return, with relatively low volatility and risk. Current TIPS rates are here:
United States Government Bonds - Bloomberg
Yeah, that's the rejoinder to Wade. Still, the combination of ZIRP and the shiller 10 strikes me as unusual. Given that we'd have a hard time getting back in after quitting and that a bit more time before retirement is not intolerable for either of us, we're playing better safe than sorry--especially given DW's family history of longevity.
Right. And I will offer that 40 years is a long, long time...a lot can change in that period.
I am not sure I understand what your point is. What kinds of changes do you mean?
Acronyms for 500 Alex.
I'm a FISER (Financially Independent Semi-Early Retired) and was wondering if the current Zero Interest Rate Policy is driving some adjustment since there are fewer low-risk positive returns available.
What I mean is this: Your projections on zero returns (and perhaps zero inflation) over 40 years show a 2.5% SWR; unless I misunderstood your premise.
My point was that 40 years is a long time and over that time, 40 years of zero growth was pretty unlikely, meaning that your position represents a worst case scenario.
By changes, I mean that there would be years of high growth and years of negative growth. The market would change over 40 years with new offerings and potentials. MFs, Index Funds and ETFs didn't exist 40 years ago, so there is all sorts of new potential for growth.
But...! (Going academic here)
Couldn't one argue that ZIRP will better contain inflation thus offsetting the need for higher returns?
As a result, a 4% SWR would remain valid as inflation (a negative) and returns (a positive) both make up the SWR?
One might also argue that ZIRP will increase returns due to easy cash. That could lead to a higher SWR with inflation contained and higher returns.
If we are going to have low inflation and low returns for the next 10 years, I would start looking at some investment grade perferred stock yielding 5 to 6 1/2% to replace some of my bond funds. That's if your already retired.
But again, low inflation and low returns might be the same as higher inflation and higher returns. Isn't 1% inflation+2% returns the same as 3% inflation and 4% returns?
Having said that I still believe that a 30-40 year SWR calculation takes into account decades of good performance, decades of bad performance, decades of high or low inflation in the number crunching.