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Its your own comments that are showing you have limited or no knowledge as far as any of these studies if you can even ask that question.
When you understand these studies you will see why your comment makes no sense.
Learn about the subject and ill be glad to discuss it or ask slackjaw or midpack to explain it to you,they are both well versed in it.
I have no problem explaining how it works but you keep challenging things and then when your proved wrong you just try to drag in other issues that dont apply to the point like it makes your point correct or something.
If you really want to understand it ill take the time to explain it.
Whoa....you're the one who keeps saying that we could be in for rough times like the Depression which would lower the SWR. But you are also saying the Great Depression produced the highest SWR. You can't have it both ways. I really think you don't know what you are talking about.
for those who dont want to go through the article ill answer it in a nut shell.
whether terrible events turns out to be the best of times for a retiree or the worst of times according to these studies is how much could they have spent over the 30 year period that included that event and not run out of money.
the answer depends on how a combination of events that influence the balance of their savings while spending it down plays out.
someone who retired in 1921 had a sequence of other events leading into the great depression happen to their money and then a sequence of events coming out of the depression happen to their money so at the end of a 30 year period how their nest eggs did can be very different from say someone who retired in 1926 and was exposed to the same great depression but had different combinations of things happen to their money over their 30 year period .
those that retired in 1926 got a different set of events happening to their nest egg then those who retired in 1921 and they can pull a different amount over 30 years from their balance ..
the studies just look at the 30 year life of a supposed retiree and see how much they could have pulled out without running out of money.
the trinity study and the studies before it were found to be flawed in many areas besides the fact it only went out 30 years.
the academics today like wade pfau and michael kitces are looking at and analying tons of data to learn just what the additional pieces of the puzzle should be for determining in advance the likely hood of someone drawing an amount through retirement thats realistic as the 4% drops the ball in many areas .
after all as pfau says how can retirees in 1921 ,1966 and 2000 all be told that 4% is the right amount?
as it worked out a retiree in 1921 could actully have taken the most money out of any retirees ever at a withdrawal rate of 10.40% a year .
the 1966 retiree actually went bust trying to pull 4% .
according to the data being incorporated in to the trinity study by some of todays academics ,the retirees from 2000 to date may be on track to be the worst group ever if the new data they are incorporating holds true from the past. new parameters are being introduced to try to get a projection for future portfolio behavior based on what always seemed to be the right combination of things in the past.
the results are not pretty according to pfau who see less then 2% swr playing out for new retirees . others like michael kitces are more optomistic . no one knows who will be right until after the game ends.
if every time in the past x happened it led to y then its a reasonable bet if this time we dont have x happen there is a good chance y wont.
midpack had a good example in a discussion on another forum as to why the 4% rule is just plain silly..
think about 2 men, bill and john.
both are the same age and both have 1 million dollar nest eggs.
john retires the beginning of 2008 and based on the 4% rule he is told he can take 40k the first year and take a 3% raise next year.
well bill decides to wait a year to retire. as luck had it the markets took an awful hit falling 40%.
now bill is told now he can only take 32k a year based on the 800k he has left . john is told he can take his 3% raise and is now taking 41,200 a year. both men have the same 800k balance,in fact john has less since he spent down a year.
huh ??? thats crazy logic you say. both men have the almost the same amount on the same day 1 year apart and they are told they can take an income thats almost 10k a year different with the fellow with a bigger balance being told he has to take the lesser amount.?
the 4% rule is flawed and the above shows why. both men are exposed to the exact same events and conditions and have the same balance yet the 4% rule treats them differently.
what the academics of today are saying is neither should be pulling 4% . there are many other factors that have to go into this equation that are missing and modern thinkers are trying to find just what they are..
anyway enough of this , bottom line is think twice before falling into the 4% rule trap when your ready to retire.
Last edited by mathjak107; 09-04-2012 at 03:07 AM..
BTW, this was in the footnote to the fidelity paper you linked:
What this means is that the 65 year old person cited in those tables is assumed to have no illnesses (such as obesity, hypertension, hyperlipidemia, diabetes, cancer, etc) that will potentially cut short this person's life. Now, how many 65 year olds fit this picture of perfect health?
Well, let's take obesity. According to this: http://www.heart.org/idc/groups/hear...ucm_319574.pdf 79% of 65 yr old and older men and 69% of 65 yr old and older women are obese. That right there already eliminates a good 80% of the population of 65 yr olds.
Which means that the mortality tables that you have been quoting are NOT REPRESENTATIVE of the majority of 65 yr olds. Sure, a perfectly healthy 65 yr old man may have a 25% chance of reaching 92, but if that man is actually in the MINORITY of the population - since 80% of people are not as healthy as him - what good are these tables, then?
I suggest you try to understand the statistics you quote before posting them. Don't forget to read those footnotes.
the reason all this your posting isnt relevant is the 2nd to die in an unhealthy couple can still live to 97 or longer..
the only thing that changes is unlike a healthy couple at 65 that has a 25% chance of seeing that age the unhealthy couple may only work out to a 5% chance . the mathamatics dont change, the fact life the expectancy of a couple is longer then either individually doesnt change. the only thing that changes with poor health is the percentage of odds of hitting 97 .
since we dont know which unhealthy person will go on to 97 my opinion is dont assume you wont be the one to beat methusalas record .
so my question here is who here wants to plan so they leave a high risk spouse with no money if they live longer then the life span indicated on a mortality chart.?
i know not me ....
think about the fact that depending whos numbers you use the last 30 years have seen life expectancy jump by 10 years.
not only by an uptick in age but more people making it to ages like 70,80,90,100 . your planning can be way off in 30 years if your retiring now by figuring to low of an age.
IM NOT SAYING PLAN TO 97 OR 100. traditional planning of 92 for a man and 95 for a women is fine for most of us.
there is usually enough slack in the plan to cover a few extra years or the couple issue but in my opinion no one should plan arount the 80's because thats what the chart says.
Last edited by mathjak107; 09-04-2012 at 05:05 AM..
not according to kitces and his look into buckets vs systematic withdrawals.
michael kitces opinion was no diifference in performance . only difference he found was the ease and comfort level the buckets produced. what the buckets give up by having years of cash at near zero they make up by having the equities buckets growing and fully funded for 15 years or more.
Lol nonsense. From Kitce's opinion on the bucket strategy:
Quote:
having a significant portion of the portfolio in cash creates so much of a drag on long-term returns, that the end result is a less sustainable portfolio (which is why the effect is especially severe at higher withdrawal rates and/or longer withdrawal time horizons where eventually getting equity returns, even after an extended bear market, are important).
...
the significant and uniform decline in success rates across the board makes it clear that in the end, rebalancing alone is most often sufficient to ensure that the right investments are sold, such that adding a significant cash reserve is more a drag on returns than a savior of them.
...
Notwithstanding some of the mathematical challenges of using cash reserve strategies, because of the return drag caused by the buffer zone cash is most often not made up by the timing of portfolio shifts, it is still true that for many clients, the cash reserve strategy is psychologically appealing
...
Nonetheless, the challenge remains that such strategies are not always comforting for clients who may be fearful in the midst of market volatility, and while buffer zone strategies are inferior to safe withdrawal rate strategies of comparable asset allocation, they are still superior to scenarios where clients either panic-sell in a market decline and/or are unwilling to invest in equities in the first place.
How one can interpret that as "michael kitces opinion was no diifference in performance" is beyond me, he's basically saying the same as we are: your heavy cash strategy makes for worse performance and lower portfolio sustainability, but is good for you psychologically. Again there is nothing wrong with being a guy who invests on emotion instead of reason, but that doesn't make it right to try to frame said emotion based decisions as the best ones for a portfolio when they clearly aren't.
Quote:
Originally Posted by mathjak107
the chart you have posted is from wade pfau .i respect his work also very much but like everything else it all depends on the parameters fed in to it and the math used to calculate as to the results these studies give you .
Translation: That chart doesn't match my opinion so despite having no opposing data or scientific reason to question it I'll just reject it with some vague ramblings about parameters and math
This data is not new. It's not like you discovered the Holy Grail here. It's no mystery that when valuations are low, future returns are higher, and when valuations are high, future returns are lower. So, answer this: would you rather have low valuations (which are seen during bear markets) or high valuations (seen during bull markets)? Would you rather have a Great Depression when you start retirement, or a 1990s-style tech bubble?
the reason all this your posting isnt relevant is the 2nd to die in an unhealthy couple can still live to 97 or longer..
the only thing that changes is unlike a healthy couple at 65 that has a 25% chance of seeing that age the unhealthy couple may only work out to a 5% chance . the mathamatics dont change, the fact life the expectancy of a couple is longer then either individually doesnt change. the only thing that changes with poor health is the percentage of odds of hitting 97 .
since we dont know which unhealthy person will go on to 97 my opinion is dont assume you wont be the one to beat methusalas record .
so my question here is who here wants to plan so they leave a high risk spouse with no money if they live longer then the life span indicated on a mortality chart.?
i know not me ....
think about the fact that depending whos numbers you use the last 30 years have seen life expectancy jump by 10 years.
not only by an uptick in age but more people making it to ages like 70,80,90,100 . your planning can be way off in 30 years if your retiring now by figuring to low of an age.
IM NOT SAYING PLAN TO 97 OR 100. traditional planning of 92 for a man and 95 for a women is fine for most of us.
there is usually enough slack in the plan to cover a few extra years or the couple issue but in my opinion no one should plan arount the 80's because thats what the chart says.
Your entire rant is a straw man argument. You are assuming people are stupid and don't adapt to changed circumstances. The 4% SWR is a lowest common denominator type-guideline that is robust when applied on a portfolio consisting of the S&P 500 and and US treasury bonds. Show me anyone who invests only in the SP 500 and T-bonds. That's a bare bones portfolio with expected middling returns. In reality, well-informed investors are more diversified than that. They invest in small caps, REITS, foreign stocks, TIPS, commodities - higher risk asset classes with expected higher returns.
And in the real world, people adjust their spending according to how much money they have. Bear markets result in deflation. People eat out less, take vacations less. When they get real old, they just lay in bed the whole time. Nature has a way of imposing limits on unsustainable behavior, SWR or no SWR. The importance of the 4% SWR is that it gives people a number around which to work on their budgets. It is a guideline (as acknowledged by the Trinity authors), not the Ten Commandments.
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Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
It's no mystery that when valuations are low, future returns are higher, and when valuations are high, future returns are lower. So, answer this: would you rather have low valuations (which are seen during bear markets) or high valuations (seen during bull markets)? Would you rather have a Great Depression when you start retirement, or a 1990s-style tech bubble?
