Oh no! JPMorgan 4% rule fears

[Fermion]

"As an example, the bank said there is a nearly 100% likelihood that a 60-year-old with a $30 million taxable portfolio would run out of money if she spent 4% of her portfolio (i.e. $1.2 million) for the next 30 years."

lol

https://finance.yahoo.com/news/jpmorgan-says-safely-withdraw-much-163855453.html

 

[erkevin]

So many of those Yahoo Finance articles are complete garbage. Either they are clickbait or recycled articles with new publication dates. I can't tell you how many of those articles, with the day's date on them, were written eons ago. Go down to the comments section; you will find submissions that are years old.

 

[njhowie]

"As an example, the bank said there is a nearly 100% likelihood that a 60-year-old with a $30 million taxable portfolio would run out of money if she spent 4% of her portfolio (i.e. $1.2 million) for the next 30 years."

lol

https://finance.yahoo.com/news/jpmorgan-says-safely-withdraw-much-163855453.html

Don't cherry-pick the quotes, provide the context.

It doesn't matter if it's $30,000, $300,000, $3 million, or $30 million. The point is based on their assumptions, if you SPEND 4% for the next 30 years, you'd run out.

It's not like their position is unfounded. There's logic behind it.

JPMorgan also advises retiring the 4% rule because of prospects for lower returns and higher inflation – “that all economists now see on the horizon” – means the 4% rule could be a prescription for serious financial trouble. While the S&P 500 earned on average 10% over the last 10 years, the bank’s recently published long-term capital market assumptions forecast a 60/40 portfolio returning just 4.3%.

 

[Fermion]

Yeah, I know, but at a point it does verge on ridiculous.

Why not say Elon Musk can't use the 4% rule if he retires with 100 billion and spends 4 billion a year because he might run out of money before death?

 

[Aerides]

"As an example, the bank said there is a nearly 100% likelihood that a 60-year-old with a $30 million taxable portfolio would run out of money if she spent 4% of her portfolio (i.e. $1.2 million) for the next 30 years."[/URL]

I wonder how much of their math is hanging off "taxable" - which is kind of silly. Anyone with that kind of money has means to make a significant chunk non-taxable, even if they didn't earn it with traditional IRA/401k stuff.

 

[Andre1969]

One problem I have about the article is that it's been spouting the tired trope about how the stock market from here on out isn't expected to throw off the same returns as it had in the past. I think I've been hearing that one for close to 20 years, now.

I think they're also looking at the current blip in time, of high inflation, low-ish returns, and simply presuming it will go on like that forever. They're trying to play out the future like every year is going to be "average" from here on out. Of course, we know that life doesn't work out that way.

 

[Gumby]

If you spend 4% of your portfolio every year, you will never run out of money. If your portfolio declines, the amount equal to 4% also declines, but you will never hit zero. Just like Zeno's Dichotomy

 

[USGrant1962]

Don't cherry-pick the quotes, provide the context.

It doesn't matter if it's $30,000, $300,000, $3 million, or $30 million. The point is based on their assumptions, if you SPEND 4% for the next 30 years, you'd run out.

It's not like their position is unfounded. There's logic behind it.

Um - look at the JPM link you provided in your quote. JPM has revised their 60/40 expected return up to 7.2% from 4.3% in 2022. Kind of demonstrates how useless their assumptions are over more than one year.

Our forecast annual return for a USD 60/40 stock-bond portfolio over the next 10–15 years leaps from 4.30% last year to 7.20%

I think their position is unfounded (the Yahoo article that is).

 

[njhowie]

Um - look at the JPM link you provided in your quote. JPM has revised their 60/40 expected return up to 7.2% from 4.3% in 2022. Kind of demonstrates how useless their assumptions are over more than one year.

I think their position is unfounded (the Yahoo article that is).

Interesting.

Turns out this is a recycled Y! article - written about a year ago.

It is kind of ridiculous that JPM changes a 10 to 15 year outlook from an annual 4.3% one year to 7.2% in the next. That is ridiculous and certainly kills any credibility they have.

 

[dunkelblau]

From https://www.schwab.com/annuities/fixed-income-annuity-calculator a single female who turns 60 today and immediately begins an SPIA with $30M would collect ~$150k per month, so if her taxes are less than 33% of annuity income, she'll be fine spending $1.2M/yr. There's no inflation protection in these annuity payments, but historical US inflation rate roughly balances the typical -3%/yr trajectory in expenses after retirement, so if her portfolio cost basis is near the $30M current value, trading it for an SPIA may be an alternative to cutting spending down to the recommended 2-3% range.

 

[GenXguy]

Yeah, I know, but at a point it does verge on ridiculous.

Why not say Elon Musk can't use the 4% rule if he retires with 100 billion and spends 4 billion a year because he might run out of money before death?

I don't think anyone here is worried about Elon Musk running out of money.

 

[athena53]

Interesting.

Turns out this is a recycled Y! article - written about a year ago.

It is kind of ridiculous that JPM changes a 10 to 15 year outlook from an annual 4.3% one year to 7.2% in the next. That is ridiculous and certainly kills any credibility they have.

I see this a lot, though. The experts tout 4% for years and then after a significant market drop they backpedal and say, "Well, maybe it should be 2%". I just remind myself that good long-term simulations such as the one I use include bear market scenarios and it's not necessary to make drastic changes depending on that year's market. I also keep an eye on my favorite metric- average annual change in invested assets in the 9 years since I retired. It was 2.4% last I looked and even a slight negative would probably be safe but I'd adjust spending long before that happened.

 

[cyber888]

My plan is to do a 3% Withdrawal next year for my 401K - my first 401K withdrawal as I retire this year. I think 3% is not too low and not too high.

I don't want to get hit by a Tax shock when I hit 73 years old for the Minimum Distribution Requirement.

 

[jazz4cash]

According to the article “Failure to toss this rule could mean having to cut back on your spending”. Well gee if you toss this rule, you are definitely cutting back on your spending.

 

[Gumby]

If Bengen's 4% rule has issues, it has nothing to do with "individual savings rates," as this author suggests. If young people don't save, they will come up short regardless.

 

[Dtail]

JP Morgan is typically on the conservative side of predictions. How many predictions has Jamie Dimon got correct?
Many folks on this site have a withdrawal rate of under 4%, but then some of them (gratuitously) state that they must BTD.

 

[Toddtheformeraccountant]

This piece is hot garbage on so many levels.

First of all, the extreme example....someone with $30 million, spending $1.2 million. If they noticed in 10 years that their portfolio was dwindling, they could make the immense sacrifice quite easily to drop that burn rate to $600k a year. Tough but certainly survivable on $600K a year.

Second of all, someone with that much of a portfolio is going to be at a much higher tax rate....so really what they SHOULD be taking out is 4% of the value year 1, and that "taking amount" should include taxes. So maybe that would be 3% to spend.

And the math on the probabilities is so ridiculous...100% chance you're going to run out drawing 4%....not 90% chance, 60% chance, 40% chance, but actual certainty that you'll run out.....but magically if you spend 3% rather than 4% the possibility of running out (which isn't even mentioned) but assumed to be 0%.

This is why one should never read this silly slickbait.