Maybe the end of the world is not in sight

[donheff]

With the global economy poised for a potential Crisis Round 2 (or 3, or whatever) we may be in store for another round of wailing and gnashing of the teeth about portfolio survivability this summer. So it was a breath of fresh air this morning to read Wade Pfau's summary of Bengen's "How Much is Enough article. Basically, Bengen (and Pfau confirmed) took a 2000 retiree to date and tacked on the 1969-86 worst case in history scenario and found that a 4% traditional SWR survives with commonly used portfolio compositions. Pfau doubled down to make things even worse and:

[FONT=&quot]And just one final note, for those out there predicting very serious doom and gloom and catastrophe still awaiting the U.S. economy. What happens if we make one more change to an already extremely bad luck case of 2000-2011 plus 1969-1986? What will happen if economic catastrophe begins this summer (coming to a theater near you) resulting in a 65% stock market drop for both large-cap and small-cap stocks in the year 2012, and otherwise keeping the characteristics of this already quite gloomy scenario? Well, the 4% barrier will be broken, but things would not turn out nearly as bad as you might have expected in such circumstances. Depending on the asset allocation, the sustainable withdrawal rate will turn out to be 3.43% or 3.46%.[/FONT]
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So, with another crash this summer and inflation ahead those of us with a pretty low SWR may still survive. Or not - history may not repeat itself.

 

[ejman]

Well, that is certainly encouraging. I'll cut my meds to the standard ration instead of the double trank I was planning ...

 

[Focus]

It's not that encouraging. In the end, although he allows that the 2000-era retirees might just make it with 4%, he writes:

In conclusion, the 4% rule is not safe. It certainly hasn’t worked out well for a number of other developed market countries. I love the U.S.A., but I worry that the country won’t always enjoy the same fantastic financial market returns as it did in the 20th century.

 

[ejman]

It's not that encouraging. I

Well, I just did some quick calculating and assuming I check out as scheduled at age 100 (ha!) even assuming 0% return I ought to check out at that age bouncing my last check so I am not going to worry about it... Double trank not called for at this point but will keep it under observation.

 

[audreyh1]

Sounds encouraging to me! That was quite a doomsday scenario. I'm sticking with 3.33% withdrawal rate plan.