Bengen: Fixen A Broken Withdrawal Rate

[Gotadimple]

Bill Bengen has published a long article in Financial Advisor. I picked up this article from the Oblivious Investor weekly email.

While he goes about solving how to restore a withdrawal rate to acceptable levels for the long-term, which may not apply here, his methods and analysis are always an interesting read.

I'm not sure how long FA will leave this article up. But, grab a cup of coffee and enjoy!

https://www.fa-mag.com/news/fixing-a-broken-retirement-withdrawal-plan-35863.html

- Rita

 

[FI_RElater]

...you’re gonna need oxygen at those SWR’s

the article has a few faults for those of us who are more conservative in our planning (and now executing) our retirement:

in one case, the prospective retiree starts with a SWR even ABOVE Bergen’s “Safemax”, which is already at the bleeding edge of possible surviving portfolios. They then further increase withdrawals to almost twice the original in a more “modest” inflation scenario— all within 10 years but without any concern until that point. Not exactly what most retirees here would do; i would suspect that most here seeing WR of 8-10% would be having alarm bells going off.

The other case, under “high” inflation conditions, started with WR ** just under** the “Safemax” value and like the above found after 10 years that their WR was about...15%! they couldn’t figure out how bad their conditions were deteriorating? no mid-course correction? (the author goes on to give not just one but two corrections over two years, resulting in a reduction to about 45% of the prior value, which seems to me to get back to the “Safemax “ value which he spouts to begin with)

The author never gives the audience the (i believe more proper) answer that under the later high inflation conditions, the payout for a SPIA might be advantageous and would “guarantee “(per state/individual insurers) that a higher WR , albeit reduced from the lofty values noted in the paper, would be sustainable.

 

[GravitySucks]

Thanks.
Bengen is always an interesting read and the optimic outlooks always appreciated.

 

[walkinwood]

Thanks for the link. As usual, an insightful article from Bengen.

For us in ER, I think these articles that try to discern the health of our ER portfolio based on current and historical conditions are more helpful than the traditional ones based just on historical returns/inflation. I hope more researchers follow his lead.

 

[Gotadimple]

What I found most interesting in the analysis is the effect of inflation on the incremental increase in the withdrawal rate. Using his method without a governor (ceiling/floor) causes problems and he clearly demonstrates.

As to the 'clients' who continued the strategy without thinking about consequences, perhaps their FA was to blame.

 

[FREE866]

Interesting article. I wonder what the analysis would be if the stock % was higher? 55% stock allocation seems so low especially given you're looking at a 30 year time frame.