History of the 4% rule

[Ed_The_Gypsy]

Let's see. If I understand it correctly,
1) If you don't save enough, you are in trouble.
2) High fees are murder in the long run.
3) A blind 4% MWR may be too high (based on 60/40 AA) in some cases. 2.65% was mentioned in the article. (According to the graphs shown, I do not see that outlier.)
4) If you could predict the future you could do a better job of planning.

So, maybe 3.5% MWR and 100/0 are better.

By the way, I saw several of the graphs in John Greany's web site a long time ago.

 

[veremchuka]

I have read many of these articles over the past few years. A lot depends upon the performance of the equities you hold and the % allocated to equities. A large down turn early in retirement and you may go broke. Keeping to a 4% or less WR pretty much insures success especially with a 40/60 allocation. Withdrawing less when the markets are down helps a lot too plus no need to be rigid about the % being X% and the inflation increase.

Here's some links to articles with tables that may be of interest. I don't care about a SWR, I'll take money if I need to and so far I did so once to help pay off my mortgage but it was a small amount. At the rate I'm going I couldn't possibly run out of money.

FundAdvice.com - Retirees: Earn lower returns. Have more money.

FundAdvice.com - How much money can you prudently take out of your investments in retirement?

 

[Nords]

Actually it is very informative, especially as to the likely quality of the article.

Simas, never mind, I completely retract my request to see the article.

You might want to refrain from posting here on any subject that involves Rob Bennett as a "source" of "info".

 

[haha]

Keeping to a 4% or less WR pretty much insures success especially with a 40/60 allocation.

This is puzzling to me. How can you withdraw a real 4%, when 60% of that 4% is going to have to come from fixed income returning about nominal 2.5%? 60% of 2.5% =1.5%. So you have to get 4%-1.5% =2.5% from the 40% equities too, so equities have to return 6.25%. But wait, this is real return, in a world without volatility. In a real world, with inflation and volatility, I believe that this and apparent low prospective returns on equities make it very unlikely that this cake will bake.

Ha

 

[Free To Canoe]

Thanks for posting. There are no guarentees, only estimates. Must keep reading.

 

[nun]

This is puzzling to me. How can you withdraw a real 4%, when 60% of that 4% is going to have to come from fixed income returning about nominal 2.5%? 60% of 2.5% =1.5%. So you have to get 4%-1.5% =2.5% from the 40% equities too, so equities have to return 6.25%. But wait, this is real return, in a world without volatility. In a real world, with inflation and volatility, I believe that this and apparent low prospective returns on equities make it very unlikely that this cake will bake.

Ha

The variability of return is why I subscribe to a variable withdrawal rate using the "Mcawber Algorithm". Of course this requires budget control so that expenses don't our strip income or a suitable stash of cash and good returns in future years.

 

[chinaco]

Translation.... don't hope investing will take one to riches and early retirement. Most have to save a significant amount of their income (reduce their current lifestyle) to become financially independent and maintain their lifestyle during FIRE.


Of course, with all of the plans that go out till 95... there will be many heirs receiving windfalls....

 

[nun]

Translation.... don't hope investing will take one to riches and early retirement. Most have to save a significant amount of their income (reduce their current lifestyle) to become financially independent and maintain their lifestyle during FIRE.


Of course, with all of the plans that go out till 95... there will be many heirs receiving windfalls....

+1
I save 40% of my annual income. 27% goes on mortgage and I live off 33%. Once the mortgage is gone and I have the reduced expenses of ER I'm looking to generate 30% of my salary to maintain my lifestyle. 15% comes from rental income so my investments, pensions, SS etc only have to generate 15% of my pre ER salary.

When I look at the saving vs spending of most people I simply cannot understand how they hope to retire at all.

 

[chinaco]

+1
...
When I look at the saving vs spending of most people I simply cannot understand how they hope to retire at all.

Every time I hear someone at work proudly proclaim that they are putting enough into their 401k to get the match... I cringe!

 

[Major Tom]

Every time I hear someone at work proudly proclaim that they are putting enough into their 401k to get the match... I cringe!

Agreed, but at least they're smart enough to do that, and there's always the hope that at some point they'll think some more and further increase their savings rate.

 

[yakers]

Every time I hear someone at work proudly proclaim that they are putting enough into their 401k to get the match... I cringe!

Hey, lots of people put in a lot less than that. Some have a negative net worth all through their life.
I hate to see this as some are otherwise nice people other than being financially dysfunctional but it does mean they will not retire, have to keep working and contribute to SS and other taxes.

 

[rmark]

This article has a short history of the 4% rule (plus a pitch for dividend stocks)

What's a Safe Withdrawal Rate? These 10 Dividend Stocks Are the Answer - Seeking Alpha

However the safe withdrawal rate has varied considerably

Does the 4% rule hold up? | Vanguard Blog

And once you step outside the US data set it looks much less reliable

http://www3.grips.ac.jp/~pinc/data/10-12.pdf

 

[Ed_The_Gypsy]

Remember that Scott Burns got on the map when he called out Peter Lynch who said in an article that one could withdraw 5% forever safely. Scott said, No you can't, and Peter withdrew his statement.

My bad. It was 7%.

 

[Ed_The_Gypsy]

This article has a short history of the 4% rule (plus a pitch for dividend stocks)

What's a Safe Withdrawal Rate? These 10 Dividend Stocks Are the Answer - Seeking Alpha

However the safe withdrawal rate has varied considerably

Does the 4% rule hold up? | Vanguard Blog

And once you step outside the US data set it looks much less reliable

http://www3.grips.ac.jp/~pinc/data/10-12.pdf

Good article from Seeking Alpha! Thanks!

3.5% still looks OK and 3% bullet-proof if you live forever. I like dividends.

 

[packrat44]

Translation.... don't hope investing will take one to riches and early retirement. Most have to save a significant amount of their income (reduce their current lifestyle) to become financially independent and maintain their lifestyle during FIRE.

Agree. Structural engineers over-design so when things don't go as planned, the structure still survives. We need to do the same with our financial plans. I would hate to run short and be battling my DW for the last bean in the can.

 

[chinaco]

Agree. Structural engineers over-design so when things don't go as planned, the structure still survives. We need to do the same with our financial plans. I would hate to run short and be battling my DW for the last bean in the can.

That is a great analogy.