Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
The problem with the 4% retirement income rule
Old 01-24-2020, 09:50 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,307
The problem with the 4% retirement income rule

Not much new here and there is a lot of "volatility could intensify" and "can have a dramatic effect" as well as "should ensure they participate". Articles with these "can and could" qualifiers abound on the internet, don't they?
Quote:
Although sticking to the 4% retirement income rule offers a layer of protection for retirees, it does not guarantee that seniors will outlive their savings, a Forbes contributor writes. While there are strategies to help reduce risk, clients should realize that the order of investment returns is crucially important, according to the expert. "Creating a safe retirement income distribution plan is not as simple as following the 4% rule."
https://www.financial-planning.com/n...=1579863348844
__________________

__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-24-2020, 09:59 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,770
Quote:
Although sticking to the 4% retirement income rule offers a layer of protection for retirees, it does not guarantee that seniors will outlive their savings ...
Well, it never did to begin with so no news there.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is online now   Reply With Quote
Old 01-24-2020, 10:05 AM   #3
Full time employment: Posting here.
 
Join Date: Dec 2015
Posts: 697
Quote:
Originally Posted by mickeyd View Post
Although sticking to the 4% retirement income rule offers a layer of protection for retirees, it does not guarantee that seniors will outlive their savings ...
Whew! Sure am glad I'm not following the 4% rule, as I definitely don't want to outlive my savings ...

Someone get these guys a good editor!
24601NoMore is offline   Reply With Quote
Old 01-24-2020, 10:11 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Jun 2003
Location: Historic Florida
Posts: 3,995
It is all relative, some "Could" take 5, 6 or even more % and still never outlive their stash as they could not spend it all. So it is all relative.
__________________
"Never Argue With a Fool, Onlookers May Not Be Able To Tell the Difference." - Mark Twain
ShokWaveRider is online now   Reply With Quote
Old 01-24-2020, 10:13 AM   #5
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,075
Quote:
Originally Posted by ShokWaveRider View Post
It is all relative, some most "Could" take 5, 6 or even more % and still never outlive their stash as they could not spend it all. So it is all relative.
Fixed your post
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is offline   Reply With Quote
Old 01-24-2020, 10:28 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Jun 2003
Location: Historic Florida
Posts: 3,995
Quote:
Originally Posted by USGrant1962 View Post
Fixed your post
Maybe it should be "Most Here"?
__________________
"Never Argue With a Fool, Onlookers May Not Be Able To Tell the Difference." - Mark Twain
ShokWaveRider is online now   Reply With Quote
Old 01-24-2020, 10:31 AM   #7
Full time employment: Posting here.
 
Join Date: Jun 2014
Posts: 897
ok that article is bizarre or should I say so wishy washy it wasn't really an article but some ramblings about should/could/would/maybe.
karen1972 is offline   Reply With Quote
Old 01-24-2020, 11:00 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 1,010
Quote:
Originally Posted by ShokWaveRider View Post
Maybe it should be "Most Here"?
Fixed it some more: Maybe it should be "Most fat FIREs Here"

We lean FIREs can't be as sloppy as others.
Spock is offline   Reply With Quote
Old 01-24-2020, 11:01 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 9,928
Quote:
Originally Posted by 24601NoMore View Post
Whew! Sure am glad I'm not following the 4% rule, as I definitely don't want to outlive my savings ...

Someone get these guys a good editor!
Alas, more proof that modern journalism standards have gone down, Down and DOWN.

But, allow me to be the Devil's Advocate for a while when It comes to the 4% rule. Yes, it's not perfect. Yes, things such as the order of investment returns can sink it. But, for many people who do not have the financial maturity of this group at least it gives them a somewhat realistic idea of how much money they will need to have by retirement. Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 01-24-2020, 11:03 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 1,299
I consider the source, a site for Financial planners.

Quote:
Clients shouldn’t let bad timing be their biggest retirement mistake
Retirees are advised to not rely heavily on their stock investments to develop an income strategy in retirement
If not relying on stock investments, then what? Annuities or CDs?

On another page from that site:

Quote:
until recently. Traditional methods of adding clients, increasing AUM and boosting productivity are increasingly in flux. Instead, advisors are exploring new ways to curate client experiences, let technology lighten their loads and hang on to second-generation clients.
For me, info from this site is self-serving and not for the likes of most of us here.
CRLLS is offline   Reply With Quote
Old 01-24-2020, 11:05 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,770
Quote:
Originally Posted by Chuckanut View Post
.... Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.
Whoa! Tha would be fine as long as their fun, carefree retirement spending is less than SS + $4,000/$8,000 a year!
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is online now   Reply With Quote
The problem with the 4% retirement income rule
Old 01-24-2020, 11:43 AM   #12
Full time employment: Posting here.
Markola's Avatar
 
Join Date: Nov 2013
Posts: 931
The problem with the 4% retirement income rule

...Which kind of makes a point: “Outliving one’s savings”, should it happen, is not the same thing as “dying broke”. Our plan has us living on savings fully between FIRE until age 70 Social Security for each of us, which will be north of $70k FOR LIFE. Our SWR will then drop at age 70, reducing pressure on whatever is left of the portfolio. Plus there will be big home equity to monetize, if even needed.

So, the 4% Rule becomes less meaningful once other levers are considered.
Markola is offline   Reply With Quote
Old 01-24-2020, 02:16 PM   #13
Recycles dryer sheets
 
Join Date: Jun 2017
Location: Cincinnati
Posts: 241
Quote:
Originally Posted by Chuckanut View Post
Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.
Have you been speaking to some of my extended family?

They inherited some money a couple of years ago. Enough that if they invested it, even conservatively, it would be a nice add to their SS income in retirement. Some new cars, new clothes, sweet vacations, and its all gone. Poof!
__________________
ER Target May = 2022
Jeffman52 is offline   Reply With Quote
Old 01-24-2020, 02:21 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jan 2018
Location: Tampa
Posts: 5,182
Quote:
Originally Posted by ShokWaveRider View Post
It is all relative, some "Could" take 5, 6 or even more % and still never outlive their stash as they could not spend it all. So it is all relative.
Actually IIRC, the SWR for most retirement sequences for lasting 30 years is ~6.50% except for the few worst beginning retirement years such as 1966, 1929, 1937, etc.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 01-24-2020, 02:33 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jan 2018
Location: Tampa
Posts: 5,182
The sequence of risk return example in the article showing portfolio losses of 25/20/15/10/5% in the first 5 years of retirement is not a realistic scenario from a historical perspective.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 01-24-2020, 04:47 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 1,335
Quote:
Originally Posted by Chuckanut View Post
Alas, more proof that modern journalism standards have gone down, Down and DOWN.

But, allow me to be the Devil's Advocate for a while when It comes to the 4% rule. Yes, it's not perfect. Yes, things such as the order of investment returns can sink it. But, for many people who do not have the financial maturity of this group at least it gives them a somewhat realistic idea of how much money they will need to have by retirement. Every once in a while I am shocked by somebody who inherited a $100,000 or even $200,000 and thinks that and SS is all they will need to finance 20+ years of a fun, carefree retirement.
SORR is contemplated by the 4% rule. The "trouble" with the 4% rule is it is very conservative. Of course that is also what is right with it.

But you are certainly right about peoples' unfamiliarity with numbers.
Montecfo is offline   Reply With Quote
Old 01-24-2020, 06:23 PM   #17
Full time employment: Posting here.
Lawrencewendall's Avatar
 
Join Date: Feb 2017
Location: Severn
Posts: 517
FIRECalc says I can spend 13% and still have a 100% success. I do have other sources of income though. YMMV
Lawrencewendall is offline   Reply With Quote
Old 01-24-2020, 09:15 PM   #18
Recycles dryer sheets
 
Join Date: May 2019
Posts: 277
Mehh... I don't see any trouble with the 4% rule. I won't spend exactly that (adjusted for inflation), anyway, and I bet I'll have trouble getting myself to spend that much most years due to my frugal nature since I could get by on less than half of what 4% provides. Plus, when other retirement income kicks in, I can reduce my drawdown spending to 2% of my stash while maintaining the same spending level. And as the years pass, I can make spending adjustments in either direction based on stash levels. No worries.
GenXguy is online now   Reply With Quote
Old 01-24-2020, 11:30 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 8,106
Quote:
Originally Posted by Jeffman52 View Post
Have you been speaking to some of my extended family?

They inherited some money a couple of years ago. Enough that if they invested it, even conservatively, it would be a nice add to their SS income in retirement. Some new cars, new clothes, sweet vacations, and its all gone. Poof!
Hey, we must be related... My sister blew through 2 inheritances.
When I asked her why did she spend all the money (which I had helped her put in a laddered CD).
She said because it was SO EASY...
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 01-25-2020, 05:46 AM   #20
Full time employment: Posting here.
BeachOrCity's Avatar
 
Join Date: Jun 2016
Posts: 525
Quote:
Originally Posted by mickeyd View Post

I read the quoted article earlier this week. The author touts himself as a fee only financial planner and then goes on to show a SORR based scenario where everything fails early on. The problem with his scenario?.... it was based on a 100% stock portfolio. If one changed it to some reasonable AA it would have done much better. He also had the market basically not having even one good year for like the first 25 years.

It read more like an ad saying “if you want to be safe, call me for an appointment”.

Thinking about it, maybe I should call his office and try to waste some of his time like his article wasted our time.
__________________

BeachOrCity is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
80% rule? 4% Rule? What is it really? Talkjk Hi, I am... 20 09-29-2018 10:03 AM
Debt problem or spending problem ? frayne FIRE Related Public Policy 9 03-11-2013 08:00 AM
The “not my problem” mindset is a problem. Midpack Other topics 14 05-01-2012 05:42 PM
FI/RE a nice problem to have but still a problem Grizz Hi, I am... 27 06-29-2007 02:29 AM

» Quick Links

 
All times are GMT -6. The time now is 03:31 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×