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wondering about new no 4% withdrawl rate
Old 10-12-2008, 06:29 AM   #1
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wondering about new no 4% withdrawl rate

i wonder if financial caluculators are all going to be revised as far as the ole 4% withdrawl rate. its now over a decade that we cant seem to average 7% from a 50/50 mix ... i think that 7% maybe nothing but a pipe dream going forward and the past is just that ,the past.

not sure what they should be revised to but i think figuring 7% average is overly optimistic going forward
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Old 10-12-2008, 08:26 AM   #2
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Could be. But I think looking at it right when this event is occurring might skew things.

You are implying that things have fundamentally changed for the long term. I am not sure that is the case. But we could be looking at a difficult time for a number of years.
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Old 10-12-2008, 08:31 AM   #3
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4% is a "rule of thumb" so it's only a simplification.

FIRECalc will upload the 2008 performance so it will begin to be used in the calculations for % success. Recent performance doesn't show up in the failure rate because you would need to fail in 1 year starting in 2009. Maybe in another 10 years it will.

Monte Carlo simulators that use actual market performance will begin seeing the effect immediately but the last 10 years are only 10 years out of the 125 or so commonly used.
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Old 10-12-2008, 09:34 AM   #4
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I have a very cautious nature, so even back when I was working off a bare bones ER financial plan I didn't assume 4%. Past performance is no guarantee, and so on.

I have no answer to your question - - none of us can predict the future. For all we know, returns could increase dramatically (or decrease, or stay the same).

We are dealing with probabilities, not black and white guarantees. When Firecalc gives us a 100% result, that is based on the assumption that the future will not be drastically worse than any historical downturn included in the model such as the Great Depression.
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Old 10-12-2008, 09:42 AM   #5
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Or, since the amount in the Nest Egg has been reduced, raise the withdrawal % to something like 5 or 6 AND shorten the withdrawal period (die sooner).
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Old 10-12-2008, 09:50 AM   #6
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Remember the 4% SWR includes the probability of below average market returns based on past history including some awful periods such as 73-74 and 87 among others. Some here almost seem to treat it as an average, it is not. No question we're in a tailspin now, but previous tailspins are factored in to the 4% SWR. But as always, each of us has to make our own choices, no one else has to live with the results!!! And if you can accumulate a net worth that allows a less risky AA and/or a lower equivalent SWR, you'd be money ahead obviously.
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Old 10-12-2008, 10:19 AM   #7
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I think we'll see somewhat lower ~35-40 year SWR's from FIREcalc because 2008 will likely sink a number of periods starting in 1968-1973 that barely survived before.
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Old 10-12-2008, 11:43 AM   #8
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not that i'm going to be any less fiscally conservative assuming i survive this disaster but just wondering...

wouldn't this be like buying into a fund that has been performing badly only now it's its turn to do well?

looking forward--including today in the past--since the past has been so crappy, doesn't that mean there's a better chance that the future will be brighter?

if this is a 100-year event and i'm gonna be dead within 50 years, doesn't that mean i have a better chance of excluding the possibility of this happening again?

therefore, can't i up my swr? (just kidding)
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Old 10-12-2008, 01:26 PM   #9
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Seems like the P/E ratios are back down at a level that should put us back on track.
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Old 10-12-2008, 02:05 PM   #10
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Quote:
Originally Posted by mathjak107 View Post
its now over a decade that we cant seem to average 7% from a 50/50 mix ... i think that 7% maybe nothing but a pipe dream going forward and the past is just that ,the past.

not sure what they should be revised to but i think figuring 7% average is overly optimistic going forward
The real mistake is doing any calculations using "average returns" at all.
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Old 10-12-2008, 02:36 PM   #11
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The 4% rule and 7% average returns were less likely when the dow was 14k, with the current declines they have become more likely going forward. Good news for accumulators, less so for retirees unless they can rebalance into equities and/or re-invest dividends. Only time will tell if this period will be another significant stressor on retirement survival. If it is short-lived it may be just a little speed bump, if protracted...

DD
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Old 10-12-2008, 03:40 PM   #12
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4% at my prior portfolio value is quite different than 4% at my current portfolio value...
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