1.9% instead of 4% the new safe withdrawal rate?

[bizlady]

Interesting article from Barron Regarding a study which says the new safe withdrawal rate is closer to 1.9%

The authors come to this conclusion based on longer lifespans and after evaluating data from a wide range of sources.

Seems conservative to me even with today’s inflation. But then…

https://apple.news/AyBqJctIMQ5mB6wSRU3TGGA

 

[Dtail]

I don't buy it.

 

[Fermion]

You can't change the rate and then call that rate safe, because changing the rate means the whole process is suspect.

What makes 1.9% safe? Why is that safer than 2.174%?

What if inflation next year is 76%...will 1.9% be safe?

 

[RobbieB]

Another thing not to worry about.

 

[daylatedollarshort]

If one believes the 1.8% number, then over 30 years, TIPS at current yields would provide a greater than 4% safe withdrawal rate.

 

[ERD50]

Interesting article from Barron Regarding a study which says the new safe withdrawal rate is closer to 1.9%

The authors come to this conclusion based on longer lifespans and after evaluating data from a wide range of sources.

Seems conservative to me even with today’s inflation. But then…

https://apple.news/AyBqJctIMQ5mB6wSRU3TGGA

Well, it's not apples-to-apples then, is it?

The 4% number was for a 30 year retirement, and included 5% failures (95% success).

Want 100% success? Reduce the WR. Want > 30 years? Reduce the WR.

[-]Your link doesn't work for me, so I'm not sure what the article actually said.[/-] 2nd try worked for some reason, I'll take a peek.

-ERD50

 

[ERD50]

OK, first line is suspect:

Retirees and near-retirees have known for some time that the famed 4% rule needs to be revised downwards. But by how much?

We have? If I run FIRECalc, or equivalent, the historical SWR has not changed for a 30 year retirement. The period starting 1966 is still the worst year, so nothing recent has changed that.

What are they talking about?

-ERD50

 

[USGrant1962]

I saw that study a couple of days ago, it's nonsensical. It incorporates all international SWRs that it can (OK so far), like Poland, Greece, Germany and Japan. Fair enough. But then it runs data right through WW1 and WW2 and averages everything together in a Monte Carlo sim. At least they retain some asset correlations so it doesn't go off the fat tail rails as much as most MC sims.

They claim they are correcting for survivor bias, but that makes no sense in calculating a withdrawal rate. Sorry but if your country gets conquered/flattened in a World War, 1.9% ain't gonna save your retirement. Poor study.

Many retirement calculators (FIRECalc, for example) and analysts (e.g. ERN) can/have looked at longer retirements and that in itself in no way forces SWR down anywhere near 1.9%, or even 2.26% that they mention as 5% failure for a couple.

Here's the paper if you want to dig in: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132

 

[Markola]

For 100% certainty let’s just have a 0% SWR.

 

[VanWinkle]

For 100% certainty let’s just have a 0% SWR.

That might work, as long as one doesn't live too long........

 

[HawkOwl]

For 100% certainty let’s just have a 0% SWR.

That is too high. You might still lose every penny.

 

[big-papa]

Like so many things surrounding investing, a maximum SWR Rate for any given retirement period can only be known in hindsight. And because you can't know what that will be ahead of time, it means that guessing at something lower than that in order to be conservative, is also still just a guess. That there is currently a worst case SWR rate from the past doesn't mean that it's the worst that could ever happen in the future.

There are many withdrawal methods better than SWR, in my opinion, but each one of them has its own pros and cons.

Cheers.

 

[Midpack]

Yawn…

 

[Gumby]

Don't retire at all. Problem solved.

 

[Exchme]

I saw that study a couple of days ago, it's nonsensical. It incorporates all international SWRs that it can (OK so far), like Poland, Greece, Germany and Japan. Fair enough. But then it runs data right through WW1 and WW2 and averages everything together in a Monte Carlo sim. At least they retain some asset correlations so it doesn't go off the fat tail rails as much as most MC sims.

They claim they are correcting for survivor bias, but that makes no sense in calculating a withdrawal rate. Sorry but if your country gets conquered/flattened in a World War, 1.9% ain't gonna save your retirement. Poor study.

Many retirement calculators (FIRECalc, for example) and analysts (e.g. ERN) can/have looked at longer retirements and that in itself in no way forces SWR down anywhere near 1.9%, or even 2.26% that they mention as 5% failure for a couple.

Here's the paper if you want to dig in: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132

100% agree. I think they had several noble ideas, but made odd choices and combined them in funny ways. Probably should have questioned their methodology when they got such weird results rather than rushing to publish.

Historical data is always plagued by the fact that there are very few independent long term cycles and by definition the oldest data are from long ago, so don't seem very pertinent. The authors tried to get around this by broadening the data to include other countries. It's certainly worth thinking about whether recent US history was a one-time golden period, where we transitioned from an agrarian country to the preeminent power and that perhaps reversion to the less-than-exciting returns of the rest of the world might be more representative of future returns.

But each country has different government structures, laws, customs, technological progress, demographics, resources, geography, etc. So inclusion of those to project US returns is really questionable and much of the paper strikes me as "thinking past the sale" on that point.

For instance, take the example highlighted by USGrant1962, gauging adequacy of retirement assets by averaging in disasters that can't be mitigated with retirement assets doesn't make sense.

Also, the criterion they used to include a country's data was once they had less than 50% agrarian workers. I struggle to see the relevance to gauge future US returns.

Taking other countries as independent observations seems odd too since they all experienced the same historical events. But each country's place in the world was so different that I'm not sure what got measured, I suspect nothing useful. Even if this were valid, surely statistically you would have to weight by population, rather than by the number of country names on the list.

So I don't see this study as adding to our knowledge.

 

[njhowie]

These types of articles always come out when markets are weak.

Go look at what similar articles were saying in 2008-2009...same kind of things.

 

[MarieIG]

What happened to common sense?

If you feel squeezed, watch your budget, reduce discretionary, and be somewhat flexible.

 

[NW-Bound]

OK, first line is suspect:

We have? If I run FIRECalc, or equivalent, the historical SWR has not changed for a 30 year retirement. The period starting 1966 is still the worst year, so nothing recent has changed that.

What are they talking about?

-ERD50

We have had threads about Bengen, the father of the 4% WR, recently saying that "this time, it's different".

 

[NW-Bound]

For 100% certainty let’s just have a 0% SWR.

Heck, long before this market rout there were posters who said that they did not spend all of their SS and/or pension, and still managed to save.

That's a negative WR for you spendthrifts.

 

[SJhawkins]

Im not buying it, spent enough time on the treadmill, will take my chances with 4%. Always tell my kids to buy a comfy couch!

I will admit the clooser I get to 60 I really don't care, it is what it is. My great grand parents lived in a sod house on the range, think we will be ok!

 

[ut2sua]

Don't retire at all. Problem solved.

This is still not "safe" enough in the absolute sense. In countries involving in a disruptive war, non-retiring, working folks may still not have enough to get by. There is not much point planning for a normal retirement in this kinds of scenarios however. Doomsday preppers are thinking about this stuffs all the time.

 

[RobbieB]

Like social media, I avoid all experts. Except "how to" fix stuff videos on youtube.

Yeah, doomsday preppers, flat earthers, anti vaxxers and conspiracy theorists.

Amazing.

 

[tmm99]

For 100% certainty let’s just have a 0% SWR.

[emoji1787]

 

[GravitySucks]

Buy/pay for everything you need over the next 40 years now.
Boom. Already up to a 2.5% SWR.

 

[ER Eddie]

Fear sells, I guess.