see http://www.retireearlyhomepage.com/twoperc.html for the January 2005 article.
hi Tadpole,Thanks. Is this approximately what you mean by valuation?
The value of a share using a weighted average of the P/E ratio, DCF, price/net tangible assets and other measures.
It has struck me that annuity providers have gravitated to a rate of a little over 4%. I realize that the current interest rate affect this number. But it has also struck me that they are at the 4% level where they have a high chance of keeping the original investment. Why would they want to ever offer any more than 4% if this is the case? Concerning the 2%, does anyone here have enough investments to adhere to this?
I think you've just identified one of the biggest problems with Hoco-mania and the 2% withdrawal rate.
As far as the *****/JWR1945 "stock-switching" valuation studies go, raddr has done a good job debunking the "junk-science" behind this work.
http://nofeeboards.com/boards/viewtopic.php?t=2399&highlight=switching+beware
intercst
Sounds like an endorsement of the historically derived 4% SWR to me.I believe that the record of how stocks have done in the past is a reasonable guide to how they may do in the future. The historical record is obviously not a perfect guide to the future. But what else do we have to go by? I think it makes sense to look at the historical data in putting together a Retire Early investment strategy. . .
As far as the *****/JWR1945 "stock-switching" valuation studies go, raddr has done a good job debunking the "junk-science" behind this work.
There is no such thing as "hoco-mania," intercst. It's a nonsense term that you made up as part of your effort to turn every discussion of the realities of SWRs into a circus event. Please cut out the nonsense.
Here's a serious question for you. William Berstein says in his book "The Four Pillars of Investing" that the conventional SWR methodology (the methodology used in your REHP study) is "highly misleading" at times of high valuation. He said in an e-mail to Ataloss that anyone thinking of using the conventional methodology SWR to plan a retirement today would be well-advised to "fuggetaboutit." Do you think that Bernstein is off base with these statements? If you do, please tell us why you do.
I must be missing something. Why would an asset returning 3.5% (real) require one to limit withdrawals of that asset to 2%?Recall from Chapter 2 that it's likely that future real stock returns will be in the 3.5 percent range, which means that current retirees may not be entirely safe withdrawing more than 2 percent of the real starting values of their portfolios per year."
I must be missing something. Why would an asset returning 3.5% (real) require one to limit withdrawals of that asset to 2%?
Should I be using a 2% retirement withdrawal?
Probably not. You'll find few reputable analysts suggesting that a retiree limit his or her withdrawals to 2% from an adequately diversifed retirement portfolio. Indeed, few Americans could amass enough capital to support a 2% withdrawal even if they worked well into their 70's.
William J. Bernstein (author of The Efficient Asset Allocator and The Four Pillars) points out that aiming for a portfolio survivablity of more than 80% (based on Monte Carlo analysis) really doesn't improve your overall safety. In his article The Retirement Calculator from Hell, Part III: Eat, Drink, and Be Merry Bernstein says this:
"The historically naïve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool's errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning."