Feel Better About the USA - SWR in other developed countries.

[Midpack]

This was on page three of another thread (thanks Chinaco), but I thought it might be interesting to Americans here. I did not realize how low the SWR for many other developed countries was/is compared to the 4%± we all throw around. Note Spain (with equities), Italy, Belgium, France, Germany & Japan esp. You basically can't retire, as we know it, investing in your homeland in Japan (0.5% SWR!!!) and some other countries for all practical purposes. Sheeeeeeesh...

An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?

 

[kcowan]

As a Canadian, I am celebrating! Thanks for the link.

 

[donheff]

What this shows (as was pointed out in the other thread) is that if you were in countries devasted by WWI and WWII or by civil war (Spain), and you were invested solely in stocks and bonds of that country you would have fared poorly. In other words, you got whacked by the blackest of black swans. What isn't addressed is how we should incorporate that news in our current day investing.

 

[Danmar]

As a Canadian, I am celebrating! Thanks for the link.

Me too!

 

[REWahoo]

You Canucks best be cautious. This forum has a bad track record whenever someone exclaims "wheee!!"...

 

[CoolChange]

What this shows (as was pointed out in the other thread) is that if you were in countries devasted by WWI and WWII or by civil war (Spain), and you were invested solely in stocks and bonds of that country you would have fared poorly. In other words, you got whacked by the blackest of black swans. What isn't addressed is how we should incorporate that news in our current day investing.

International diversification?

 

[chinaco]

The USA is where most of the innovation occurs.

 

[Gone4Good]

What this shows (as was pointed out in the other thread) is that if you were in countries devasted by WWI and WWII or by civil war (Spain), and you were invested solely in stocks and bonds of that country you would have fared poorly.

Yup. That's another way of saying what Bernstein did, that the best you can hope for through financial planning is an 80% success rate. But as I understand it, Bernstein pretty much plucked 80% out of thin air. From other data in the article referenced above, it looks like 66% is closer to the truth; at least as experienced by Europe in the 20th century.

What isn't addressed is how we should incorporate that news in our current day investing.

Mine is a five part plan 1) A much lower than 4% WR 2) Flexible spending 3) Maintaining some marketable skills and contacts 4) International diversification and 5) Not worrying about the fraction of awful outcomes that can't be provisioned against.

Edit: In light of a conversation in that other thread, maybe I'll also add a part 6 . . . Don't worry about all the money that will be left unspent if the previous five bullet points end up being too conservative.

 

[kcowan]

Bogleheads :: View topic - The Demise of the 4% Safe Withdrawal?

Here is a discussion that had a head start and also has the author as a participant.

 

[Delawaredave5]

I couldn't find when the article was written - anyone know ?

 

[Midpack]

I couldn't find when the article was written - anyone know ?

Data was 1900 - 2008 if that answers your question.

 

[haha]

Bogleheads :: View topic - The Demise of the 4% Safe Withdrawal?

Here is a discussion that had a head start and also has the author as a participant.

Here is an example of the quality of that discussion:

A quick scan looked like this "study" was about whether the 4% rule would work in foreign markets, and it appears that it wouldn't in most. Just one of many reasons to invest American.

This guy is either pretty funny, or pretty boneheaded.

 

[Gone4Good]

A closer look at the study reveals the results are even worse than they first appear. . .

Perfect foresight assumption. Much of the analysis provides a best-case scenario for increasing the SAFEMAX by assuming in each year for each country that the new retiree has perfect foresight to choose the fixed asset allocation that maximizes the withdrawal rate for the subsequent 30 years. Obviously the assumption is not realistic and artificially inflates the SAFEMAX, but even so, the traditional 4 percent withdrawal rule will still perform surprisingly poorly. This assumption avoids accusations that a poor-performing asset allocation was chosen to discredit the 4 percent rule. To provide some idea about this assumption, we will also include a brief discussion for how the results change for a specific portfolio mixed evenly between stocks and bonds.

 

[Meadbh]

As a Canadian, I am celebrating! Thanks for the link.

I will not say "Whee" for fear of jinxing it!

I had always assumed that the SWR was highest in the US, due to the historically stronger equity markets there, and lower MERs. However, I wonder if the fact that USians have to budget extra for their healthcare in RE has something to do with Canada's higher SWR?

 

[Gone4Good]

However, I wonder if the fact that USians have to budget extra for their healthcare in RE has something to do with Canada's higher SWR?

In practice yes, but it's not factored into the study. Any benefit Canadians get from their health system would show up as a higher standard of living (less the extra tax burden) at a given WR. It wouldn't show up as a higher SWR.

 

[kcowan]

I had always assumed that the SWR was highest in the US, due to the historically stronger equity markets there, and lower MERs. However, I wonder if the fact that USians have to budget extra for their healthcare in RE has something to do with Canada's higher SWR?

No I don't think so. That comes out of their SWR just like our higher MERs come out of ours. If you are paying 2% MER then your Canadian SWR is 2.4% net. The Bogleheads have that as an advantage, for sure.