Well, it's good (?) to see that we have finally come full circle and the "Great Debate has finally come to this board. *****, I've been reading your stuff (and intrcst's and everyone elses) views on this subject for years. Honestly, I've never really understood where the disagreement comes from. Let me see if I can explain what I mean in a fairly succinct manner.
We have a study that shows a sustainable 4% (approximately) withdrawal WAS sustainable given a certain asset allocation. The "WAS" should be obvious, but it just means that this is a model created out of historical data. It really is that simple, and the method applied to create it was fairly simple as well. Did it work ? Of course it did, we can prove it and have (see retireearlyhomepage, or get the data and do it for yourself). Is it possible a 4% withdrawal won't work in the future ? Of course it is. It is a basic and obvious assumption of using historical data to predict future events. Could you come up with a different SWR using other investment classes and putting more and more detail into the study ? Absolutely, but there is an inherent flaw with adding more and more detail to a model based on historical data, It makes the conclusions drawn less and less accurate. Someone more familiar with statistical analysis could explain it better than I, but I consider it similar to the concept of "multiplying an error" in mathematics. Its the concept of getting an answer to a problem with greater degree of accuracy than the original data given had provided. It's not possible to do, the result is incorrect, and the more times the data is manipulated, the greater the error becomes.
Now, Dory brought up some very good points, when I was visting the forum on the fool website, I remember on the faq as well a suggestion to read "all posts by *****." I did, and then I was glad I did as well. You had many very useful insights on a more philosophical level on early retirement. They made me think, and they made me smile. That's the ***** that I miss, and he was a valued contributor.
As for SWR, I think "TH" really has the right idea, he said the following:
"My plan is simple. Live off the level of dividends produced, which are very unlikely to drop below the 4% I need/want, and if they go up, reinvest unused capital. If I start running out of money, I'll work part time to make it up. If I start badly running out of money, go back to work full time and rebuild the nest egg. "
In the end, this is the reality that anyone retiring early has to accept. We are applying historical data to future events, and the best that will provide is a guide (as I outlined above). We will all have to roll with punches that an unknown future will bring. I'm not saying TH's investment principals are sound, I'm just saying that if anyone is going to retire very early, we simply need to be open to the fact we may have to cut back, return to work, whatever.
Now, if someone out there knows what the next 30 years will bring as far as returns in all asset classes, I will without hesitation inform everyone on this and all other retire early forums of what the exact SWR is. Wouldn't that be nice ;-) !!
OK, after holding back for years I've given my $.02 worth of input. My last comment is, if ***** or anyone else wants to delve deeper into this issue, please, start talking about the issue, not how to talk about the issue, whether or not you can talk about the issue, what the issue is, or anything else, just talk about what you have to offer.
regards,
panhead
"When one lives in the shadow of insanity, the presence of another mind that thinks and acts as yours does is something close to a blessed event"
--Robert Pirsig
"Zen and the art of Motorcycle Maintenance"