This business of safe withdrawl rates has me wondering... there doesn't seem to have been any consideration given to marginal probabilities-- that is, your SWR doesn't change with respect to what actually occurs in the market, unless it is worse than the worst case that has occured in the past.
So assume for a moment a portfolio that has a 100% SWR of 4% on the day you retire. The implication of this is that you can continue to draw 4% per annum indefinitely, regardless of market action (given the better-than-worst-case assumption).
Take your retirement date to be January 1st of 2000. You take your portfolio on this date, run the numbers and determine your safe withdrawl rate is X. Three years later, after one hell of a ride you find yourself re-estimating your SWR on January 1st of 2003. About 40% of your portfolio is gone and you get a smaller SWR rate of Y.
No here's the problem that I have with all of this. The BTWC assumption is still true-- nothing catastrophic has happened, so if the whole SWR concept has any validity you must still be able to draw out at your original rate of X since it was calculated to survive _any_ BTWC scenario.
Why does a retiree who retired in 2000 and loses 40% of his portfolio get a better withdrawl than someone who starts in 2003 with the same amount?
Shouldn't you be able to look at the past 10 years or so using inflation adjusted dollars, pick the date where your portfolio's SWR would have been highest and say "Since the worst case hasn't happened, if it was safe then, it must still be safe now?"
Am I missing something?
So assume for a moment a portfolio that has a 100% SWR of 4% on the day you retire. The implication of this is that you can continue to draw 4% per annum indefinitely, regardless of market action (given the better-than-worst-case assumption).
Take your retirement date to be January 1st of 2000. You take your portfolio on this date, run the numbers and determine your safe withdrawl rate is X. Three years later, after one hell of a ride you find yourself re-estimating your SWR on January 1st of 2003. About 40% of your portfolio is gone and you get a smaller SWR rate of Y.
No here's the problem that I have with all of this. The BTWC assumption is still true-- nothing catastrophic has happened, so if the whole SWR concept has any validity you must still be able to draw out at your original rate of X since it was calculated to survive _any_ BTWC scenario.
Why does a retiree who retired in 2000 and loses 40% of his portfolio get a better withdrawl than someone who starts in 2003 with the same amount?
Shouldn't you be able to look at the past 10 years or so using inflation adjusted dollars, pick the date where your portfolio's SWR would have been highest and say "Since the worst case hasn't happened, if it was safe then, it must still be safe now?"
Am I missing something?