SWR of 6.21% for 26 years

[cute fuzzy bunny]

Well no trip to the store today, but I just discovered two bottles of beer hiding in the bottom of the fridge. I wouldnt expect anything good to come of two bottles of beer, but you never really know. The beer must have been there for a while because I dont recall buying it. It might get stronger over time.

[dory36]

Quote:

...I think that we have lost sight of the purpose of SWR analysis. The original purpose was to caution people as to possible risks.

Right. There is an overhelming tendency to reify the SWR concept.

The 6.21% versus 4.1% SWR paradox is interesting as a puzzler, but I can't imagine anyone locking into the concept as a 30+ year strategy. SWR isn't a strategy - it's a crosscheck for your own estimates of your ability to stretch your portfolio for a period longer than you've probably done anything else.

To me, Firecalc's primary, secondary, and tertiary purpose is to conduct a reality check before burning the bridge as you depart the working world. (I don't know the word for #4, so I stopped...)

Once you have burned that bridge, presumably the brains that allowed you to accumulate ~25 X your annual expenses haven't been left at the office, and you are able to adapt to the world as you encounter it.

[wabmester]

Quote:

(I don't know the word for #4, so I stopped...)

quaternary

[sgeeeee]

Quote:

. . . Even if I goofed up the math or the calculator usage somewhere I think my point about eliminating statistical samples stands on firm ground.

No, I don't think so. You are trying to do something very different than find a SWR with the calculator when you are testing periods where a given safe withdrawal rate would fail.

To find a SWR, the calculator simply searches for the worst case. It finds only one case for the given allocation, expense ratio, nest egg, longevity, etc. Now, that worst case represents an individual's SWR only if you believe that the future will not be any worse than the worst case in the past. If you believe this, then you believe that the portfolio of Mr. ER 2000 will survive as long as he sticks with the historical SWR. And if you believe that his portfolio will survive, then clearly, someone who retires today with identical withdrawal rate and identical end dates to Mr ER 2000 will survive.

What you are trying to do is take the current withdrawal rate of Mr. ER 2000 and back test it against history. If that were valid, then you would conclude that Mr. ER 2000 was 100% safe when he started with is 4.1% inflation adjusted withdrawals, but is now less than 100% safe with that same withdrawal strategy. But if he's no longer 100% safe, then what did 100% safe mean 4 years ago?

[sgeeeee]

Quote:

. . . However you seem to be modifying SWR by considering recent market movements and applying historical bias to them and then projecting forward. . . . I'm saying I don't think the statistics support it like they support a FIREcalc calculation.

I am simply pointing out that consistency requires that a 100% SWR is 100% safe. If 4.1% were 100% safe in 2000, then over 6% must be safe today. If 6% is not safe today, then 4.1% must not have been safe in 2000.

You decide which you believe. But you can't believe both without contradicting yourself. I know a lot of ER's don't like this result. But that's just the logical result.

If this result makes you question the validity of a 4% SWR, then maybe you should question it. If it makes you feel more comfortable about your current retirement situation, then maybe you are right to feel comforted.

[sgeeeee]

Quote:

. . . Say that you have a friend who has been to your house 130 times over the course of the time you have known him. On 128 of those occasions, he drove home without incident. Twice he got drunk at parties you were throwing. . . .

What you are saying is that you believe that the future may be worse than the worst case of the past. If you believe that, then the results of the historical simulator are of limited value. I would not try to argue against that point. I certainly don't know if tomorrow will be worse than the Great Depression or not.

In fact, I would not have felt comfortable retiring with a plan to spend at a 4% withdrawal rate. Even if I believed 100% in the SWR result, I would be worried about the accuracty of my budget plan, my exact longevity, etc. I think most of us would be wise to build some cushion into our plans.

There is an implication in your analogy, however, that I think is still unproven. My friend (let's call him, TH) is apparently drunker than I've ever seen him. For your SWR theory, this is analogous to what you refer to as overvaluation. But I have trouble with your equating PE10 to that overvaluation. PE10 is a metric that approximately quantifies valuation under certain assumptions, but it is not a direct measure of the valuation definition that really determines future returns. I might be able to give TH a breathalyzer test and get a fairly accurate determination of his "drunkenness", but the quantity that would determine future returns would be closer to "current price- to- future profits" with a lot of "future investor sentiment" thrown in. The problem is that I have no way to quantify those future profits or future investor sentiments. PE10 uses past (10 years) where investors really care about future. So it approximates what investors care about only provided that the future is not too different than the past 10 years.

[sgeeeee]

Quote:

. . . - Correlation by its definition show a demonstrable connection between one or more things and another. *. . .

Correlation is determined as the result of a mathematical analysis of data. No physical or psychological understanding of the data is required. Typically, when correlation between data sets is analyzed it is because cause and effect is not completely understood or too complex to quantify.

Quote:

. . . I think the principal disconnect here is that I perceive that you may be discounting the same social and psychological influences on the market and perceive that there is a weather-like pattern to markets that can be divined with some level of accuracy. *If this were true, then actively managed funds should beat the stuffing out of index funds, except that historic data shows that they fare worse than if they were run by rules of chance..

I certainly never said anything and don't believe anything like that. I discuss "correlation" precisely because much of what affects stock prices is too complex to quantify in a cause-and-effect formula.

Quote:

- The argument that monte carlo simulation results fare worse is a failure of those calculators to follow some correlation seems off the mark to me. *Monte carlo simulators produce scarier results because they produce more periods of calculation and can as a result of their nature string together more bad years in series than the shorter historic numbers produce.

You are simply not correct about this. Monte carlo analysis must assume something about the distribution of stock returns, bond returns and inflation. The analysis must assume something about the correlation between these distributions. And the analysis must assume somthing about the correlation of the data from year to year. What most monte carlo simulators do is fit the distributions of stock returns, bond returns and inflation to the distributions found from historical data. They then assume zero correlation between variables and year-to-year. By changing any of the assumptions, monte carlo simulators can produce SWR predictions that are more or less optimistic than historical SWR predictions.

FYI: Recently, I discussed some results with one of the posters over on the nofeeboards who had modified his own monte carlo simulator to include a RTM forcing function (ie correlate future returns to immediate past returns). The deviation between his monte carlo results and historical results were dramatically reduced.

[sgeeeee]

Quote:

- I'm still stuck on the short and long term expectations, and feel like we're dancing around it. I'll try to restate what I think you said again since i missed the first time. You feel that certain hard to measure correlations in market movements makes shorter term (5-7 year) movements more predictable than longer term ones (30+ years). .

I think you can study factors and determine with high probability of accuracy that the market will move in a certain direction -- or that certain metrics will adjust upward or downward. But picking both the direction and the timing of those moves is a very low probability prediction. So I don't argue with people who say that the market is currently overvalued. I see the same indicators they do and believe that is probably true. I don't argue with those people if they say we are probably in for disapointing returns at some point till the market becomes less overvalued. But if you tell me those dissapointing returns are going to happen next year or you tell me they are going to be dispersed over the next 30 years, I am very skeptical. I have never seen any reason to believe such predictions and I've seen a lot of reasons to be skeptical.

So I don't neccesarily believe in short term or mid-term predictions more than I believe in 30 year predictions. I just don't generally believe in timed predictions.

Quote:

. . . My likely ability to predict that through any correlative action is very low. . . .

I certainly agree with this.

Quote:

As far as the original point and tying it in with *****'s points, I dont think the 6.21 works.

Okay. I have never said that is an incorrect position. But if you believe that 4.1% (ie. the universal SWR predicted by FIRECALC) was correct for the 2000 retiree while you believe that 6.21% won't work for the current retiree, then you are contradicting yourself. And if you don't believe that 4.1% was correct for Mr. RE 2000, then you must question the validity of the historical result. By rejecting the 6.21% result, consistency requires that you reject the underlying hypothesis of the historical simulation result -- that the future will be no worse than the worst case of the past.

Quote:

. . . All this having been said, I'll subscribe to any of John Galts posts in this thread. Do your planning, be careful, be patient, and in the end none of that really matters.

I want to point out that I did not retire in 2001 as my original RE plan had indicated precisely because I did not feel comfortable with a withdrawal rate of even less than 4% during the economic cycle we were in the middle of. I think that even if you believed with 100% certainty in the historical calculator results, you should try to provide significant cushion in your retirement portfolio. The accuracy of your post-retirement budget, the timing of your own longevity, the changes you may see in tax law, social security, etc. are all issues that are somewhat unknowable and yet have significant affect on your results.

But I do believe that it is important to understand the implications of the historical simulation results. If you don't believe in the 6.2% SWR of the current retiree, then you should be questioning the validity of the 4% SWR result. Not to do so is inconsistent logic.

And if you have begun to doubt the 4% result, then you might begin to ask, "What withdrawal rate is safe and how can I determine it if the historical simulator can't provide it?"

***** believes he has some of those answers. You can believe in the uncorrelated results from monte carlo. . .

My own reaction to understanding why a 4% universal SWR result implies a 6.2% rate for the current retiree is to believe that maybe the future could be a little worse than the past, but maybe times aren't quite as bad as many of the doom and gloom predictors are indicating. Comparing today to 1929 seems extreme, but maybe not that extreme. On the other hand, comparing today to 1965 doesn't seem quite so extreme, but a 4% withdrawal rate would have worked then. I'm thinking that waiting to retire till 2003 just before the markets made a nice recovery was probably a good thing to do and that it probably bought me a healthy bit of extra withdrawal margin. So even if the period from 2000 to 2030 is a little worse than 1929 to 1959 or 1965 to 1995, I've truncated the first 3 years of that period and I should be okay.

[wabmester]

SG, you seem like a smart guy, so I'm curious about something. How can you use FIREcalc with even a smidgen of confidence knowing that for your term of interest (presumably 30 years), there are only 4 independent (i.e., non-overlapping) data subsets in the data set?

In my case, I'd have to guess that either my wife or I will live another 50 years, in which case relying on historical data only two "epochs" deep seems like folly.

A lot can happen in 50 (or even 30) years, including events that might make the Great Depression look like a party. How can anybody, especially somebody with a background in archaeology, think that the worst is behind us?

[Michael]

Thank you.

[sgeeeee]

Quote:

SG, you seem like a smart guy, so I'm curious about something. * How can you use FIREcalc with even a smidgen of confidence knowing that for your term of interest (presumably 30 years), there are only 4 independent (i.e., non-overlapping) data subsets in the data set? In my case, I'd have to guess that either my wife or I will live another 50 years, in which case relying on historical data only two "epochs" deep seems like folly. A lot can happen in 50 (or even 30) years, including events that might make the Great Depression look like a party. * How can anybody, especially somebody with a background in archaeology, think that the worst is behind us?

First, I have not defended the 4% result of the FIRECALC simulator in a single one of my posts. Come on, guys, read them. I simply point out the logical and mathematical conclusions you have to come to in order to be consistent. If you don't like 6.2% today, then you better re-think 4.1% ever. There seem to be a lot of posters on this board who want to believe in a 4% SWR while not believing that amt came to a logical conclusion. People should re-think that position because it makes no sense.

Now . . . regarding other points in your post:

I don't have that much confidence that the worst is behind us. I can believe we'll see some period in the future that is as difficult to overcome as either the 1929 - 19xx period or as difficult as the 1965 - xxxx period. It could be the period that began in 2000, but I certainly haven't seen any quantifiable argument that leads me to believe that is a high probability. And if the period that began in 2000 is going to be worse than anything in the past, how much worse should we expect? 10%? 20%? 50%? I don't hear anyone providing quantifiable answers. In general, I have seen no analysis by anyone that would lead me to believe that they might be able to predict how much worse the next 40+ years is going to be than the two worst cases we've seen so far.

From a mathematical perspective, the number of independent data sets is of little concern to me. If I want to empirically answer the question, "What is the minimum number of heads I will see if I flip a coin 30 times in a row?" I don't need to start 100 different series of 30 tosses (ie. 3000 tosses) to answer the question. I can simply flip the coin 130 times and look at the 100 different series of 30 that are represented in those tosses. Of course the correct answer to the coin toss question is "zero" -- a result that you would have a very small probability of ever seeing in practice (forgive me if I don't compute the odds against seeing that event). And the same is true for SWR. No SWR is guaranteed.

But even more important, if I had more data, I question it's value. Based on all the law and regulation changes that took place after the Great Depression, I question how valid pre-1929 data is to my situation toady. Do you really want to trust your retirement on calculations dating to the Paleolithic Period?

So we all agree that you could retire using a result from a historical simulation and still run into trouble. Now what do you suggest we do? Here are some choices:

Should we comitt suicide? This insures that any withdrawal rate is safe for us.

Should we just arbitrarily decide that 6.2% today sounds unreasonable to us and use faulty logic to back up our decision? Meanwhile we can steadfastly believe in the 4.1% SWR and ignore the inconsistency in our logic.

Should we develop new models based on unproven hypothesis and shaky mathematical analysis and believe in them? If no one has bothered to prove the new models wrong yet, maybe they're right.

Should we throw out all of the complex correlations built into historical data sets and trust arbitarily calibrated monte carlo simulations?

My answer is that we should make every effort to understand the implications and limitations of all the models available to us. I think once you've done that, you decide that if you start with a generous post-retirement budget (one you can cut back on if you need it), plan for a long life, discount your social security benefits, choose a reasonable allocation plan, and keep your initial withdrawal rate a little below 4%, you are probably going to be okay.

[wabmester]

Quote:

(forgive me if I don't compute the odds against seeing that event)

I believe the odds are 1 in 230, the same as seeing any specific sequence of 30 tosses.

I posted another interesting calculation elsewhere (second-hand math):

Probability of a Great Depression magnitude event (i.e. 3-sigma GDP decline lasting 3 years) this year: about 1 in 526.

Probability of same in your lifetime: about 1 in 3.

[haha]

This SWR discussion remeinds me of the story about the fox and the hedgehog. The fox knows many things, but the hedgehog knows one big thing.

What this hedgehog knows about SWR is that it is nuts to take 6% from a retirement portfolio when the stock portion of the portfolio yields about 1.5 %, and the fixed proportion somewhat less than 4% nominal.

If anyone actually plans to do this, as opposed to just discuss it, IMO he has more b*lls than brains.

Mikey

[wabmester]

I think SG has made the case eloquently: *6.21% is perfectly safe if we have the same 30-year sequence as the historically worse sequence (1 of 4 statistically independent 30-year sequences). * And the odds of repeating that sequence (or any other specific sequence) are about 1 in a billion.

If we get a different sequence, even without a catastrophic event like the Great Depression, all bets are off. * All it would take is a streak of bad luck to blow the SWR assumptions out of the water.

(Unfortunately, I see low probability streaks often when I play blackjack -- I expect the same will happen when I play the stock market).

[hocus]

There is an overhelming tendency to reify the SWR concept....SWR isn't a strategy - it's a crosscheck.

That's a good statement, Dory36.

I had to look up the word "reify." It means "to treat an abstraction as if it had concrete existence." That's a good word to make us of in describing what has happened to us.

SWR analysis is a magical tool, in my view. Aspiring early retirees putting together investment strategies are faced with scores of factors that they need to make sense of in assessing what may happen over the course of 30 or 40 or 50 years. It is an imposing task. SWR analysis takes all of those factors and packages them into a nice little bundle of a number. It makes the imposing task manageable. It provides information that is actionable.

That said, common sense trumps numerical calculation every time. When a given methodology churns out numbers that your common sense tells you could not possibly be valid, you need to take a step back and search three times for flaws in the methodology. Then you need to act on what you find. All the better if you can redesign the tool to bring it back into comformance with what your common sense tells you must be so.

We are in the early years of development of the SWR concept. The people who designed the conventional methodology are heros in my eyes. They gave us a gift, and we owe them. But they would not want us to accept the conventional methodology as the last word in SWR analysis. They would want us to change the tool, to update it, to enhance it. That is what I was trying to do when I developed the data-based SWR tool back in the mid-1990s. I was trying to take something good and make it better.

There is going to come a day when some whippersnapper is going to come along and try to knock me down from the perch from which I have become comfortable doing my crowing in recent years. I hope that when the time comes I either invite the whippernsnapper to give it his or her best, or, if I am too old and tired for that, just fly away.

Whippersnapping make the discussion board world go round. In the process of me being knocked from my perch, there are going to be some juicy threads appearing on the Retire Early boards of the day. Those threads are going to rock. I hope that I enjoy them as much when they play out as I today look forward with anticipation to the day they begin showing up on computer screens everywhere.

[hocus]

SalaryGuru (Responding to BigMoneyJim):

What you are trying to do is take the current withdrawal rate of Mr. ER 2000 and back test it against history. *If that were valid, then you would conclude that Mr. ER 2000 was 100% safe when he started with is 4.1% inflation adjusted withdrawals, but is now less than 100% safe with that same withdrawal strategy. * But if he's no longer 100% safe, then what did 100% safe mean 4 years ago?

I think that the point being made here by SalaryGuru is an important one. SWR analysis is a risk assessment tool. The idea is to give you in advance of the day you turn in your resignation an idea of what may happen in the years to come. If we start using the tool in such a way that we cannot trust the risk assessments it provides to remain stable, the value of the tool is greatly diminished.

Say that you retired on January 1, 2000, and that you possessed confidence at the time that 4 percent was the true SWR. Say that Bernstein is right that the true SWR was actually 2 percent. Say that you are living on $60,000 per year. Say that you discover your mistake in at the end of 2005. That means that, at the time you begin looking into the belt-tightening idea, you have already spent $150,000 more than you would have had you used a more accurate SWR methodology. You would have to do two things at this point--reduce your spending by $30,000 per year and make up for the $150,000 shortfall. That's a lot of belt-tightening.

You could return to the workforce poorer than you were the day you left it and five years older. That idea possesses little appeal to me.

You could change your investment allocation to bring your SWR back up to the levels you were seeking in the first place. In all likelihood, however, it would be a fall in stock prices that would cause you to question the conventional methodology. That means that you would be selling your stocks at the worst possible time, when their prices were lowest. Again, the idea possesses little appeal.

I think that it makes more sense to properly assess your risks before turning in the resignation. SalaryGuru is being stubborn about the point he is making, but I think he is being stubborn for a very good reason. He is saying that it does not make sense to have confidence in the 4 number and not in the 6 number. Confidence in the 6 number is a logical consequence of belief in the same things that justify confidence in the 4 number.

SalaryGuru has more confidence in the 4 number than I do. We are not in agreement on some core issues. But I think that he is making a strong point on the logicial consequence issue. He is right when he says that those who do not feel comfortable with the 6 number should be asking themselves whether there is something wrong with the 4 number as well.

[dory36]

Quote:

... My answer is that we should make every effort to understand the implications and limitations of all the models available to us. *I think once you've done that, you decide that if you start with a generous post-retirement budget (one you can cut back on if you need it), plan for a long life, discount your social security benefits, choose a reasonable allocation plan, and keep your initial withdrawal rate a little below 4%, you are probably going to be okay. *

I hereby award SG a box of dryer sheets.

I think the issue of being able to cut back if necessary is particularly important.

Everyone's situation is different, but if you are on the edge with 4%, I suspect you need to start figuring out a way to increase the portfolio or else cut back somehow.

I am not sure what would constitute an ideal ratio, but I think we could cut back from 4% to 3% without much problem, and probably get close to 2% without feeling like we'd better see if Wal-Mart needs a new greeter.

I'm guessing that at least 20-30% of spending ought to be completely discretionary for someone retiring early.

[anti-debt-rant]This would especially apply to folks whose car, house, credit card, whatever payments make up a big part of your expenses. You can perhaps make a marginal dollar or two by borrowing low and using your investment genius to parlay that into a fortune, but you will be at the mercy of events, should anything in your life or the market hit a speed bump.[/rant]

Dory36

PS: Someone decades ago told me that any long term planning effort was like measuring with a micrometer, marking with chalk, and cutting with an axe.

[hocus]

SalaryGuru (in response to my "drunken friend" post):

What you are saying is that you believe that the future may be worse than the worst case of the past.

raddr did an analysis over on the NoFeeBoards.com site of the odds that we will see returns in the next 30-year period equal to the returns assumed in the conventional methodology studies. Here's a link (scroll to the bottom for the relevant point).

http://nofeeboards.com/raddr/gordon.htm

Raddr says that the odds of a retiree of today obtaining those sorts of returns are about 1 in 100. When defenders of the conventional methodology say that "the historical data shows a 4 percent withdrawal to be 100 percent safe," what they should be saying is that "the historical data shows that there is a 1 in 100 chance that a 4 percent withdrawal is 100 percent safe." There is a world of difference in the content of those two statements.

[hocus]

I have trouble with your equating PE10 to that overvaluation.

I don't want anyone to get the idea that I believe that PE10 is the only tool that may be used to incorporate the effect of changes in valuation levels into the analysis. Bernstein did not use PE10, and the number he came up with was 2. JWR1945 uses PE10 and he came up with numbers in that same general ballpark. I believe that both Bernstein and JWR1945 are on the right track. My beef is with the conventional methodology, which makes no adjustment whatsoever for changes in valuation levels.

Here's a link to a post from the SWR Research Group board where JWR1945 sets forth a table comparing the PE10 at the start of a 30-year historical sequence and the highest surviving withdrawal rate that ultimately applies for that sequence (we refer to this number as the historical database rate, or HDBR).

http://nofeeboards.com/boards/viewtopic.php?t=2245

Here's the chart:

HDBR50 and HDBR80 Ordered by PE10

Lowest Valuations
Code:

Year* PE10* HDBR50* HDBR80
1921* * 5.1* *9.6* *11.6
1922* * 6.2* *8.4* *10.3
1924* * 8.0* *7.9* * 9.5
1923* * 8.1* *7.6* * 9.0
1933* * 8.7* *5.8* * 8.4
1980* * 8.8* *9.2* *10.3
1975* * 8.9* *7.0* * 8.3
1978* * 9.2* *7.9* * 9.1
1979* * 9.2* *8.4* * 9.5
1932* * 9.3* *6.0* * 8.1
1925* * 9.6* *7.3* * 8.4
1942* *10.1* *6.1* * 9.1
1943* *10.1* *6.3* * 9.2
1949* *10.2* *7.8* *11.1
1948* *10.4* *7.7* *10.9
1950* *10.7* *7.3* *10.2
1944* *11.0* *6.1* * 8.6
1976* *11.1* *6.5* * 7.2
1926* *11.3* *6.9* * 7.7
1935* *11.4* *5.3* * 7.4


Middle Valuations
Code:

Year* PE10* HDBR50* HDBR80
1947* *11.4* *6.8* *9.4
1977* *11.4* *6.8* *7.4
1951* *11.8* *7.1* *9.4
1945* *11.9* *5.9* *8.2
1954* *12.0* *6.9* *9.0
1952* *12.5* *6.9* *9.0
1934* *13.0* *4.8* *6.3
1953* *13.0* *6.7* *8.6
1927* *13.1* *6.6* *7.3
1938* *13.5* *4.9* *6.6
1974* *13.5* *5.6* *5.9
1958* *13.7* *5.8* *6.8
1941* *13.9* *5.0* *7.0
1939* *15.5* *4.6* *6.0
1946* *15.6* *5.2* *6.7
1955* *15.9* *5.8* *6.9
1940* *16.3* *4.6* *6.1
1971* *16.4* *4.9* *5.0
1931* *16.7* *5.1* *5.6
1957* *16.7* *5.3* *6.0


[/b]Highest Valuations[/b]
Code:

Year* PE10* HDBR50* HDBR80
1936* *17.0* *4.4* *5.5
1970* *17.0* *4.8* *4.9
1972* *17.2* *4.8* *4.8
1959* *17.9* *5.0* *5.4
1956* *18.2* *5.2* *5.9
1960* *18.3* *5.0* *5.3
1961* *18.4* *5.0* *5.3
1973* *18.7* *4.7* *4.5
1928* *18.8* *5.7* *5.8
1963* *19.2* *4.9* *5.1
1967* *20.4* *4.5* *4.5
1962* *21.1* *4.7* *4.8
1969* *21.1* *4.3* *4.2
1968* *21.6* *4.3* *4.2
1937* *21.6* *3.9* *4.6
1964* *21.6* *4.6* *4.6
1930* *22.3* *4.8* *4.8
1965* *23.2* *4.3* *4.2
1966* *24.0* *4.2* *4.0
1929* *27.0* *4.6* *4.3

I see a strong correlation between the PE10 that applies at the start of a sequence and the HDBR that can only be determined 30 years later. It's important to understand that, in the event that there is any correlation whatsoever, the conventional methodology numbers are wrong. The conventional methodology makes no adjustment whatsoever for changes in valuation levels. It churns out the same SWR no matter how high or low current valuations happen to go.

[hocus]

If you tell me those dissapointing returns are going to happen next year or you tell me they are going to be dispersed over the next 30 years, I am very skeptical. *I have never seen any reason to believe such predictions and I've seen a lot of reasons to be skeptical.

It's important for people to understand that JWR1945 and I are not engaging in any speculation about things that may or may not happen in the future. We don't have any better insight into what is going to happen than anyone else.

We are starting our SWR analysis from a different foundational premise than are those using the conventional methodlogy. We believe that in the past changes in valuation levels have always affected the withdrawal rates that were safe. We believe that this rule will continue to hold in the future. The result of our adopting that premise is that we come up with different numbers.

There is no need for there to be a nuclear war or a depression or stagflation or any other econonmic calamity for the conventional methodology numbers to fail. All that is needed for those numbers to fail is for the premise that changes in valuation have no effect to turn out to have been wrong.

The conventional methodology was developed at a time when a lot of people believed in something that I refer to as "the Stocks-for-the-Long-Run Paradigm." I believe that that paradigm is flawed. Stocks really do provide wonderful returns when purchased at some valuation levels. There are other valuation levels from which the returns they provide are not so hot, however.

There have been studies showing that short-term timing does not work. But the historical data indicates that timing does work if you are a long-term buy-and-hold investor. SWR analysis is concerned with long-term results. So it doesn't matter for purposes of SWR analysis whether short-term timing is possible or not. What matters is whether long-term timing is possible.

The data that we have looked at indicates that it is. I think that our findings on that question are exciting, and will lead to all sorts of interesting discussions in future months and years.