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

[Koolau]

I guess it partially depends on your rate of return. I just began RMDs this year and reinvesting a portion back into brokerage account.

The theory of the 4% rule is that with an AA around 50 to 70% stock (maybe as low as 40%) you ignore the rate of return. That will vary. All the 30 year periods "survive" the ups and downs. YMMV

 

[NW-Bound]

The theory of the 4% rule is that with an AA around 50 to 70% stock (maybe as low as 40%) you ignore the rate of return. That will vary. All the 30 year periods "survive" the ups and downs. YMMV

... But let's not forget that the father of the 4% SWR recently said that "this time is different", and 4% is now too high.

 

[Koolau]

... But let's not forget that the father of the 4% SWR recently said that "this time is different", and 4% is now too high.

And, of course, he could be right. Some day, it WILL be different. But I'm betting (literally) that he is wrong this time. Let us hope so but YMMV.

 

[NW-Bound]

Back around 2010 or so, there was a bit of discussions here on this forum about using a lower WR than 4% to be safe.

And throughout the 2010's, the late Bogle kept telling us to expect lower returns going forward. While he never claimed to be able to predict exactly when things would happen, he expressed concern that the stock P/E was high, and that the bond yield was also low. When both revert to the mean, things get ugly.

And yet these reversions did not happen, and people grew to take things for granted. Both are happening now.

 

[ERD50]

Back around 2010 or so, there was a bit of discussions here on this forum about using a lower WR than 4% to be safe.

And throughout the 2010's, the late Bogle kept telling us to expect lower returns going forward. While he never claimed to be able to predict exactly when things would happen, he expressed concern that the stock P/E was high, and that the bond yield was also low. When both revert to the mean, things get ugly.

And yet these reversions did not happen, and people grew to take things for granted. Both are happening now.

And yet, unless it continues at a rate that makes it worse than the 5% worst of the past, the "4% rule" is still intact (in the original context - 95% success and 30 year retirement - no moving the goalposts).

-ERD50

 

[MarieIG]

And yet, unless it continues at a rate that makes it worse than the 5% worst of the past, the "4% rule" is still intact (in the original context - 95% success and 30 year retirement - no moving the goalposts).

-ERD50

Retiring at the beginning of bad year in the market, shrinks the portfolio, raises the (MY) SORR, and the rising inflation which increases the need to spend even on necessities.

Seems to me - it raises my chance of falling squarely in the 5%.

 

[ERD50]

Retiring at the beginning of bad year in the market, shrinks the portfolio, raises the (MY) SORR, and the rising inflation which increases the need to spend even on necessities.

Seems to me - it raises my chance of falling squarely in the 5%.

What was it Bob Brinker used to say? "And this we will know, in the fullness of time"? Something like that?

-ERD50

 

[MarieIG]

What was it Bob Brinker used to say? "And this we will know, in the fullness of time"? Something like that?

-ERD50

True - but - I prefer to be somewhat cautious in the meantime . . .

 

[NW-Bound]

And yet, unless it continues at a rate that makes it worse than the 5% worst of the past, the "4% rule" is still intact (in the original context - 95% success and 30 year retirement - no moving the goalposts).

-ERD50

True. We don't know if the future years will set a new record in misery, compared to the bad years of 1965-1980.

But if it just matches the past, it will cause a lot of sphincter tightening.

As for me, I don't have 30 years left to worry so much.

 

[Major Tom]

It just occurred to me that 1.9% is only slightly more than the dividend yield of the S&P500. Sounds like an extremely safe WR, virtually guaranteed to leave a great deal of money on the table when you shuffle this mortal coil. If anyone else has mentioned this, my apologies.

 

[finnski1]

It just occurred to me that 1.9% is only slightly more than the dividend yield of the S&P500. Sounds like an extremely safe WR, virtually guaranteed to leave a great deal of money on the table when you shuffle this mortal coil. If anyone else has mentioned this, my apologies.

It's a good point and I don't know if any body else mentioned it either but I agree. And right now if one were to only take a 1.9% WR and stick all their stash in 1-2 year treasuries they would be ahead in 2 years.

 

[Finance Dave]

I've seen turkey bacon in stores - They definitely look fake.

We use turkey pepperoni on our pizzas...tastes great and much less fat. Comes in round slices in a plastic package.

We usually get "take and bake" pizzas from Papa Murphy's...pick them up at the store uncooked, take home and cook when you're ready. We get the Tuesday special large pizza with up to 4 items for $9.99. Then add our turkey pepperoni.

This thread is headed to a "foodie" end

 

[Koolau]

True - but - I prefer to be somewhat cautious in the meantime . . .

I think that's natural. I "believe" in the theory of the 4% rule (and haven't changed my mind about it.) Having said that, in times like these (significant hits to my equities plus "raging" inflation) I find myself being more cautious in spending. I guess it's the old concept of "belief" vs "faith." I only believe.

 

[NW-Bound]

It just occurred to me that 1.9% is only slightly more than the dividend yield of the S&P500. Sounds like an extremely safe WR, virtually guaranteed to leave a great deal of money on the table when you shuffle this mortal coil. If anyone else has mentioned this, my apologies.

I agree that 1.9% WR is really extreme. The only way it can hurt is that the stock market cannot grow to keep up with the inflation, and 1.9% of something that is stuck behind will become less and less valued with time.

In Jan 1965, the Dow was at 903. In Jan 1995, the Dow was at 3844. You would think the Dow grew to 4.26x. But nooo...

Inflation in this 30-year period was such that $1 becomes $0.207, and the Dow actually lost 12% in that long time.

That's how scary high inflation is. We should pray that it will not repeat.

 

[NW-Bound]

I think that's natural. I "believe" in the theory of the 4% rule (and haven't changed my mind about it.) Having said that, in times like these (significant hits to my equities plus "raging" inflation) I find myself being more cautious in spending. I guess it's the old concept of "belief" vs "faith." I only believe.

Well, let's look at the description of FIRECalc:

How can FIRECalc predict future returns from past performance?

It can't. And it doesn't try. In fact, it tries to predict what will not happen. This might sound confusing, but it's really simple.

Consider an analogy: Suppose you are building a house in Honolulu. No one could predict the temperature for any given future date during the decades the house will be used. But if you know that it has never been under 52° in that location in all of recorded history, you could make an intelligent judgment about how much heating capacity is enough.

Fair enough. However, we know the summer has been setting new record highs all the time, all over the world. Same with drought. Same with hurricanes. Your AC may be enough in the past, but now it's not enough.

And stock markets, the world economy, and politics are not even natural events, but human endeavors. And people are doing crazier or at least different things all the time. We hope people will get smarter and do better things, but that's only hope.

 

[daylatedollarshort]

TIPS at current real yields would provide over a 4% safe withdrawal rate for 30 years, so it would be illogical to have a riskier portfolio with a much lower expected SWR. We're likely to have high interest rates or high inflation for the foreseeable future, so either nominal or inflation adjusted individual bonds, and possibly both, should continue to do really well.

 

[jazz4cash]

It just occurred to me that 1.9% is only slightly more than the dividend yield of the S&P500. Sounds like an extremely safe WR, virtually guaranteed to leave a great deal of money on the table when you shuffle this mortal coil. If anyone else has mentioned this, my apologies.

This is exactly what I was thinking. It’s currently 1.82 TTM having risen from 1.38 last year. Unfortunately the recent rise is due to the index falling this year.

 

[NW-Bound]

Well, if you manage to keep up with inflation, then 4% WR will get you 25 years before you are broke (100% / 4 % = 25 ).

1) If you manage to get a bit of gain, then you can stretch it out to 30 years.

2) Or if you get to SS, that also helps.

3) Or if you don't expect to live another 30 years, you should not worry about money, but about other things.


In my case, all 3 conditions apply. So, me worry about money?

It's just that we should give up the idea that we can draw from our stash to live a leisurely retirement, yet it just keeps on growing and growing and we will be able to leave behind a big legacy for our offsprings.

No. We should accept that there's a strong possibility that our stash will shrink and shrink with time, just like our body (well, some parts of it anyway).

But getting broke? No, not unless you mess up really big.

 

[MarieIG]

I think that's natural. I "believe" in the theory of the 4% rule (and haven't changed my mind about it.) Having said that, in times like these (significant hits to my equities plus "raging" inflation) I find myself being more cautious in spending. I guess it's the old concept of "belief" vs "faith." I only believe.

Precisely!

We are not starving - but there are certain thing that can wait . . .

 

[NW-Bound]

Precisely!

We are not starving - but there are certain thing that can wait . . .

Yes. However, some of us are older, and may not want to wait.

It's all about priority.

 

[youbet]

It's a good point and I don't know if any body else mentioned it either but I agree. And right now if one were to only take a 1.9% WR and stick all their stash in 1-2 year treasuries they would be ahead in 2 years.

Ahead in nominal dollars but not in real dollars if inflation rates are slow to reduce.

 

[MarieIG]

Yes. However, some of us are older, and may not want to wait.

It's all about priority.

Life involves constant decisions/choices, to an extent motivated by one's particular priorities.

I have priorities now, that I would not have imagined five years ago.

 

[Koolau]

Yes. However, some of us are older, and may not want to wait.

It's all about priority.

Of course, the added advantage of age is that some of us have a shorter time frame (no longer 30 years) to be concerned about. I figure that makes the 4% rule a bit more solid - every year I subtract from my (once floating) 30 years. Heh, heh at 58 when I FIREd, I figured 30 years put me at 88. But I kept calculating, based on 30 MORE years. But at 69, I quit "floating" my 30 year survival estimate. 99 Seems a reasonable sell-by date. Only 24 years to worry about now.

 

[NW-Bound]

Of course, the added advantage of age is that some of us have a shorter time frame (no longer 30 years) to be concerned about. I figure that makes the 4% rule a bit more solid - every year I subtract from my (once floating) 30 years. Heh, heh at 58 when I FIREd, I figured 30 years put me at 88. But I kept calculating, based on 30 MORE years. But at 69, I quit "floating" my 30 year survival estimate. 99 Seems a reasonable sell-by date. Only 24 years to worry about now.

The easiest thing to do is to use the IRS RMD to see what you can spend. Forget FIRECalc once you get close to 70. FIRECalc is for kiddos.

The chance of outliving the RMD table is exactly 0. And the RMD table is way optimistic for 100% of the population. Many people say "Bye Bye" not long after starting RMD, many posters here too. Very sad.

I am quite sure I will not spend up to my RMD. No way. And the RMD does not address the assets in Roth and taxable accounts either.

 

[finnski1]

Ahead in nominal dollars but not in real dollars if inflation rates are slow to reduce.

Yes but I guess what I was getting at is that if they stuck to the 1.9% WR mentioned even with inflation factored in.
You are correct if inflation rages on forcing that 1.9% to become greater and greater. Then maybe TIPS would work out if bought in large enough quantities. Perhaps the markets would also recover and keep pace with or even beat inflation. I got no clue.