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And you think that makes his advice OK? He never warns people that his advice is extremely risky. He never says "Follow this advice and the odds are you will be completely broke within 20 years. It's OK though, because you might die before then." You know, if he'd disclose how risky the advice is, I wouldn't object. If people are making an informed decision to follow a risky path, it is their business.
I wouldn't want to be 85 and flat broke with possibly another 10 years to go. Shouldn't have much in the way of expenses? Elderly people often need a great deal of help and that help can be quite expensive. Help doing thing around the house they can no longer do, home health care, assisted living, nursing homes. All quite expensive. If you need that kind of help but have no money, you will be at the mercy of others to provide for you.
He does tell people reaching retirement age to invest in Long Term Care Insurance.
Clarification requested: Is this 8% supposed to be (a) 8% of the portfolio's value in a given year withdrawn in that year (thereby withdrawing less when the value is lower), (b) 8% of its value in the retirement year and then constant in real (inflation adjusted) terms thereafter, or (c) 8% in the first year and then constant in nominal (not adjusted for inflation) terms?
If it means (a), you won't run out of money in 20 years, if it means (c) you likely won't run out in 20 years. If it means (b), however, then it isn't that unlikely it will be depleted to zero in that time frame.
He assumption is 12% annual returns and 8% withdrawl rate adjusted for inflation
Clarification requested: Is this 8% supposed to be (a) 8% of the portfolio's value in a given year withdrawn in that year (thereby withdrawing less when the value is lower), (b) 8% of its value in the retirement year and then constant in real (inflation adjusted) terms thereafter, or (c) 8% in the first year and then constant in nominal (not adjusted for inflation) terms?
If it means (a), you won't run out of money in 20 years, if it means (c) you likely won't run out in 20 years. If it means (b), however, then it isn't that unlikely it will be depleted to zero in that time frame.
If it means a, the outcome is still that your withdrawals become substantially smaller each year. If I start out with 500k withdrawing 40k annually, and 10 years later I am down to 200k withdrawing 16k, can that be considered a successful withdrawal strategy? I'm not out of money, but it sure doesn't look like a successful strategy to me.
And if it means b, The Trinity Study says such a strategy will fail more than half the time in 20 years or less. If the retirement goes longer, the failure rate increases.
Where is the academic study of withdrawal rates supporting DR's numbers? There isn't one. There is no math behind his strategy at all.
He does tell people reaching retirement age to invest in Long Term Care Insurance.
Are you suggesting this makes his strategy sound?
This is the real danger with idolizing a guru and putting him on a pedestal. The hero-worship of the guru is more important than objectively examining facts.
The only way an informed person can believe DR's investment advice is sound, is if they really want to believe it.
If it means a, the outcome is still that your withdrawals become substantially smaller each year. If I start out with 500k withdrawing 40k annually, and 10 years later I am down to 200k withdrawing 16k, can that be considered a successful withdrawal strategy? I'm not out of money, but it sure doesn't look like a successful strategy to me.
And if it means b, The Trinity Study says such a strategy will fail more than half the time in 20 years or less. If the retirement goes longer, the failure rate increases.
Where is the academic study of withdrawal rates supporting DR's numbers? There isn't one. There is no math behind his strategy at all.
Why would you be down to 200K if the 10 year average is 10-12% and you only take out 8%? You'd still have approximately 500K wouldn't you?
If it means a, the outcome is still that your withdrawals become substantially smaller each year. If I start out with 500k withdrawing 40k annually, and 10 years later I am down to 200k withdrawing 16k, can that be considered a successful withdrawal strategy? I'm not out of money, but it sure doesn't look like a successful strategy to me.
And if it means b, The Trinity Study says such a strategy will fail more than half the time in 20 years or less. If the retirement goes longer, the failure rate increases.
Where is the academic study of withdrawal rates supporting DR's numbers? There isn't one. There is no math behind his strategy at all.
If you hit the 12% growth rate and withdrawl 8% of the total your balance wouldn't go down
His assumptions are flawed. The long-term arithmetic mean of the US stock market is a bit under 11%. However, that is meaningless. The number which matters is Compound Annual Growth Rate (CAGR). The long-term CAGR of the US market is a bit under 9%.
And what about investment expenses? They are not accounted for at all in long-term CAGR. An investor receives net returns, not gross. DR recommends expensive load funds, so the investor loses another 1% or so to fees.
That means we can expect a return of less than 8% before withdrawals. An 8% withdrawal rate is simply not sustainable.
This is the real danger with idolizing a guru and putting him on a pedestal. The hero-worship of the guru is more important than objectively examining facts.
The only way an informed person can believe DR's investment advice is sound, is if they really want to believe it.
I'm not suggesting anything but he has an answer for everything.
Why would you be down to 200K if the 10 year average is 10-12% and you only take out 8%? You'd still have approximately 500K wouldn't you?
Lena?
DR recommends 100% stocks. That is a volatile portfolio. Some will be in the unfortunate position of experiencing steep market declines early in retirement. Suppose the market plunges the first year and your 500k goes to 400k. That is only a 20% decline, and can easily happen. You withdraw 80k and are left with 320k. The next year is another down year, you lose 10%. You withdraw your 80k. You're down to 208k in only two years.
Will that happen to everyone? No. Will it happen to some people? Yes.
His assumptions are flawed. The long-term arithmetic mean of the US stock market is a bit under 11%. However, that is meaningless. The number which matters is Compound Annual Growth Rate (CAGR). The long-term CAGR of the US market is a bit under 9%.
And what about investment expenses? They are not accounted for at all in long-term CAGR. An investor receives net returns, not gross. DR recommends expensive load funds, so the investor loses another 1% or so to fees.
That means we can expect a return of less than 8% before withdrawals. An 8% withdrawal rate is simply not sustainable.
You can argue over total returns but if your return rate exceeds the withdrawl rate your balance shouldn't go down
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