Dave Ramsey rips the 4% rule again today.

[CardsFan]

Quote:

Originally Posted by jazz4cash Apparently MStar issues guidance on SWR which was 3.3% two years ago and 3.5% last year. This year it is 4% due to better returns on FI. Did not dig into methodology but article from WSJ has disappeared from my newsfeed. .

I saw that too. Did not dig into the details, but how do you move from 3.3% to 4% with just two years of additional data? Obviously they are "predicting" and not basing this on the original Trinity study methodology.

[punkinhead]

Quote:

Originally Posted by CardsFan I saw that too. Did not dig into the details, but how do you move from 3.3% to 4% with just two years of additional data? Obviously they are "predicting" and not basing this on the original Trinity study methodology.

I listened to a Morningstar podcast a few days ago that talked about it. They didn't go into great detail about their methodology, but they were clear that it was forecasting rather than being based on past data or anything real. The fact that their crystal ball changed SWR by over 20% in two years tells me everything I need to know about the validity of their model.

[TickTock]

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Originally Posted by punkinhead The fact that their crystal ball changed SWR by over 20% in two years tells me everything I need to know about the validity of their model.

This.

[Lewis Clark]

Quote:

Originally Posted by punkinhead I listened to a Morningstar podcast a few days ago that talked about it. They didn't go into great detail about their methodology, but they were clear that it was forecasting rather than being based on past data or anything real. The fact that their crystal ball changed SWR by over 20% in two years tells me everything I need to know about the validity of their model.

Two years of data may be enough to change the failsafe withdrawal rate that much in some situations. The key factor is what the market has done during those two years.

According to Karsten Jeske at Early Retirement Now, a withdrawal rate of about 3.4% is low enough to ensure full inflation-adjusted capital preservation over a 60-year retirement horizon. Of course, this is based on back testing against historical market returns.

However, if retirement timing is conditional on starting after the stock market has fallen 20% from its most recent peak, even the 4% guideline (which assumes a 30-year horizon and full capital depletion) will result in zero failures, which is better than the results from the Trinity study.

See Part 54 in his Safe Withdrawal Rate series.

https://earlyretirementnow.com/2022/...eries-part-54/

[RetMD21]

Quote:

Originally Posted by punkinhead I listened to a Morningstar podcast a few days ago that talked about it. They didn't go into great detail about their methodology, but they were clear that it was forecasting rather than being based on past data or anything real. The fact that their crystal ball changed SWR by over 20% in two years tells me everything I need to know about the validity of their model.

So you prefer a model that gives the same recommendation when fixed income yields change dramatically?

[sparky08]

Has DR always believed in the 8% rule?

I haven't listened to him since the 90's, but I don't remember him talking crazy like that.

[punkinhead]

Quote:

Originally Posted by RetMD21 So you prefer a model that gives the same recommendation when fixed income yields change dramatically?

Do you expect those fixed income yields to remain static for 30+ years? Any model that changes as drastically as Morningstar's from year to year is not confidence inspiring.

[ERD50]

Quote:

Originally Posted by punkinhead Quote: Originally Posted by RetMD21 So you prefer a model that gives the same recommendation when fixed income yields change dramatically? Do you expect those fixed income yields to remain static for 30+ years? Any model that changes as drastically as Morningstar's from year to year is not confidence inspiring.

+1 to punkinhead.

A historical tool like FIRECalc or FICalc is based on the worst periods in history. A little change in the current years won't change that at all.

Use FICalc.app as it is more flexible, all else defaults, I entered $35,800 spend to get on the cusp of success/failure, for 100% success. 1966 is typically the worst period in current history for portfolios, and it ends at just $6,135 after 30 years.

The most recent compete 30 year period starts at 1992, and it is UP BIG-TIME. $1M grew to inflation adjusted $3.7M. So no way in two years is anything going to drive that data to be worse than 1966.

-ERD50

[Koolau]

Quote:

Originally Posted by sparky08 Has DR always believed in the 8% rule? I haven't listened to him since the 90's, but I don't remember him talking crazy like that.

Heh, heh, maybe DR is thinking about HIS age. 8% is probably too SMALL given his advanced age.

[RetMD21]

Quote:

Originally Posted by punkinhead Do you expect those fixed income yields to remain static for 30+ years? Any model that changes as drastically as Morningstar's from year to year is not confidence inspiring.

You know that you can buy 30 year bonds, right?

[LateToFIRE]

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Originally Posted by RetMD21 You know that you can buy 30 year bonds, right?

30 year corporate bonds can be called/refinanced a lot sooner than that.

[Exchme]

Quote:

Originally Posted by punkinhead I listened to a Morningstar podcast a few days ago that talked about it. They didn't go into great detail about their methodology, but they were clear that it was forecasting rather than being based on past data or anything real. The fact that their crystal ball changed SWR by over 20% in two years tells me everything I need to know about the validity of their model.

A 60/40 or 50/50 portfolio is down 10-11% since Oct 2021 and we've had 11% inflation, so that's a 20% reduction in real portfolio value. If they had perfect insight in October 2021 to the future market, raising their SWR percentage prediction now is precisely what you would expect, now that the storm has (hopefully) passed. While forecasting is mostly luck as so many unexpected things can happen, this time they got the first two years pretty close to right.

[2HOTinPHX]

Here is the Original callers latest video rebutal to Daves 8% rule...

Note I directed him to this thread...we get a shout out at 3:40...

https://youtu.be/BugfOEGzG0Y?si=cRpy0jLB3b68i0Ao

[Gumby]

Quote:

Originally Posted by LateToFIRE 30 year corporate bonds can be called/refinanced a lot sooner than that.

If I were going to use a model that assumed static fixed income returns for 30 years, I'd use US treasuries since they can't be called.

[LateToFIRE]

Quote:

Originally Posted by Gumby If I were going to use a model that assumed static fixed income returns for 30 years, I'd use US treasuries since they can't be called.

Agree, wasn't sure if they were debating Corporates vs Treasuries

[MichaelL]

Quote:

Originally Posted by RetMD21 Basement dwelling supernerds David Blanchett, Michael Finke and Wade Pfau reply to Ramsey citing SORR and geometric returns https://www.thinkadvisor.com/2023/11...ate-guidance/? I feel sorry for the people that don't know better and even recruit friends and family into the Financial Peace University cult

The linked article makes sense. They did a more realistic calculation. DR's idea that you will make 12% or so from stocks over the term of a retirement isn't realistic. Downturns can go for 5 years and recovery can take another 5 years.

While you can sell stock and spend the capital gains that isn't my primary way to fund my retirement, but would be a backup plan. I'm happy that I can live off of my dividends and interest and they are two times what I spend. If I did sell my investments to fund my retirement it would only take 2% of my portfolio.

I moved to a cheaper state, bought a home outright, don't have any debt and have a low cost of living. Even with going out to dinner, buying bottles of wine and taking some road trips I only spend about $65,000, while earning twice that.

[RetMD21]

Quote:

Originally Posted by 2HOTinPHX Here is the Original callers latest video rebutal to Daves 8% rule... Note I directed him to this thread...we get a shout out at 3:40... https://youtu.be/BugfOEGzG0Y?si=cRpy0jLB3b68i0Ao

Great video, lol. It's hard to know if Dave Ramsey just hasn't thought about it or if he is incapable of understanding. It's funny that he gets his web content from people who know better. Can DR ever back down after all his bloviating?

[Out-to-Lunch]

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Originally Posted by RetMD21 Great video, lol. It's hard to know if Dave Ramsey just hasn't thought about it or if he is incapable of understanding.

I think it can best be summarized by Upton Sinclair:

Quote:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

[RetMD21]

Quote:

Originally Posted by Gumby If I were going to use a model that assumed static fixed income returns for 30 years, I'd use US treasuries since they can't be called.

That makes sense. Here's a link to Morningstar. You can get 4.6% with TIPS alone. The link explains a bit about their recommendations for 2023. Of course some people aren't going to be influenced by changes in expected returns.

https://www.morningstar.com/retireme...thdrawal-rates

[Time2]

Quote:

Originally Posted by RetMD21 Great video, lol. It's hard to know if Dave Ramsey just hasn't thought about it or if he is incapable of understanding. It's funny that he gets his web content from people who know better. Can DR ever back down after all his bloviating?

Here's a new video from 'Hope Filled Financial Co.' about the article on the Ramsey Site that was recently taken down. It suggests a 4% to 5% withdrawal rate.
So, someone on his team has thought it through and put it in writing! They just haven't convinced the boss...... Yet! If they even still work for him.

https://www.youtube.com/watch?v=qESfErXkRJU&t=76s