When Financial Samurai wants to draw attention to his website, he un-ERs, or sets his hair on fire -- or cuts the 4% SWR by a factor of eight, to .5%.
Yes, Financial Samurai has pronounced that .5% is the new safe withdrawal rate. He bases it on the 10-year bond yield in 1998 (year of Trinity Study) vs. 10-year bond yield now:
At first, apart from guffawing, I ventured to guess that Financial Samurai was referring to someone who had a 100% bond portfolio. But in response to a comment, he noted:
Read it and weep:
https://www.financialsamurai.com/proper-safe-withdrawal-rate/
Yes, Financial Samurai has pronounced that .5% is the new safe withdrawal rate. He bases it on the 10-year bond yield in 1998 (year of Trinity Study) vs. 10-year bond yield now:
In 1998, the 10-year bond yield was between 4.41% to 5.6%. Let’s say the average 10-year yield rate was 5% in 1998.
Therefore, of course you’d likely never run out of money in retirement following the 4 percent rule. Back then, you could earn 1 percent more on average risk-free! ...
With the 10-year bond yield [currently] at ~0.7%, a safe withdrawal rate is actually closer to 0.5% – 0.63%. ...
Thanks to a steady decline in interest rates, [the] 4 percent rule from 1998 has declined by over 85%. In other words, we should change the name of the 4 percent rule to the 0.5 percent rule. ...
Following the 0.5 percent rule to obtain financial independence is difficult. For example, I’ve challenged myself to generate $300,000 a year in passive income. The goal of $300,000 has been carefully calculated to pay for between $150,000 – $200,000 a year in after-tax expenses.
Therefore, in order to proclaim true financial independence using the 0.5 percent rule, I would need to amass a net worth of between $30 – $40 million.
At first, apart from guffawing, I ventured to guess that Financial Samurai was referring to someone who had a 100% bond portfolio. But in response to a comment, he noted:
The new 0.5 percent rule takes into consideration lower structural returns in stocks and real estate. And this includes a 60/40 or 50/50 portfolio.
Read it and weep:
https://www.financialsamurai.com/proper-safe-withdrawal-rate/
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