Rethinking Retirement Rules - Barron's 6/2/18

[gcgang]

https://www.barrons.com/articles/rethinking-retirement-rules-1527898022

Cover story from June 2, 2018 Barron's.

Deals mostly with safe withdrawal rate. Basically seems to say you need to be flexible, simplistic "4% WR" probably can't be blindly followed, especially with today's low interest rates and high stock valuations. Originator of 4% Rule Wm Bengen is cited, as are Pfau, Kitces and several others. Key factor in how aggressive you can be is how much of your income is guaranteed, via pension, SS, annuities or other.

 

[DrRoy]

The direct link required me to have a subscription to read it, but a separate search found the article in full. I agree with the article. It is not reasonable to expect the historical 30 to 40 year returns on stocks and bonds to be matched in the next 30 to 40 years. A lower WR is warranted.

 

[mrfeh]

While I agree people need to be flexible with spending in retirement, I don't think that the 4% rule of thumb no longer applies.

Folks need to remember - 4% has worked (95% of the time) for even the worst periods over the last 100 years (or whatever time range the Trinity study looked at). So, unless you think the current environment is worse than all previous worsts, 4% WR should be fine.

 

[Dtail]

I would guess very few folks on this site follow or intend to follow a WR 4% rule without adjustments.
The article doesn't seem to mention a "% of remaining portfolio" methodology, although has a lot of references of flexibility.
The lowest WR% combo with fixed expenses and guaranteed income is 2.98%.
Thanks for posting.

 

[tdv2]

The direct link required me to have a subscription to read it, but a separate search found the article in full. I agree with the article. It is not reasonable to expect the historical 30 to 40 year returns on stocks and bonds to be matched in the next 30 to 40 years. A lower WR is warranted.

30 to 40 years is a very long time. I think it's reasonable to say that returns for the next 10 or possibly even 15 years will likely be below historical averages based on current low interest rates. 20, 30, 40 years out.....I think it's just too hard to say.....I do like the idea of planning with a lower WR just in case.

 

[38Chevy454]

I think almost all on the board here have reached their success level for early retirement by being financially smart. So they are also capable of being flexible and adapting to the situation. Nobody has a crystal ball with fail-safe clarity, so to also blindly follow a set percentage is asking for (potential) trouble. If returns match many of the periods in the past, the 4% withdrawal can be successful. The smart ones are able to ensure the savings does not run out.

 

[ncbill]

4% was for 30 years, IIRC.

So for early retirement...3.5% or lower.

 

[Sojourner]

4% was for 30 years, IIRC.

So for early retirement...3.5% or lower.

Yep. I'm 50, so I'm planning (and hoping) for around 40 years, and I'm quite comfortable with a WR of 3%. Might even kick it up to 3.3% if things go really smoothly and my NW keeps growing over the next few years, and will likely ease it down under 3% if things don't go so well.

 

[mrfeh]

Yep. I'm 50, so I'm planning (and hoping) for around 40 years, and I'm quite comfortable with a WR of 3%. Might even kick it up to 3.3% if things go really smoothly and my NW keeps growing over the next few years, and will likely ease it down under 3% if things don't go so well.

Same here. Using 3% for 40 years of retirement.

 

[OldShooter]

I would guess very few folks on this site follow or intend to follow a WR 4% rule without adjustments. ...

Hopefully you are right, though there seem to be many posts obsessing about tenths of a percent plus/minus.

I look at these numbers as a measuring stick. I can compare what I am doing to some of the various statistical/predictive machinations. But just as using a 36" measuring stick doesn't imply that everything has to be 36" tall, discussing these statistical/predictive numbers doesn't mean they are anything much beyond context for a personal decision.

 

[GravitySucks]

The 4% is a historical analysis. I don't think the next 10 or 30 year periods will be worse than the worst.
Bergen think 4% will last forever. I'm not going to do the research to the point he did to be able to argue against his findings.
https://www.reddit.com/r/financiali..._bill_bengen_and_i_first_proposed_the_4_safe/

After living the last 5 years in a 4.5% WR I'm changing my perspective and redefining success: If at 70 years i start SS (a liveable amount by itself at that level), have a paid off home, and a few hundred thousand in today dollars I win. That would put me financially better off than 80% of my countrymen, so I'm thinking that is adequate.

I honestly think the greater risks to a successful RE are health, famine, or war than a 5% WR.

 

[mountainsoft]

I would guess very few folks on this site follow or intend to follow a WR 4% rule without adjustments.

We are planning to retire in 5 years. Initially we will live on my wife's pension and my IRA. Our withdrawal rate will be quite high (around 10-15%) until we can draw social security. Once we can get social security our withdrawal rate will drop to 2% or less.

 

[Sunset]

We are planning to retire in 5 years. Initially we will live on my wife's pension and my IRA. Our withdrawal rate will be quite high (around 10-15%) until we can draw social security. Once we can get social security our withdrawal rate will drop to 2% or less.

Wow.... Did you run this plan through fireCalc ?

How many years are you planning 10 -> 15% as won't it run out in 10 -> 6 years ?

Once you hit 70.5 RMD's start your withdrawals on IRA at ~3.5% of whatever is left.

 

[Corporateburnout]

I honestly think the greater risks to a successful RE are health, famine, or war than a 5% WR.

+1.

In the last 4 years since retirement our WR has been higher than 5%. This will drop when we claim SS but I consider health or a major catastrophe as bigger risks than running out of money.

 

[Mdlerth]

Compute a starting WR as a reference point, but expect it to vary

+1.

In the last 4 years since retirement our WR has been higher than 5%. This will drop when we claim SS

Roger this.

I would expect it's common that WR should decline, especially for late SS claimers.

Also, I'll qualify my above statement by defining WR to include only "the withdrawals that you spend". RMDs only mean that you withdraw from the tax-deferred accounts; nothing says you can't reinvest the money in taxable accounts (or kruggerands, or Van Goghs, or mason jars buried in the woods surrounding your prepper cabin).

 

[daylatedollarshort]

We plan to live mainly off SS and pensions and invest for capital preservation. But even at a zero real return, we could have a safe withdrawal rate of 3.33% at our ages now (100 / 30 years = 3.33%), more with even a small real return. Five year TIPS are at .69% real yield so that seems pretty doable.

 

[Red Badger]

We are planning to retire in 5 years. Initially we will live on my wife's pension and my IRA. Our withdrawal rate will be quite high (around 10-15%) until we can draw social security. Once we can get social security our withdrawal rate will drop to 2% or less.

We are doing similar. Just before retiring, I laddered a bunch of CD's (about 3 years cash) in 3-6-9 month buckets. As they mature, we spend some and reinvest others (with a slightly higher rate, recently).

 

[mountainsoft]

Wow.... Did you run this plan through fireCalc? How many years are you planning 10 -> 15% as won't it run out in 10 -> 6 years? Once you hit 70.5 RMD's start your withdrawals on IRA at ~3.5% of whatever is left.

Yes, I've run my estimates through FireCalc and Flexible Retirement Planner, as well as other calculators I've found.


We are planning to retire when I'm 60 (wife will be 55). Her pension will pay about 72% of our living expenses, the rest will come from my IRA. For those first few years my withdrawal rate will be about 8%.


I will probably start taking my SS at 62 (waiting would reduce our savings too much), which will reduce my withdrawal rate to 5% (I'm only getting about 5000 annual from SS anyway).


At 63 my mom's assets will run out, so we'll have to start helping her out. That will increase our withdrawal rate back up to 12-15%.


When I turn 67, my wife will be 62 and can start taking her SS. That will drop our withdrawal rate to less than 2% until we have to start taking RMD's when I'm 70. We'll just need to reinvest and pay taxes on those withdrawals.


Our portfolio drops fairly quick from age 60 to 66, but after that it starts growing again. When my mom passes and we no longer need to pay her expenses, it should grow even faster.


These are all estimates, of course. I'm sure we'll spend less on some things, and more on others. But I've run all my estimates as conservatively as possible and it always seems to work out at 100% success rates. That's the best I can do since I can't predict the future.

 

[jkern]

I have a lot of flexibility within my current and future WR. I can go up or down significantly depending on desire or financial assets. With that in mind, I use the calculated WR as a sanity check. Not necessarily what I'm actually going to withdraw.



4%: Probably spending too much
3%: Probably going to be ok
2%: Golden, should have no problems
1%: I can do whatever makes me happy

 

[kgtest]

The direct link required me to have a subscription to read it, but a separate search found the article in full. I agree with the article. It is not reasonable to expect the historical 30 to 40 year returns on stocks and bonds to be matched in the next 30 to 40 years. A lower WR is warranted.

How come you fee this way? And how much lower?


I hear an argument that we will never experience a boom like the industrial revolution in this world again. How is that even possible? Revolutions have occurred over and over in history so to assume that would be risky.


Could we have two tech bubbles, three? Four housing crashes? a few great depressions...sure. Could we have all of those in the next 30 years. Likely not.



I've only been alive for 37 years, so maybe the next 30 will prove super challenging, godwilling I hope not, for me and my families sake.

 

[kgtest]

I have a lot of flexibility within my current and future WR. I can go up or down significantly depending on desire or financial assets. With that in mind, I use the calculated WR as a sanity check. Not necessarily what I'm actually going to withdraw.



4%: Probably spending too much
3%: Probably going to be ok
2%: Golden, should have no problems
1%: I can do whatever makes me happy

This is very sensible actually. I like the way you sliced and diced!

 

[davebarnes]

The article
Rethinking Retirement Rules - cetusnews
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