Ten Reasons Why the 4% Rule is Too Simplistic for Retirement Planning

[jclarksnakes]

Sounds pretty basic.

Glad to see we have all gotten away from the caustic comments.

 

[rescueme]

Make your bed and ly in it.

I'll assume you wanted to type "lye"...

Lye - Wikipedia, the free encyclopedia

I beleive you wanted to use "lie":

You've made your bed, now lie in it | Define You've made your bed, now lie in it at Dictionary.com

This interruption in discussion brought to you by the "word police" ...

(sorry, the Flip Wilson - Wikipedia, the free encyclopedia )...

BTW, this post is competely in jest, and just to provide some humor...

 

[obgyn65]

If you look at the definition http://www.bogleheads.org/wiki/Safe_Withdrawal_Rates here you won't see any mention of 30 years. It says "any time within the specified time period." For the record I recalculate my SWR every year.

FIFY. Of course from reading the OP link you know 4% was a SAFE WR for a 30 year planning horizon with a 95% success rate. And people say Dr Pfau's being repetitive...

 

[rescueme]

For the record I recalculate my SWR every year.

+1 (so do I/DW, while updating our PROI - Personal Rate of Inflation)...

 

[Midpack]

If you look at the definition Safe Withdrawal Rates - Bogleheads here you won't see any mention of 30 years. It says "any time within the specified time period." For the record I recalculate my SWR every year.

Except you've specified a 4% SWR which is based on 30 years as indeed your link clearly states. The SWR for 48 years is not the same, 4% would be a WR, not a SWR unless you accept a lower success rate. 4% isn't meant to apply to every number of years, it's more than 4% for 15 years and less than 4% for 45 years.

Limitations of the Trinity study
One scenario backtested in the Trinity study suggests that a retiree with a suitably allocated $1 million portfolio could withdraw $40,000 the first year, give herself a cost-of-living adjustment every year afterwards, and have a 98% chance of the portfolio lasting at least 30 years.

And if you want to let Dr Pfau (and hundreds of other academics) know he's wrong, be our guest.

5. The 4% rule is based on a planning horizon of 30 years. Those with other planning horizons must adjust their withdrawal rate accordingly.

 

[obgyn65]

Maybe I didn't express myself well. When I wrote "never exceeds" I meant "never equal or higher than". In fact, my model this year is planning for a 3.5% until age 95, but I guess future corrections (mostly downward ) will b needed sorry must rush to next patient bye

Except you've specified a 4% SWR which is based on 30 years as your link states clearly states. The SWR for 48 years is not the same, 4% would be a WR, not a SWR. 4% isn't meant to apply to every number of years, it's more than 4% for 15 years and less than 4% for 45 years.

 

[MooreBonds]

For the record I recalculate my SWR every year.

While I'm certainly not well-schooled on the various probabilistic theories and nuances with SWRs and statistics, could this actually be a bad idea in some situations? Wouldn't recalculating it every year give you more of a Monte Carlo-type situation, rather than taking into account the cyclic nature that often accompanies markets?

I suppose it would depend on whether you blindly pull x% each year out, or simply 'recalculate' it to compare to your original strategy for Sh*ts n Grins....but if you have a good year and then calculate a 30 year extrapolation, wouldn't you get a statistically different result (possibly good or bad, depending on recent market history) compared to retiring 10 years ago, and having had 10 years under your belt already?

 

[NW-Bound]

Make your own bed?

Anyone here has one like the following, so that he can sleep in a fetal position during a bad market downturn?

PS. Hmmm... Just realized the bed's shape looks like my avatar, except the latter has a Cognac glass in hand.

Above bed wouldn't work for me. Does not support tossing and turning.

 

[REWahoo]

Since Obgyn isn't yet retired, I think his annual calculation of SWR is nothing more than a "what if" exercise.

 

[veremchuka]

Other than a 3.6% distribution in 2010 to help pay off the mortgage my WR has been 0%. I guess I'm OK for the next 30 years, if I live that long. I'm certain my WR will exceed 0% one day but for the past 5 years there's been no need but that one time.

 

[ronin]

For those with a premium membership in Morningstar, this interview might be worth the time to watch or read the transcript (don't know if it's available elsewhere for others). It features Bill Bernstein, Sue Stevens and John Ameriks discussing a lot of the same stuff covered by Dr. Phau relative to this thread.

No new secrets revealed. I think we know pretty much what there is to know at this point. But interesting to see relative points of view at least.

retirement income M*

Some excerpts:

Bernstein on the duration of his portfolio, “Somewhere in the vicinity of a green banana. It's pretty short. It's less than a year.”

Stevens on the use of the bucket strategy, “I don't. I would encourage anybody who is kind of struggling with how to think about spending, to use whatever works for them. So, if buckets work for them, great. As an advisor, no. ... But I don't think about buckets. I think about the big picture and the small picture. I'd say a huge amount of what we do in our practice is making sure we stay about three months ahead on cash for everybody so they have whatever they need.”

Ameriks on VAs with GMWBs, “It's one word: "costs." When we look at what that costs and look at what the benefits are, if what Bill had to say about longevity insurance frightens you in terms of having to know the details and how it's structured and what the benefits are, boy, with guaranteed lifetime withdrawal benefits, you'll have a nightmare about that one because there are so many different products with so many different features.”

 

[Animorph]

For those with a premium membership in Morningstar, this interview might be worth the time to watch or read the transcript (don't know if it's available elsewhere for others). It features Bill Bernstein, Sue Stevens and John Ameriks discussing a lot of the same stuff covered by Dr. Phau relative to this thread.

No new secrets revealed. I think we know pretty much what there is to know at this point. But interesting to see relative points of view at least.

retirement income M*

I liked the comment about hedging inflation being a short-term proposition; "hedging inflation" in the long term is just total return investing.

 

[obgyn65]

This is correct. My original plan was to FIRE this month (July 2012) as discussed in other threads. However, thanks to this website, I have realized how important it is to reach 40 quarters (which I don't have yet because I have spent many years living abroad). Therefore, I have decided to work a few more months to reach 10 years for SS purposes (also discussed in another thread).

Since Obgyn isn't yet retired, I think his annual calculation of SWR is nothing more than a "what if" exercise.