The Old 4% Rule for Withdrawal (kiss, dates, raise, family)

[Robyn55]

Originally Posted by Garthur

Why is it so difficult to understand that any plan based on historical data is worthless now. We are in uncharted waters. All this talk about what happened for the past 100 to 150 years or so has no relevance today.

Perhaps it's the opposite of "those who forget the past are doomed to repeat it"? People want to remember the past to convince themselves that what happened then will happen again - because they find it hard to believe that what is going on today will still be going on 5-10 years from now. Robyn

[mathjak107]

Originally Posted by Garthur

Why is it so difficult to understand that any plan based on historical data is worthless now. We are in uncharted waters. All this talk about what happened for the past 100 to 150 years or so has no relevance today.

because you are incorrect if you read why . math never changes . the data only identify's the worst outcome's . in fact you don't need the historical data , that is what computer monte carlo simulations do . they try to find the worst case scenario's they can come up with and tell you what the bottom line number is for things to fail .

the safe withdrawal rate is based on the income not failing mathematically based on the worst conditions in the usa ever . as long as current math holds above the old low water mark we know we are fine.

all that data lets researchers extract the math that causes failure .

so we know that unless the outcome is much worse mathematically you are good to go in theory .

we would have to have a worse outcome then the data i posted above for 1966 . even those that retired in 1929 have not done worse .

but now because of those study's we know what our low water mark is before we run out of money or pass the danger point .

you may not understand how to utilize those numbers so to you , you are thinking it is based on market averages ,rates and inflation decades ago . but it really is not .

it is based on the most horrible outcomes we have had and the math behind why they ran out of money before they ran out of time and that math is timeless .

when you know what those numbers are it is easy to monitor the future and know if you are on track early on .

the take away from the study's and data is that going forward you need to maintain at least a 2% real return average over the first 15 years .

that is what the historical data all boils down to , that you called useless . if it wasn't for that data we would not know a thing about the mathematical common denominators of the failures so we know what to look for going forward to see if we are good to go or have to take a pay cut before it is to late ..

think of your blood pressure .... decades of study's have shown what a good range is . it doesn't matter that lifestyles were different , diets were different back then , even life expectancy was different but if every time they looked at a stroke victim and their pressure exceeded a certain point well despite the fact lifestyles , expectancy and diets change the smart thing is for you to stay below that number .

those past study's generated a number you can hang a hat on going forward as a guide . that number has nothing to do with what changed through the years. all that matters is you are above range or below .

[Giesela]

Originally Posted by Garthur

Why is it so difficult to understand that any plan based on historical data is worthless now. We are in uncharted waters. All this talk about what happened for the past 100 to 150 years or so has no relevance today.

This. What happened 20 years ago barely has relevance to the new global world.

[mathjak107]

Originally Posted by mathjak107

think of your blood pressure .... decades of study's have shown what a good range is . it doesn't matter that lifestyles were different , diets were different back then , even life expectancy was different but if every time they looked at a stroke victim and their pressure exceeded a certain point well despite the fact lifestyles , expectancy and diets change the smart thing is for you to stay below that number .

those past study's generated a number you can hang a hat on going forward as a guide . that number has nothing to do with what changed through the years. all that matters is you are above range or below .

this ^

all that historical data is our stroke victim . the math holds as true today as it did years ago . what causes your blood pressure to get in to that high risk stroke range really does not matter , only that you are there and you take action to correct it .

the study's like the tinity study or bill bengen's safemax study tell us if you fall below the ranges that were identified in the past data as mathematical failure points , you will fail .

that gives you a number to monitor for going forward .

it isn't the past is useless , it is few understand how that info is utilized to generate numbers that hold true forever .

our diets ,stress and lifestyles can change drastically over the years but that does not make the research of the past any different because they lived different lives when it shows you that you are in a high risk range .

if mostly all stroke victims had the same common denominator in pressure you can be pretty sure it apply's to you too whether 10 years ago or tomorrow ..

[Vision67]

The best rule is to have no need to withdraw anything.

Get your expenses low enough so that they are fully covered by pensions and SS.

[oldsoldier1976]

As I read kitces it is as you said not so much a down year it is the down decade that is the real killer if you don't rebalance. Now I know that my retirement fund makes that part easy but all of my retirement fund is in a single system. Is it as easy if you have multiple locations and very different funds? Does that action require a manager? That is my question. Forgive me for not knowing.

[Robyn55]

Originally Posted by mathjak107

how bad were things for the 1966 group which are the numbers the 4% safe withdrawal rate is based on ?
a
far worse then most individuals and financial writers realize...

I agree (my parents retired then). There were many factors in addition to investment returns. First there was the expense side. At least in Florida - property values soared (except for a brief period during the '73-'74 recession). So property taxes went up. A lot. That was the primary driver behind the 1995 Save Our Homes constitutional amendment. Florida homeowners have a reasonable degree of protection against huge sudden property tax increases today.

Income taxes were high too before President Reagan's tax reform act in 1984.

That was also a period of very large increases in health insurance costs (not as bad as we have now - but bad). And - if you weren't 65 - you couldn't get Medicare (which didn't exist before 1965).

The prices of other things went up a lot too. Everything from a gallon of gas to a can of tuna fish. To college expenses (important if you still had children in college).

On the income side of the equation - Social Security didn't start to have COLA adjustments until 1975.

Real interest rates on safe fixed income were negative for a lot of the time - until the late 70's - early 80's.

In terms of equities - from the start of 1966 until the market bottom in 1982 - the SP500 went from about 95 to 102. An annualized rate of return of well < 1% (plus dividends). With a lot of stomach churning volatility in between.

Then of course - the markets took off. Fueled in part by a multi-decade bull market in bonds. Where's the fuel for anything remotely similar in the future?

Ray Dalio: There is no engine to drive global growth - Business Insider

There are people I respect who are more optimistic as of a few weeks ago. But all of these people have much more expertise than I and most people do in terms of picking individual sectors/stocks. And they can also afford to lose more money than I can:

Appaloosa's David Tepper on Stocks, Strategy - Bloomberg Business

Of course - there was no way to buy the SP500 in 1966. The first index fund (the predecessor of Vanguard) didn't come into existence until 1975. And - assuming you were 65 when you retired in 1966 - you'd be in your mid-70's in 1975. And probably would never even have heard of the innovation. Although there were some mutual fund companies around then - you would in all probability be dealing with a "customer's man" at a "full service" brokerage firm. And paying large fees/commissions whenever you wanted to do something.

The markets are better for small investors these days. In some ways. Costs are lower. There are lots of more or less plain vanilla investment options - especially when it comes to ETFs. OTOH - more than 50% of the trading volume is computerized algorithmic trading. Which adds to short term volatility and leaves smaller investors scratching their heads - wondering what's going on. And lower costs can only do so much when markets are going down or sideways.

Overall - I think this is a challenging environment unlike any I have seen in the past. Only time will tell how it plays out. But I suspect we'll be seeing things that aren't on our radar screens now. Robyn

[mathjak107]

Originally Posted by golfingduo

As I read kitces it is as you said not so much a down year it is the down decade that is the real killer if you don't rebalance. Now I know that my retirement fund makes that part easy but all of my retirement fund is in a single system. Is it as easy if you have multiple locations and very different funds? Does that action require a manager? That is my question. Forgive me for not knowing.

yep , if you saw kitces study on 2008 you saw how it was a non event for those who just went along for the ride . it isn't the steepness but the duration that hurts . even a modest drop for a decade can be so dangerous .

[mathjak107]

Originally Posted by Vision67

The best rule is to have no need to withdraw anything.

Get your expenses low enough so that they are fully covered by pensions and SS.

the only thing wrong with that for many of us is the idea didn't start with once upon a time . pension and ss would still let us qualify for a low income housing project here in ny .

[oldsoldier1976]

Originally Posted by mathjak107

yep , if you saw kitces study on 2008 you saw how it was a non event for those who just went along for the ride . it isn't the steepness but the duration that hurts . even a modest drop for a decade can be so dangerous .

True and I agreed with that. I still just curiosity mind you wonder how easy is rebalancing is if you have several fund families? Is it more advantageous to combine them all into the best performing family?


Maybe this is complicating things but lets say you have three retirement accounts. Wouldn't it be better to have them all in one? If you don't do you then have to hire a financial advisor?