BigMoneyJim
Thinks s/he gets paid by the post
I may make a fool of myself here, but I learn more when I do so:
This kind of comparison we're talking about here--that since 4.1% was safe 4 years ago, and that's 6.21% today given the past 4 years and therefore 6.21% is safe--may be like the Stevie Wonder logic disconnect:
The simplest counter to amt's proposal is that I go to FIREcalc, enter a portfolio of $1mil, a yearly withdrawal of $62,100, lifespan of 26 years and leave all other entries alone and it tells me the success rate based on historical data is 70.5%. It doesn't matter that I used $1mil here, what matters are the percentages, and according to FIREcalc that withdrawal rate would survive any historical 26-year period 70.5% of the time.
I think the logic disconnect here is the assumption that year 4 of this 30-year period is comparable to year 4 in all the sample historical 30-year periods; it is not; in fact it's unique. If we had a hundred or so historical samples where years 1-4 performed exactly as 2000-2004 then maybe we could use those as a guide, but we don't have that data.
Even more simple: If you are confident enough in the historical analysis method that you believe 4.1% is 30-year safe, then why do you suddenly disagree when the same method and the same calculator tells you 6.21% is not 26-year safe?
Here's a project for someone who loves this stuff: Look through the historical data and find 30-year periods where the surviving portfolio of 4.1% is 6.21% in year 4. (I believe this means the overall return from years 1-4 equals the return of 2000-2004.) Find how many periods there are like that and decide if it's statistically significant. If it is, calculate the 26-year survival rate for years 5-30 in those sample periods and tell us the number of samples and the results.
EDIT: Oh yeah, I echo what Bob Smith said. When getting into the numbers and trying to predict the future it's easy to get all wound up and even worried that what we've done isn't good enough. Now that I'm readying to switch from debt reduction to accumulation I find myself wanting to save half my salary until age 65 (I'm 34) to be sure I'm safe, but the truth is that through controling expenses and thoughtful investing we are way ahead of where we were: non sum qualis eram. We can't account for all contingincies, but we're making hay while the sun shines and that's the best we can do, because "the best laid plans o' mice an' men. . ."
This kind of comparison we're talking about here--that since 4.1% was safe 4 years ago, and that's 6.21% today given the past 4 years and therefore 6.21% is safe--may be like the Stevie Wonder logic disconnect:
- God is love
- Love is blind
- Stevie Wonder is blind
- Therefore, Stevie Wonder is God
The simplest counter to amt's proposal is that I go to FIREcalc, enter a portfolio of $1mil, a yearly withdrawal of $62,100, lifespan of 26 years and leave all other entries alone and it tells me the success rate based on historical data is 70.5%. It doesn't matter that I used $1mil here, what matters are the percentages, and according to FIREcalc that withdrawal rate would survive any historical 26-year period 70.5% of the time.
I think the logic disconnect here is the assumption that year 4 of this 30-year period is comparable to year 4 in all the sample historical 30-year periods; it is not; in fact it's unique. If we had a hundred or so historical samples where years 1-4 performed exactly as 2000-2004 then maybe we could use those as a guide, but we don't have that data.
Even more simple: If you are confident enough in the historical analysis method that you believe 4.1% is 30-year safe, then why do you suddenly disagree when the same method and the same calculator tells you 6.21% is not 26-year safe?
Here's a project for someone who loves this stuff: Look through the historical data and find 30-year periods where the surviving portfolio of 4.1% is 6.21% in year 4. (I believe this means the overall return from years 1-4 equals the return of 2000-2004.) Find how many periods there are like that and decide if it's statistically significant. If it is, calculate the 26-year survival rate for years 5-30 in those sample periods and tell us the number of samples and the results.
EDIT: Oh yeah, I echo what Bob Smith said. When getting into the numbers and trying to predict the future it's easy to get all wound up and even worried that what we've done isn't good enough. Now that I'm readying to switch from debt reduction to accumulation I find myself wanting to save half my salary until age 65 (I'm 34) to be sure I'm safe, but the truth is that through controling expenses and thoughtful investing we are way ahead of where we were: non sum qualis eram. We can't account for all contingincies, but we're making hay while the sun shines and that's the best we can do, because "the best laid plans o' mice an' men. . ."