"The 4% Retirement Rule Is in Doubt. Will Your Nest Egg Last?" (moving, Florida)
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On which page of the study do you find math to which you object?
there is no math there , that is the problem ..kitces did the math ..he is the one that realized you can not look at 30 year periods …the results look normal ..every 30 year time frame was not out of bounds from normal ..
so it appears you are basing the 4% swr on average conditions.
but the truth is it is not based on a 30 year periods outcome .the outcome was determined in every single 15 year period at the start of a 30 year retirement .
it is actually those horrible 15 year periods that are why the 4% swr is so conservative.
go look at the data i posted above for the 15 years vs 30 year periods in what were the worst outcomes.
we have not had anything even close to what the 4% swr is based on which is why all these data less articles dont have a clue as to what the numbers are really based on
I took a quick look at the paper and was not impressed. It seems the "conservative" prediction of 3.33% is based on some rather strange assumptions:
Stock yields will be half of the current amounts
Bonds will continue to do poorly with low yields
A retirement portfolio should be 50:50 stocks:bonds
For someone retiring now, those conditions will continue for their entire life (30 years) in retirement.
The author appears to have used those assumptions so as to have an "apples to apples" comparison to the original 4% rule of thumb paper written by William Bengen back in 1994.
Quote:
Originally Posted by jrkliny
The logic here is not impressive. Again, these warnings are nothing new. There are those who have been predicting a slowdown or another major recession since the early days of the recovery in 2009.
I have no idea what is going to happen in the future, let alone 10, 20 or 30 years from now but picking a worse sort of scenario and expecting it to last indefinitely is worthless.
My crystal ball is a quite cloudy as well.
The good news is the author of the current study shows that it is possible, with reasonable care, to have a safe withdrawal rate that is much higher.
bill had the 30 year time frames correct but he failed to understand what it actually took for it to fail like kitces did ..he just knew over the 30 years thse time frames failed failed ..he never realized how horrible the first 15 years had to be to have the 30 year fail.
the 30 year data wasnt really bad , yet the period failed …. in fact it was close to normal .
but it was the horrible 15 year period in every failure that did it in and so that is why the outcome to make it fail is far worse then it appears looking at the 30 year data
past economic behaviors may not work very well. We are not dealing with some sort of constant processes.
The future is unknown other than it will bring change. Change may be good or bad or, probably, a mixture. The only thing one can do is analyze data that covers the past up to now, and have a plan with some flexibility. If you know of a better way, with less variability, do share.
it is all about the sequences of those returns not what they may average out to longer term ….as you saw every failed time frame failed not because of those long term averages spanning decades .
they failed because the first 15 years were so bad.
it is a different game when spending down .
in our accumulation stage a 10% return is a 10% return no matter what order .
but not so when spending down … that same 10% return can go broke in the wrong order all to quickly
I know but the point was a constant 1% or 5%that were being used are way too low.
You are required to withdraw it; you aren't required to spend it.
This. For me, personally, if things go as I expect, I will be taking RMDs only because I have to. They will simply become investments in a taxable account vs a retirement account. But I am sure I will spend some along the way of course.
I said if someone wants to be conservative... that calculation is pure rate of return and withdrawal rate and number of years. it is not a complicated calculation.
If the stock market drops 50% next year how much are you going to withdraw?
My theory is if I am 60 and I have 1,000,000 in a 1% account and I live to 80 I can spend $50,000 a year.
You missed the point if you have rate of return higher than withdrawal rate, the money will never end unless there is another force.
In the case of 5% rate of return and 4% withdrawal - Start with 100K, after year 1, have 105K and withdraw 4.2K, leaving 100.8K, year 2, 105.84K, withdraw 4.23K, leaving 101.6K, year 3 have 106.69K, withdraw 4.27K, etc...slowly builds - not decreasing.
If you have $1M in your mattress, you can live for 20 years on $50K, no interest, that is not a theory. $1M/20 years=$50K/yr.
Your premise was no market drop - but a market drop of 50% is not a problem, probably do the same as I did last year when the Dow dropped 37% between Feb. 12 and March 23 - re-balance.
This. For me, personally, if things go as I expect, I will be taking RMDs only because I have to. They will simply become investments in a taxable account vs a retirement account. But I am sure I will spend some along the way of course.
Same here, we will be doing large Roth conversions, maximize the amounts below 32% to minimize RMDs.
Over the past decade, the S&P 500 has trounced nearly everything else. By "everything else" I mean mid-cap, small-cap and international. Those who have been over-weighted in the S&P 500 have done well indeed. Those who have been more diversified, haven't done nearly as well.
Going forward, the question is, will there be a rotation away from the S&P towards the "everything else"? If so, then those with diversified portfoios have no cause for pessimism. But what if it happens to be the case, that during the good-times, the S&P rises more than other indices, but during bad times, they all fall just as much? Then indeed we have cause for worry.
That's great to know, but really, what is 10 years out of the 50+ years you're invested (both accumulating and then decumulating once retired)? The point of diversification is to have some of everything to reduce variability...over a lifetime of investment experience.
Being "concentrated" works best for very select (cherry-picked) periods that you don't even know about until you're past them. Being diversified works best over the longhaul when you're buying and holding. You can have a little "fun money" in certain volatile individual stocks if you get itchy and need to make some trades but leave the biggest part of your investments alone.
You are required to withdraw it; you aren't required to spend it.
Bingo, well stated.
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