SWR another 6.5+ million calculations

[LOL!]

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

I didn't see the above early December 2016 study (Part 1) on the EarlyRetirementNow web blog discussed yet on this forum. How could it not already be posted? Maybe my Google Fu could not find the thread?

Anyways, it is being discussed at bogleheads now, so some of you have already seen it. It is for the early-retired folks with 60 years to go, so the SWR is 3.5% and one needs more stocks than ever before.

 

[DEC-1982]

A very interesting article. I look forward to the next article in the series, to see how the currently high CAPE of @28 affects the probability of success for different withdrawal rates.

 

[Huston55]

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

I didn't see the above early December 2016 study (Part 1) on the EarlyRetirementNow web blog discussed yet on this forum. How could it not already be posted? Maybe my Google Fu could not find the thread?

Anyways, it is being discussed at bogleheads now, so some of you have already seen it. It is for the early-retired folks with 60 years to go, so the SWR is 3.5% and one needs more stocks than ever before.

I read Part 1. Seeing 50 & 60 yr WD projections is interesting but, I don't really see anything new here.

Besides, they pretty much lost me when they said this,

"Intriguingly, very few early retirement planners or bloggers question the validity of the 4% safe withdrawal rate rule."

Which is, of course, not accurate.

 

[JohnDoe123]

I read Part 1. Seeing 50 & 60 yr WD projections is interesting but, I don't really see anything new here.

Besides, they pretty much lost me when they said this,

"Intriguingly, very few early retirement planners or bloggers question the validity of the 4% safe withdrawal rate rule."

Which is, of course, not accurate.

Hi! I'm the author of the study over at EarlyRetirementNow.com. Sorry, I lost you over such a trivial issue. You missed well researched and very well-received follow-up posts (Part 2 and 3 so far, more parts to come).
I insist that the overwhelming majority of FIRE bloggers still hold on to the 4% rule. There are obviously some smaller blogs with a more cautious approach(including mine and a bunch of my blogging friends), but Mr. Money Mustache, MadFIentist and a bunch of very well known blogs all subscribe to that false 4% rule.
Financial planners: I don't know very many but the ones I know and have spoken to, they all look at the Trinity Study like it's scripture. In their defense, I should say that their target audience is the regular age 65 retirement crowd.

 

[dvalley]

I haven't read the article but I find that 4% is already plenty safe considering there's still the entire principal intact and if I had to draw down even 60% of it and 'only' leave 40% to my heirs they're still well ahead of where I started my journey which was at $0 (many here started with less than $0). OK that was a long sentence but I'm done now

 

[Meadbh]

I haven't read the article but I find that 4% is already plenty safe.....

There are two flaws in your argument.
1. You're not dead yet.
2. It's impossible to generalize from your current situation to the retired population as a whole.

 

[bingybear]

I haven't read the article but I find that 4% is already plenty safe considering there's still the entire principal intact and if I had to draw down even 60% of it and 'only' leave 40% to my heirs they're still well ahead of where I started my journey which was at $0 (many here started with less than $0). OK that was a long sentence but I'm done now

There are two flaws in your argument.
1. You're not dead yet.
2. It's impossible to generalize from your current situation to the retired population as a whole.

I thought the bog standard 4% rule was studied for a 30 year retirement and having a high chance of not running out of money... not 100% guarantee of not running out of money. This is much different than leaving the entire principal intact.

 

[dvalley]

There are two flaws in your argument.
1. You're not dead yet.

Hence me typing?

2. It's impossible to generalize from your current situation to the retired population as a whole.

I wasn't generalizing, just sharing my point of view. I'm certainly open to the counter logic/argument in case I'm missing something in my understanding.

I thought the bog standard 4% rule was studied for a 30 year retirement and having a high chance of not running out of money... not 100% guarantee of not running out of money. This is much different than leaving the entire principal intact.

Well I don't think anyone can guarantee anything 100% but my understanding was with 4% you could withdraw without touching the principal which makes sense if your principal can generate 4% for its life. Sequence of returns and such things can throw this off hence no 100% guarantee.

 

[audreyh1]

Well I don't think anyone can guarantee anything 100% but my understanding was with 4% you could withdraw without touching the principal which makes sense if your principal can generate 4% for its life. Sequence of returns and such things can throw this off hence no 100% guarantee.

No, 4% assumes you spend down the principal, although if you get lucky the portfolio will grow. A much lower rate would be required to leave principal intact.

Generate 4% for its life? Not when inflation is taken into account.

 

[bingybear]

the 4% rule assumes that you start at 4% WR and index future withdraws to inflation. Thus you would need to earn more than 4% as future WR would grow with inflation. But as with most of these schemes, you design it so you don't run out of money. However, in a typical market you will have a large amount left over.

 

[dtbach]

4% is probably a pretty good bet for a 30 year retirement. If you have 60 years to go probably not. But how many people have a big enough nest egg to get by on a 1 or 2% draw? I'm 64, delaying SS until 70 and am taking 3.5% and may even up it to 4%. No use in leaving too much to the kids.

 

[Bestwifeever]

Someone should do a poll about this.

 

[TimSF]

So, is 3.5% officially the new 4.0% for a longer early retirement?

 

[Huston55]

I read Part 1. Seeing 50 & 60 yr WD projections is interesting but, I don't really see anything new here.

Besides, they pretty much lost me when they said this,

"Intriguingly, very few early retirement planners or bloggers question the validity of the 4% safe withdrawal rate rule."

Which is, of course, not accurate.

Hi! I'm the author of the study over at EarlyRetirementNow.com. Sorry, I lost you over such a trivial issue. You missed well researched and very well-received follow-up posts (Part 2 and 3 so far, more parts to come).
I insist that the overwhelming majority of FIRE bloggers still hold on to the 4% rule. There are obviously some smaller blogs with a more cautious approach(including mine and a bunch of my blogging friends), but Mr. Money Mustache, MadFIentist and a bunch of very well known blogs all subscribe to that false 4% rule.
Financial planners: I don't know very many but the ones I know and have spoken to, they all look at the Trinity Study like it's scripture. In their defense, I should say that their target audience is the regular age 65 retirement crowd.

Well, now you've changed your assertion, from 'very few don't' to 'the overwhelming majority do'.

While I'm not going to get into a counting contest to refute the latter assertion, I do refute the former assertion. Here's a short list off the top of my head (all of which are frequently discussed here):

Wade Pfau
Dirk Cotton
Todd Tresidder
Mike Piper

BTW, you'll also find a large contingent here @ E-R.org which believes 4% is too high. Stick around for more than one post, and you'll likely find some kindred souls...and develop an understanding of 'dryer sheets.'

 

[big-papa]

Discussion on this also going on over at bogleheads.
https://www.bogleheads.org/forum/viewtopic.php?f=2&t=207069&newpost=3176759

 

[audreyh1]

So, is 3.5% officially the new 4.0% for a longer early retirement?

Close enough.

 

[LOL!]

So, is 3.5% officially the new 4.0% for a longer early retirement?

Is that the same as an early longer retirement?

 

[NW-Bound]

In the worst case, 4% WR will deplete your portfolio in 30 years, at which time you are supposed to die.

Hence, 100% success for a 30-year or shorter retirement. That's the conclusion of the Trinity study.

 

[RobbieB]

Better not retire too early.

 

[NW-Bound]

... or draw much less than 4%.

Late retirees have fewer years to live. They are closer to SS and Medicare eligibility if not on these benefits already. They also worked more years, and their SS benefit is higher.

 

[audreyh1]

In the worst case, 4% WR will deplete your portfolio in 30 years, at which time you are supposed to die.

Hence, 100% success for a 30-year or shorter retirement. That's the conclusion of the Trinity study.

More like 27 years. There are five failures (<30 years to 0) in the FIRECALC data set I think.

Did Trinity say 100%?

 

[NW-Bound]

A 50/50 portfolio was best for a 30-year horizon and a 4% WR, using data from 1926 to 1995 (the original paper was written in 1998). A 75/25 portfolio came close.

For a rehash, see: http://www.dornco.com/choosing-a-sustainable-withdrawal-ratepdf/.

PS. No portfolio survived for 40 years at 4% WR. One needs to go down to 3% for 40 years.

PPS. Many researchers have updated the Trinity using more recent data. The Web is full of these articles.

 

[Huston55]

I read Part 1. Seeing 50 & 60 yr WD projections is interesting but, I don't really see anything new here.

A 50/50 portfolio was best for a 30-year horizon and a 4% WR, using data from 1926 to 1995 (the original paper was written in 1998). A 75/25 portfolio came close.

For a rehash, see: http://www.dornco.com/choosing-a-sustainable-withdrawal-ratepdf/.

PS. No portfolio survived for 40 years at 4% WR. One needs to go down to 3% for 40 years.

PPS. Many researchers have updated the Trinity using more recent data. The Web is full of these articles.

+1

 

[photoguy]

BTW, you'll also find a large contingent here @ E-R.org which believes 4% is too high. Stick around for more than one post, and you'll likely find some kindred souls...and develop an understanding of 'dryer sheets.'

I recall reading quite a few posts from actually FIREd members in their 30/40s here and none were spending/budgeting 4%. From memory, it seemed like 2% or less was the norm. Probably as bestwifeever suggested a poll would be pretty interesting.

In regards to the blog post, while 2% may seem excessively low when compared with a FIREcalc simulation, one needs to keep in mind that there is huge uncertainty around expense levels especially over a time frame as long as 60 years. (Firecalc really only looks at the sequence of returns problem)

While we all have backup plans, there's simply nothing as good as having more money (= lower WR).

 

[DawgMan]

You guys are killing my coffee buzz!

Not RE yet, but was planning on a SWR of 4% at 55 and applying common sense (maybe spend less in bad market yrs). I'm sure there is a thread or 2 on this, but it might be interesting to hear from younger retirees who have used a 4% SWR for at least 10 yrs and where there portfolio balance is today? How did the bob & weave thru the bad years? If you have a pension, a side job, or working spouse producing income as a backstop, then that's cheating. If you got a part time job during the crappy years to fill the void, then I get that. Im more interested to hear from those who truly planned on relying on a 4% SWR to ride into the sunset.