Year 2000 retirees using the '4% rule' - Where are they now?

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Scott S »

Love this thread. Thank you for keeping us posted, Will. :beer
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Eagle33 »

willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
What were the lowest balance % reached during these past 21 years for these portfolios?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Eagle33 wrote: Fri Mar 26, 2021 2:14 pm
willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
What were the lowest balance % reached during these past 21 years for these portfolios?
Most of that answer is in the OP.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Eagle33 »

willthrill81 wrote: Fri Mar 26, 2021 3:52 pm
Eagle33 wrote: Fri Mar 26, 2021 2:14 pm
willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
What were the lowest balance % reached during these past 21 years for these portfolios?
Most of that answer is in the OP.
So the lowest portfolio balance during the 21 years is February 2021? There was no lower balance back in say early 2009?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by GuyInFL »

Eagle33 wrote: Fri Mar 26, 2021 10:05 pm
willthrill81 wrote: Fri Mar 26, 2021 3:52 pm
Eagle33 wrote: Fri Mar 26, 2021 2:14 pm What were the lowest balance % reached during these past 21 years for these portfolios?
Most of that answer is in the OP.
So the lowest portfolio balance during the 21 years is February 2021? There was no lower balance back in say early 2009?
The OP on page 1 shows it at about $500K.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Eagle33 wrote: Fri Mar 26, 2021 10:05 pm
willthrill81 wrote: Fri Mar 26, 2021 3:52 pm
Eagle33 wrote: Fri Mar 26, 2021 2:14 pm
willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
What were the lowest balance % reached during these past 21 years for these portfolios?
Most of that answer is in the OP.
So the lowest portfolio balance during the 21 years is February 2021? There was no lower balance back in say early 2009?
From the OP:
Anything could happen going forward, but it looks as though retirees who rigidly followed the '4% rule' will make it to the 30 year milestone. That being said, their portfolio would have dropped to an inflation-adjusted $532,570 in Feb., 2009. The portfolio recovered to $684,815 by the end of 2009, but it still would have been difficult to withdraw that year's spending of $49,965, 7.3% of the remaining portfolio, only 10 years into their retirement.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by AlohaJoe »

An addendum to willthrill81's point: we can also compare how Year 2000 retirees are doing relative to all other retirement cohorts at this point in their respective retirements. They are actually the 28th percentile at the 21-year mark, meaning 28% of all other retirements had smaller portfolios (i.e. they had used up more of it) at this same point in their retirement. So a Year 2000 retirement is now clearly very far from a "worst case scenario", historically speaking, despite the Dot Com Bubble, the Global Financial Crisis, and (now) Coronavirus.

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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

AlohaJoe wrote: Fri Apr 30, 2021 8:43 pm An addendum to willthrill81's point: we can also compare how Year 2000 retirees are doing relative to all other retirement cohorts at this point in their respective retirements. They are actually the 28th percentile at the 21-year mark, meaning 28% of all other retirements had smaller portfolios (i.e. they had used up more of it) at this same point in their retirement. So a Year 2000 retirement is now clearly very far from a "worst case scenario", historically speaking, despite the Dot Com Bubble, the Global Financial Crisis, and (now) Coronavirus.

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Excellent point Joe. Stock performance since 2010 has been strong enough to overcome the very lackluster 2000-2009 initial decade for the year 2000 cohort. Bonds helped quite a bit during that 'lost decade' as well, but they are set to do significantly worse over the next decade, so it wouldn't be prudent for retirees to count on TBM counteracting negative returns in stocks.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by duffer »

willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
Very interesting thread. Thanks for creating and maintaining it.

How would Year 2000 retirees be doing now if their portfolio was 100% U.S equities? How about 80/20 U.S. equities/bonds?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

duffer wrote: Sat May 01, 2021 9:02 am
willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
Very interesting thread. Thanks for creating and maintaining it.

How would Year 2000 retirees be doing now if their portfolio was 100% U.S equities? How about 80/20 U.S. equities/bonds?
Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527).
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by duffer »

willthrill81 wrote: Sat May 01, 2021 10:22 am
duffer wrote: Sat May 01, 2021 9:02 am
willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
Very interesting thread. Thanks for creating and maintaining it.

How would Year 2000 retirees be doing now if their portfolio was 100% U.S equities? How about 80/20 U.S. equities/bonds?
Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527).
So, if I understand you correctly, the 100% equities would retain an inflation-adjusted 46% of their original portfolio versus 76% for the 60/40 split?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by mrspock »

abuss368 wrote: Sat Dec 19, 2020 1:46 pm My goals for retirement is to build a passive income stream from dividends only. I clearly understand the total return approach vs. dividends but simply not interested in debating. I figure if I can live from dividends and yield is 2.5% that is well below 4%.

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This is where I’m at now. I did my main nest egg the traditional Boglehead way, but I’m deviating a bit because I have the luxury to do so, plus the 3.5% dividend (still a nice 3% now) of SCHD was just too rich to pass up last year vs bond yields, so I started building up a position. It’s now up some 17% on top of dividends. :shock:

I know they are still equities, but I look at it a bit as diversifying my income stream a bit. My bond yields and dividends are pretty close to being able to cover my base expenses at this point which I like.

On the downside it’s super tax inefficient unfortunately, but I’m only a few years out from retirement so I need to set the table for how I want my portfolio to look in retirement. Plus my taxable account dwarfs my tax advantaged accounts, so the musical chairs game of fund placement doesn’t really work for me.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by abuss368 »

mrspock wrote: Sat May 01, 2021 12:24 pm
abuss368 wrote: Sat Dec 19, 2020 1:46 pm My goals for retirement is to build a passive income stream from dividends only. I clearly understand the total return approach vs. dividends but simply not interested in debating. I figure if I can live from dividends and yield is 2.5% that is well below 4%.

Best.
Tony
This is where I’m at now. I did my main nest egg the traditional Boglehead way, but I’m deviating a bit because I have the luxury to do so, plus the 3.5% dividend (still a nice 3% now) of SCHD was just too rich to pass up last year vs bond yields, so I started building up a position. It’s now up some 17% on top of dividends. :shock:

I know they are still equities, but I look at it a bit as diversifying my income stream a bit. My bond yields and dividends are pretty close to being able to cover my base expenses at this point which I like.

On the downside it’s super tax inefficient unfortunately, but I’m only a few years out from retirement so I need to set the table for how I want my portfolio to look in retirement. Plus my taxable account dwarfs my tax advantaged accounts, so the musical chairs game of fund placement doesn’t really work for me.
Congrats on that achievement!

Tony
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

duffer wrote: Sat May 01, 2021 12:03 pm
willthrill81 wrote: Sat May 01, 2021 10:22 am
duffer wrote: Sat May 01, 2021 9:02 am
willthrill81 wrote: Sun Mar 21, 2021 4:26 pm Given the recent threads discussing forward SWRs, I think that it might be appropriate to remind some how well retirees from the year 2000 who strictly implemented the '4% rule' have fared.

As of the end of February, 2021, after 21 years of withdrawals, those who had all-U.S. 60/40 portfolios still had 76.5% of their inflation-adjusted starting portfolio still intact (i.e. over 19 years of spending remaining at 0% real return). Those who split their stocks between U.S. and ex-U.S. still had 66.2% still intact (i.e. 16.5 years of spending remaining at 0% real return).
Very interesting thread. Thanks for creating and maintaining it.

How would Year 2000 retirees be doing now if their portfolio was 100% U.S equities? How about 80/20 U.S. equities/bonds?
Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527).
So, if I understand you correctly, the 100% equities would retain an inflation-adjusted 46% of their original portfolio versus 76% for the 60/40 split?
That's correct. Bonds did very well from 2000-2009 during the first critical decade of withdrawals. Even though stocks have outperformed bonds since 2000 (7.4% vs. 4.7% nominal), safe withdrawal rates are not impacted only by returns, which is what Bengen's seminal paper in 1994 that outlined the '4% rule' for the first time noted. In this thread, I showed how average returns coupled with start date sensitivity have explained 93% of the variance in 30 year safe withdrawal rates over the last ~50 years.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by seajay »

So, if I understand you correctly, the 100% equities would retain an inflation-adjusted 46% of their original portfolio
This portfoliovisualizer link, when you click the 'inflation adjusted' tickbox, indicates a 2009 end of February value of $263,000 of the inflation adjusted 2000 January $1M start date portfolio value remaining after a 4% SWR for the 100% equities choice. You had to have the temperament to ride through that to get to the 46% more recent value (easier to do with hindsight).
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by seajay »

On the basis that buy and hold is no different to tax-less selling and cost-less lumping back into the market at the ongoing portfolio weightings each and every day., assuming you could do so cost/tax efficiently wouldn't it be better for a newly retired to lump into their retirement portfolio over two timepoints? Half immediately, the other half a year later (or other combination/variation). Whilst that has half of the portfolio out of the market for a year it better ensures that you wont have "lumped all-in" at the worst possible time at the start of your retirement/drawdown. The worst historic 30 year period occurred between a peak and trough, averaging that with the 1 year time shifted case could result in a significant uplift in the worst case SWR. That would tend to give up some of the 'average'/upside reward that might otherwise have been achieved, maybe a 0.2% thirty year annualised lower outcome (which for a larger portfolio could be a substantial $ lower amount being left for heirs/beneficiaries), but better ensuring that you're actual SWR is less inclined to see a failure (you having to eat dog food).

Using portfoliovisualizer.com and a $1M January 2000 start amount/date, end of February 2009 end timepoint, a 4% SWR all-stock portfolio saw a $263,073 inflation adjusted value at the end of February 2009. If instead half, $500,000, were invested in stock, half in cash for a year and then that was rotated into stock at the start of January 2001, for the same overall SWR income at the end of February 2009 the portfolio value was $362,355, nearly $100,000 more. In nominal terms nearly $90,000 more, $331,682 versus $420,522.

Even if selling/repurchasing might involve tax events in practice, it might be possible to achieve a similar effect by shorting half your holdings for a year via Options/Futures/whatever to similar effect perhaps without generating tax events.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by goblue100 »

willthrill81 wrote: Wed Apr 08, 2020 1:05 pm
bligh wrote: Wed Apr 08, 2020 12:29 pm
willthrill81 wrote: Tue Apr 07, 2020 4:09 pm
Yes, it's doubtful that anyone would have rigidly stuck with the withdrawal scheme throughout this period, especially during 2008-2009. Reducing withdrawals would have resulted in the retirees in all likelihood having over $1 million nominal today. And retirees who were concerned about outliving their portfolio could, at this point, buy a SPIA that would have a very attractive payout ratio by this point being that they're likely in their 80s by now. According to www.immediateannuities.com, an opposite-sex 85 year old couple could get a joint lifetime SPIA with a 10.17% payout rate right now. So such a couple could put about $620k of their almost $1 million into a joint lifetime SPIA, replacing their current portfolio withdrawals permanently, albeit with no inflation adjustment, and still keep about a third of their portfolio intact. If they were both in reasonable health, that would be a pretty attractive option at this point, by my reckoning at least.
Not only would most people not have stuck to the 4% withdrawal rate while in the middle of a major market crash, this was from a starting point of one of the worst times to have retired. It is amazing how well the 4% withdrawal rate has done. Just goes to show how conservative and solid it is.

Add in the one thing most people hate to think about. Assuming a starting age of 65, more than one-third of the year 2000 retirees would have died by now anyway. A 65 year old male only has a 55% chance of making it to 85 (a female has a 65% chance, so I am being generous with that 1/3rd number.

Why do I mention that? Because your probability of running out of money is equal to your probability of running out of money over 30 years times your probability of living 30 more years. So if the 4% withdrawal rate has a 96% success rate, there is only a 4% chance of running out of money in 30 years. But there is only a 20% chance you will actually live to 90 anyway. (again being generous - for 30 years you would want to use the probability of getting to 95).. 0.04 * 0.2 = 0.8% probability of running out of money. = 99.2% chance you will be okay... even if you have ZERO wiggle room in your 4% inflation adjusted withdrawal budget.
Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by dogagility »

goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm
bligh wrote: Wed Apr 08, 2020 12:29 pm
willthrill81 wrote: Tue Apr 07, 2020 4:09 pm
Yes, it's doubtful that anyone would have rigidly stuck with the withdrawal scheme throughout this period, especially during 2008-2009. Reducing withdrawals would have resulted in the retirees in all likelihood having over $1 million nominal today. And retirees who were concerned about outliving their portfolio could, at this point, buy a SPIA that would have a very attractive payout ratio by this point being that they're likely in their 80s by now. According to www.immediateannuities.com, an opposite-sex 85 year old couple could get a joint lifetime SPIA with a 10.17% payout rate right now. So such a couple could put about $620k of their almost $1 million into a joint lifetime SPIA, replacing their current portfolio withdrawals permanently, albeit with no inflation adjustment, and still keep about a third of their portfolio intact. If they were both in reasonable health, that would be a pretty attractive option at this point, by my reckoning at least.
Not only would most people not have stuck to the 4% withdrawal rate while in the middle of a major market crash, this was from a starting point of one of the worst times to have retired. It is amazing how well the 4% withdrawal rate has done. Just goes to show how conservative and solid it is.

Add in the one thing most people hate to think about. Assuming a starting age of 65, more than one-third of the year 2000 retirees would have died by now anyway. A 65 year old male only has a 55% chance of making it to 85 (a female has a 65% chance, so I am being generous with that 1/3rd number.

Why do I mention that? Because your probability of running out of money is equal to your probability of running out of money over 30 years times your probability of living 30 more years. So if the 4% withdrawal rate has a 96% success rate, there is only a 4% chance of running out of money in 30 years. But there is only a 20% chance you will actually live to 90 anyway. (again being generous - for 30 years you would want to use the probability of getting to 95).. 0.04 * 0.2 = 0.8% probability of running out of money. = 99.2% chance you will be okay... even if you have ZERO wiggle room in your 4% inflation adjusted withdrawal budget.
Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
I believe this concept is baked into the 4% rule... 95% chance the portfolio will not be depleted before your likely demise? Something like that anyway.

In general (speculation), people with significant portfolios like to be extremely conservative with their portfolio withdrawal... would be a tragedy if we all had to live like most Americans (sarcasm).
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

dogagility wrote: Sun May 02, 2021 7:08 am
goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm
bligh wrote: Wed Apr 08, 2020 12:29 pm
willthrill81 wrote: Tue Apr 07, 2020 4:09 pm
Yes, it's doubtful that anyone would have rigidly stuck with the withdrawal scheme throughout this period, especially during 2008-2009. Reducing withdrawals would have resulted in the retirees in all likelihood having over $1 million nominal today. And retirees who were concerned about outliving their portfolio could, at this point, buy a SPIA that would have a very attractive payout ratio by this point being that they're likely in their 80s by now. According to www.immediateannuities.com, an opposite-sex 85 year old couple could get a joint lifetime SPIA with a 10.17% payout rate right now. So such a couple could put about $620k of their almost $1 million into a joint lifetime SPIA, replacing their current portfolio withdrawals permanently, albeit with no inflation adjustment, and still keep about a third of their portfolio intact. If they were both in reasonable health, that would be a pretty attractive option at this point, by my reckoning at least.
Not only would most people not have stuck to the 4% withdrawal rate while in the middle of a major market crash, this was from a starting point of one of the worst times to have retired. It is amazing how well the 4% withdrawal rate has done. Just goes to show how conservative and solid it is.

Add in the one thing most people hate to think about. Assuming a starting age of 65, more than one-third of the year 2000 retirees would have died by now anyway. A 65 year old male only has a 55% chance of making it to 85 (a female has a 65% chance, so I am being generous with that 1/3rd number.

Why do I mention that? Because your probability of running out of money is equal to your probability of running out of money over 30 years times your probability of living 30 more years. So if the 4% withdrawal rate has a 96% success rate, there is only a 4% chance of running out of money in 30 years. But there is only a 20% chance you will actually live to 90 anyway. (again being generous - for 30 years you would want to use the probability of getting to 95).. 0.04 * 0.2 = 0.8% probability of running out of money. = 99.2% chance you will be okay... even if you have ZERO wiggle room in your 4% inflation adjusted withdrawal budget.
Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
I believe this concept is baked into the 4% rule... 95% chance the portfolio will not be depleted before your likely demise? Something like that anyway.

In general (speculation), people with significant portfolios like to be extremely conservative with their portfolio withdrawal... would be a tragedy if we all had to live like most Americans (sarcasm).
The '95% odds of success' of the '4% rule' is tossed around a lot, but I don't think that many are aware of where it came from nor whether it's accurate. Bengen found 100% success of the '4% rule' in his 1994 paper, but the 1966 cohort hadn't yet reached its 30 year mark with his data from 1992. The Trinity study, IIRC, found 95% success of the '4% rule', but they used different asset classes. Kitces says that the '4% rule' has never failed for U.S. investors over a 30 year period. The particular assets used seem to be driving the differences, corporate bonds vs. Treasuries being a sizable one.

But in truth, it shouldn't really matter if the historic odds were 95% or 100%. Nobody is going to determine on day 1 of retirement how much they will withdraw from their portfolio every year, in inflation-adjusted dollars, every year for the next three decades without any regard for the performance of their portfolio. That would be certifiably insane. The point of the '4% rule' is whether it's a good starting point for those planning for a 30 year retirement, and it still seems perfectly fine when used in that regard. This is even more the case if the retiree will have significant discretionary spending baked into their planned spending, which could be reduced if necessary. And as goblue100 pointed out, few 65 year olds will make it to 95. About 20% of American men aged 65 won't even survive to age 74.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Garco »

Every retiree and every retirement cohort are subject to the random effects of economics, health, and unpredictable "fortune" (including good things like inheritances, and bad things like accidents). In addition our financial and cash management options and opportunities are affected by rules, taxes, and random exogenous events (wars, catastrophes, deaths in the family, etc.).

Knowing the "4% rule" has been calming to me. I retired almost 10 years ago. But other random but financially impactful events matter in my financial and personal life. These include events experienced by immediate family members. Like "ooops!!" my daughter decided to get a post-graduate degree -- not in our plan but nonetheless something that we felt responsible to help her with. Result? Another ~$100K gone.

Unplanned-for events have also been fortuitous to us. For example, inheritance allowed us to pay off the unexpected costs of that advanced degree. But it also allowed us to "reset" the 30-year timeline of the post-retirement phase of my family's economic life.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

A new study published: https://www.marketwatch.com/story/worst ... 1620840517
For those who retired around 2000, the “4% safe withdrawal rate will likely fail well before 30 years for most asset allocations,” De Jong and Robinson calculate. Those retirees were devastated by the “nightmarish. lost decade” for stocks from 1999 to 2009, which included two devastating crashes. “Much of the conventional planning wisdom, including the vaunted “4% rule,” failed investors during this period.”
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Candor »

Marseille07 wrote: Thu May 13, 2021 4:55 pm A new study published: https://www.marketwatch.com/story/worst ... 1620840517
For those who retired around 2000, the “4% safe withdrawal rate will likely fail well before 30 years for most asset allocations,” De Jong and Robinson calculate. Those retirees were devastated by the “nightmarish. lost decade” for stocks from 1999 to 2009, which included two devastating crashes. “Much of the conventional planning wisdom, including the vaunted “4% rule,” failed investors during this period.”
Also:

"There are some caveats here, which are in the fine print. The pair assumed retirees increased their spending 3% a year over the past 20 years instead of simply in line with the official CPI. Also, more significantly, they assumed retirees were also paying 1% a year in fees, taxes and other costs. In other words, the 4% rule was more of a 5% rule."
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Marseille07 wrote: Thu May 13, 2021 4:55 pm A new study published: https://www.marketwatch.com/story/worst ... 1620840517
For those who retired around 2000, the “4% safe withdrawal rate will likely fail well before 30 years for most asset allocations,” De Jong and Robinson calculate. Those retirees were devastated by the “nightmarish. lost decade” for stocks from 1999 to 2009, which included two devastating crashes. “Much of the conventional planning wisdom, including the vaunted “4% rule,” failed investors during this period.”
This thread should demonstrate quite resoundingly that that assertion is absolute hogwash.
Candor wrote: Thu May 13, 2021 5:07 pmAlso:

"There are some caveats here, which are in the fine print. The pair assumed retirees increased their spending 3% a year over the past 20 years instead of simply in line with the official CPI. Also, more significantly, they assumed retirees were also paying 1% a year in fees, taxes and other costs. In other words, the 4% rule was more of a 5% rule."
Correct. They didn't even test the '4% rule' using the same parameters as Bengen and everyone else has. What ridiculous junk paraded as 'research'.

Wade Pfau has participated in similar shenanigans in testing the '4% rule'.

Investors should subtract any expenses, whether expense ratios of funds, AUM fees, taxes, etc., from the 4% initially withdrawn, NOT add to it.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

Crisis averted. If this was effectively a 5% rule then it makes sense they'd run out of money. I don't think anyone argues otherwise.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Marseille07 wrote: Thu May 13, 2021 5:21 pm Crisis averted. If this was effectively a 5% rule then it makes sense they'd run out of money. I don't think anyone argues otherwise.
Certainly. There have been over 30 periods where withdrawing 5% of the initial portfolio balance and then withdrawing that same amount every subsequent year, adjusted for inflation, would have exhausted the portfolio before 30 years.

This graph below from Michael Kitches shows what the historic SWR was for each 30 year cohort going back to 1871. Readers should notice how rare it was for the SWR to drop close to 4%. But 5% was not even close to 'safe'.

Image
https://www.kitces.com/blog/the-ratchet ... he-4-rule/
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by DwayneB »

The puzzling thing about the 4% rule idea is that if we are talking about IRAs, this can only apply up until the age where the RMD exceeds 4%. This happens around age 73, and then keeps going up. If one is lucky enough to still be above the ground at 90, the RMD is pushing 9%.

If everything is in a Roth the RMD does not apply, but most folks will be dealing with the RMDs from traditional self directed IRAs.

What am I missing here?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by TN_Boy »

DwayneB wrote: Fri May 14, 2021 7:48 am The puzzling thing about the 4% rule idea is that if we are talking about IRAs, this can only apply up until the age where the RMD exceeds 4%. This happens around age 73, and then keeps going up. If one is lucky enough to still be above the ground at 90, the RMD is pushing 9%.

If everything is in a Roth the RMD does not apply, but most folks will be dealing with the RMDs from traditional self directed IRAs.

What am I missing here?
You would have to pay taxes on the RMD amount, but you don't actually have to spend the entire RMD .....
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by warowits »

DwayneB wrote: Fri May 14, 2021 7:48 am The puzzling thing about the 4% rule idea is that if we are talking about IRAs, this can only apply up until the age where the RMD exceeds 4%. This happens around age 73, and then keeps going up. If one is lucky enough to still be above the ground at 90, the RMD is pushing 9%.

If everything is in a Roth the RMD does not apply, but most folks will be dealing with the RMDs from traditional self directed IRAs.

What am I missing here?
As my late father always reminded my mother, you have to withdraw your RMD, but you don’t have to spend it.

Just move it to your taxable account. When you set your ‘4%’ you didn’t ignore taxes did you?
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Tony-S »

Marseille07 wrote: Thu May 13, 2021 4:55 pm A new study published: https://www.marketwatch.com/story/worst ... 1620840517
Here’s the actual paper for those who may be interested.

https://papers.ssrn.com/sol3/papers.cfm ... id=3832165
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by teebo123 »

"Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods would let you do just that.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods make a lot more sense.
Well, it's still an issue. Retirees with a 100/0 who withdrew 4% as a percentage of the portfolio only withdrew an inflation-adjusted $17,521 at the end of 2008. And in addition to having to tighten their spending that much, they would have had to stomach seeing their portfolio drop from $1 million in the year 2000 to an inflation-adjusted $341k ($430k nominal) by March of 2009. :shock: That would have taken some serious...guts....far more than what most retirees have.
Last edited by willthrill81 on Sun May 16, 2021 11:06 pm, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by JBTX »

Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods would let you do just that.
I don't recall anybody ever recommending a 4% constant percentage withdrawal. That would seem ridiculous as you grew older.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

willthrill81 wrote: Sun May 16, 2021 10:45 pm
Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods make a lot more sense.
Well, it's still an issue. Retirees with a 100/0 who withdrew 4% as a percentage of the portfolio only withdrew $32,142 at the end of 2008, nearly 35% fewer inflation-adjusted dollars than $40k in the year 2000. And in addition to having to tighten their spending that much, they would have had to stomach seeing their portfolio drop from $1 million in the year 2000 to an inflation-adjusted $341k ($430k nominal) by March of 2009. :shock: That would have taken some serious...guts....far more than what most retirees have.
100/0 is a misnomer though, because the assumption is that one would have some EF somewhere. Maybe 95/5 is closer to the reality than 100/0. The idea is to spend down from AA and EF to generate income necessary to live.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

JBTX wrote: Sun May 16, 2021 10:51 pm
Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods would let you do just that.
I don't recall anybody ever recommending a 4% constant percentage withdrawal. That would seem ridiculous as you grew older.
It is not recommended. I was just quickly showing that 100/0 could be okay depending on your withdrawal method. 3~3.5% is okay, I wouldn't do 4% personally.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Marseille07 wrote: Sun May 16, 2021 10:55 pm
willthrill81 wrote: Sun May 16, 2021 10:45 pm
Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods make a lot more sense.
Well, it's still an issue. Retirees with a 100/0 who withdrew 4% as a percentage of the portfolio only withdrew $32,142 at the end of 2008, nearly 35% fewer inflation-adjusted dollars than $40k in the year 2000. And in addition to having to tighten their spending that much, they would have had to stomach seeing their portfolio drop from $1 million in the year 2000 to an inflation-adjusted $341k ($430k nominal) by March of 2009. :shock: That would have taken some serious...guts....far more than what most retirees have.
100/0 is a misnomer though, because the assumption is that one would have some EF somewhere. Maybe 95/5 is closer to the reality than 100/0. The idea is to spend down from AA and EF to generate income necessary to live.
A 95/5 wouldn't have made a material difference.

Also, I was looking at the wrong line in PV in my earlier post. A 100/0 allocation with 4% withdrawn would have resulted in an inflation-adjusted withdrawal of only $17,521. :shock: :shock: A 95/5 would have had a withdrawal of $18,496.

That's one of the reasons that I really don't like fixed percentage-of-portfolio approaches, which the VPW is only a very slight improvement upon: they result in withdrawals being 100% as volatile as one's portfolio. That's why I far prefer to use dynamic return assumptions with the ABW approach.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by JBTX »

willthrill81 wrote: Sun May 16, 2021 10:45 pm
Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods make a lot more sense.
Well, it's still an issue. Retirees with a 100/0 who withdrew 4% as a percentage of the portfolio only withdrew $32,142 at the end of 2008, nearly 35% fewer inflation-adjusted dollars than $40k in the year 2000. And in addition to having to tighten their spending that much, they would have had to stomach seeing their portfolio drop from $1 million in the year 2000 to an inflation-adjusted $341k ($430k nominal) by March of 2009. :shock: That would have taken some serious...guts....far more than what most retirees have.
These are good points. This is an interesting thread. What I'd take away is

- we are still 8.5 years from the end, so anything could happen
- assuming 4.0% does succeed, then it would have performed as expected. I don't think anybody would think it would likely fail. It comes down to what is the probability of success? Logically it would be lower than the average of all history. Is that 95% chance? 90%? 80%? It's impossible to know. It will either succeed or it won't. In a binary outcome, one would expect it to succeed.
- the fact that the outcome at this point is worse than 72% of historical outcomes is consistent with the hypothesis that starting valuations matters. In fact, it is somewhat alarming that it is worse than 72% of the outcomes, in spite of it currently being at an all time high after a 10+ year bull market and the second highest CAPE valuation in history.
- to the extent 2000 is relevant to a current retiree, at least 2000 started with moderate interest rates, and to the extent bonds were involved provided some cushion. A current retiree would start with lower interest rates.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

JBTX wrote: Sun May 16, 2021 11:11 pm
willthrill81 wrote: Sun May 16, 2021 10:45 pm
Marseille07 wrote: Sun May 16, 2021 10:34 pm
teebo123 wrote: Sun May 16, 2021 10:10 pm "Assuming they started with $1 million, a 100% U.S. equities portfolio would have ended April, 2021, with a nominal (inflation-adjusted) balance of $725,974 ($464,543). The 80/20 would have $1,080,698 ($691,527)"

As a person who has 100% in stocks, this is an eye-opener. I will have to re-evaluate.
That's because the withdrawal method of 4% "constant-dollar" isn't practical. If you do 4% "constant-percentage" then 100/0 comes out ahead just fine: https://www.portfoliovisualizer.com/bac ... tion2_3=40

I don't mean to stop you from re-evaluating, but this isn't a big issue practically speaking. A retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods make a lot more sense.
Well, it's still an issue. Retirees with a 100/0 who withdrew 4% as a percentage of the portfolio only withdrew $32,142 at the end of 2008, nearly 35% fewer inflation-adjusted dollars than $40k in the year 2000. And in addition to having to tighten their spending that much, they would have had to stomach seeing their portfolio drop from $1 million in the year 2000 to an inflation-adjusted $341k ($430k nominal) by March of 2009. :shock: That would have taken some serious...guts....far more than what most retirees have.
These are good points. This is an interesting thread. What I'd take away is

- we are still 8.5 years from the end, so anything could happen
- assuming 4.0% does succeed, then it would have performed as expected. I don't think anybody would think it would likely fail. It comes down to what is the probability of success? Logically it would be lower than the average of all history. Is that 95% chance? 90%? 80%? It's impossible to know. It will either succeed or it won't. In a binary outcome, one would expect it to succeed.
- the fact that the outcome at this point is worse than 72% of historical outcomes is consistent with the hypothesis that starting valuations matters. In fact, it is somewhat alarming that it is worse than 72% of the outcomes, in spite of it currently being at an all time high after a 10+ year bull market and the second highest CAPE valuation in history.
- to the extent 2000 is relevant to a current retiree, at least 2000 started with moderate interest rates, and to the extent bonds were involved provided some cushion. A current retiree would start with lower interest rates.
While the great run that stocks have had since March of 2009, though there have been some big jolts since then, certainly helped year 2000 retirees, stocks going backward for the first critical decade of their retirement was a major blow compared to most historic periods. Altogether, I don't think that them currently being in the 28th percentile is too bad, especially since starting valuations were very near the highest in U.S. history and higher than they are now. But you're right that bonds are very unlikely to provide as much of a counter-balancing effect going forward as they did for year 2000 retirees since starting yields are far lower now.
Last edited by willthrill81 on Sun May 16, 2021 11:18 pm, edited 1 time in total.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

willthrill81 wrote: Sun May 16, 2021 11:04 pm A 95/5 wouldn't have made a material difference.

Also, I was looking at the wrong line in PV in my earlier post. A 100/0 allocation with 4% withdrawn would have resulted in an inflation-adjusted withdrawal of only $17,521. :shock: :shock: A 95/5 would have had a withdrawal of $18,496.

That's one of the reasons that I really don't like fixed percentage-of-portfolio approaches, which the VPW is only a very slight improvement upon: they result in withdrawals being 100% as volatile as one's portfolio. That's why I far prefer to use dynamic return assumptions with the ABW approach.
It's hard to see on PV because 95/5 in this context is really 95% in equities and 5% of cash, which won't be rebalanced back during a bear market like 2008.

Basically during a normal year, you can withdraw 40K on 1M; but after a year like 2008, you can only withdraw 20K from AA; but instead, you have 50K of EF to fill the gap. So a simple example in 2008 is 20K (from AA) and 20K (from EF) to "make whole" the 40K, plus you still have 30K of EF remaining.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by willthrill81 »

Marseille07 wrote: Sun May 16, 2021 11:18 pm
willthrill81 wrote: Sun May 16, 2021 11:04 pm A 95/5 wouldn't have made a material difference.

Also, I was looking at the wrong line in PV in my earlier post. A 100/0 allocation with 4% withdrawn would have resulted in an inflation-adjusted withdrawal of only $17,521. :shock: :shock: A 95/5 would have had a withdrawal of $18,496.

That's one of the reasons that I really don't like fixed percentage-of-portfolio approaches, which the VPW is only a very slight improvement upon: they result in withdrawals being 100% as volatile as one's portfolio. That's why I far prefer to use dynamic return assumptions with the ABW approach.
It's hard to see on PV because 95/5 in this context is really 95% in equities and 5% of cash, which won't be rebalanced back during a bear market like 2008.

Basically during a normal year, you can withdraw 40K on 1M; but after a year like 2008, you can only withdraw 20K from AA; but instead, you have 50K of EF to fill the gap. So a simple example in 2008 is 20K (from AA) and 20K (from EF) to "make whole" the 40K, plus you still have 30K of EF remaining.
That only works if the downturn doesn't last long. Year 2000 retirees with a 100/0 (or 95/5) withdrawing 4% of the portfolio each year saw their withdrawals always fall below the $40k nominal mark (and obviously even lower after adjusting for inflation) from 2000-2012, the first thirteen years of their retirement. If you adjust for inflation, they wouldn't have 'caught up' to withdrawing more than $40k in year 2000 dollars until their withdrawal in 2020. No EF is big enough to cover that gap; if it is, it's not an EF.
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Marseille07 »

willthrill81 wrote: Sun May 16, 2021 11:21 pm
Marseille07 wrote: Sun May 16, 2021 11:18 pm
willthrill81 wrote: Sun May 16, 2021 11:04 pm A 95/5 wouldn't have made a material difference.

Also, I was looking at the wrong line in PV in my earlier post. A 100/0 allocation with 4% withdrawn would have resulted in an inflation-adjusted withdrawal of only $17,521. :shock: :shock: A 95/5 would have had a withdrawal of $18,496.

That's one of the reasons that I really don't like fixed percentage-of-portfolio approaches, which the VPW is only a very slight improvement upon: they result in withdrawals being 100% as volatile as one's portfolio. That's why I far prefer to use dynamic return assumptions with the ABW approach.
It's hard to see on PV because 95/5 in this context is really 95% in equities and 5% of cash, which won't be rebalanced back during a bear market like 2008.

Basically during a normal year, you can withdraw 40K on 1M; but after a year like 2008, you can only withdraw 20K from AA; but instead, you have 50K of EF to fill the gap. So a simple example in 2008 is 20K (from AA) and 20K (from EF) to "make whole" the 40K, plus you still have 30K of EF remaining.
That only works if the downturn doesn't last long. Year 2000 retirees with a 100/0 (or 95/5) withdrawing 4% of the portfolio each year saw their withdrawals always fall below the $40k nominal mark (and obviously even lower after adjusting for inflation) from 2000-2012, the first thirteen years of their retirement. If you adjust for inflation, they wouldn't have 'caught up' to withdrawing more than $40k in year 2000 dollars until their withdrawal in 2020. No EF is big enough to cover that gap; if it is, it's not an EF.
Don't retire in 2000 :D

Joking aside, it's a matter of how much EF you have in preparation for prolonged downturns. Also, I know it's hard to see with a 1M example but this is supposed to include 30~50% in discretionary spending, which means even if you can only withdraw 20K, you can still survive just fine; just can't travel as much as you had hoped.

EDIT: I just added up the budget shortfall from 40K and the sum came out to be around 97K; so in this case, 90/10 would actually be enough amount of EF to survive 2000-2012 if they really need to maintain 40K/year.

Of course, this issue exists for 60/40 as well; just like 100/0, withdrawals always fall below the 40K nominal mark for 12 years. Withdrawal volatility is smaller, but still falling below nonetheless.

We can't avoid this to be honest; the advantage is we don't run out of money, but the disadvantage is we might not be able to withdraw as much as we want for quite some time.
Derpalator
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by Derpalator »

goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm
bligh wrote: Wed Apr 08, 2020 12:29 pm
willthrill81 wrote: Tue Apr 07, 2020 4:09 pm
Yes, it's doubtful that anyone would have rigidly stuck with the withdrawal scheme throughout this period, especially during 2008-2009. Reducing withdrawals would have resulted in the retirees in all likelihood having over $1 million nominal today. And retirees who were concerned about outliving their portfolio could, at this point, buy a SPIA that would have a very attractive payout ratio by this point being that they're likely in their 80s by now. According to www.immediateannuities.com, an opposite-sex 85 year old couple could get a joint lifetime SPIA with a 10.17% payout rate right now. So such a couple could put about $620k of their almost $1 million into a joint lifetime SPIA, replacing their current portfolio withdrawals permanently, albeit with no inflation adjustment, and still keep about a third of their portfolio intact. If they were both in reasonable health, that would be a pretty attractive option at this point, by my reckoning at least.
Not only would most people not have stuck to the 4% withdrawal rate while in the middle of a major market crash, this was from a starting point of one of the worst times to have retired. It is amazing how well the 4% withdrawal rate has done. Just goes to show how conservative and solid it is.

Add in the one thing most people hate to think about. Assuming a starting age of 65, more than one-third of the year 2000 retirees would have died by now anyway. A 65 year old male only has a 55% chance of making it to 85 (a female has a 65% chance, so I am being generous with that 1/3rd number.

Why do I mention that? Because your probability of running out of money is equal to your probability of running out of money over 30 years times your probability of living 30 more years. So if the 4% withdrawal rate has a 96% success rate, there is only a 4% chance of running out of money in 30 years. But there is only a 20% chance you will actually live to 90 anyway. (again being generous - for 30 years you would want to use the probability of getting to 95).. 0.04 * 0.2 = 0.8% probability of running out of money. = 99.2% chance you will be okay... even if you have ZERO wiggle room in your 4% inflation adjusted withdrawal budget.
Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
Agreed that this point is mostly overlooked on this forum. Actuaries do incorporate this. We bogleheads don't, but should.
59Gibson
Posts: 384
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by 59Gibson »

Derpalator wrote: Mon May 17, 2021 5:34 am
goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm
bligh wrote: Wed Apr 08, 2020 12:29 pm
willthrill81 wrote: Tue Apr 07, 2020 4:09 pm
Yes, it's doubtful that anyone would have rigidly stuck with the withdrawal scheme throughout this period, especially during 2008-2009. Reducing withdrawals would have resulted in the retirees in all likelihood having over $1 million nominal today. And retirees who were concerned about outliving their portfolio could, at this point, buy a SPIA that would have a very attractive payout ratio by this point being that they're likely in their 80s by now. According to www.immediateannuities.com, an opposite-sex 85 year old couple could get a joint lifetime SPIA with a 10.17% payout rate right now. So such a couple could put about $620k of their almost $1 million into a joint lifetime SPIA, replacing their current portfolio withdrawals permanently, albeit with no inflation adjustment, and still keep about a third of their portfolio intact. If they were both in reasonable health, that would be a pretty attractive option at this point, by my reckoning at least.
Not only would most people not have stuck to the 4% withdrawal rate while in the middle of a major market crash, this was from a starting point of one of the worst times to have retired. It is amazing how well the 4% withdrawal rate has done. Just goes to show how conservative and solid it is.

Add in the one thing most people hate to think about. Assuming a starting age of 65, more than one-third of the year 2000 retirees would have died by now anyway. A 65 year old male only has a 55% chance of making it to 85 (a female has a 65% chance, so I am being generous with that 1/3rd number.

Why do I mention that? Because your probability of running out of money is equal to your probability of running out of money over 30 years times your probability of living 30 more years. So if the 4% withdrawal rate has a 96% success rate, there is only a 4% chance of running out of money in 30 years. But there is only a 20% chance you will actually live to 90 anyway. (again being generous - for 30 years you would want to use the probability of getting to 95).. 0.04 * 0.2 = 0.8% probability of running out of money. = 99.2% chance you will be okay... even if you have ZERO wiggle room in your 4% inflation adjusted withdrawal budget.
Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
Agreed that this point is mostly overlooked on this forum. Actuaries do incorporate this. We bogleheads don't, but should.
+1 It certainly does seem to be brushed aside here, many believe they'll be living well into their 90s. Some will, most won't.
TN_Boy
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Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by TN_Boy »

59Gibson wrote: Mon May 17, 2021 7:22 am
Derpalator wrote: Mon May 17, 2021 5:34 am
goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm
bligh wrote: Wed Apr 08, 2020 12:29 pm

Not only would most people not have stuck to the 4% withdrawal rate while in the middle of a major market crash, this was from a starting point of one of the worst times to have retired. It is amazing how well the 4% withdrawal rate has done. Just goes to show how conservative and solid it is.

Add in the one thing most people hate to think about. Assuming a starting age of 65, more than one-third of the year 2000 retirees would have died by now anyway. A 65 year old male only has a 55% chance of making it to 85 (a female has a 65% chance, so I am being generous with that 1/3rd number.

Why do I mention that? Because your probability of running out of money is equal to your probability of running out of money over 30 years times your probability of living 30 more years. So if the 4% withdrawal rate has a 96% success rate, there is only a 4% chance of running out of money in 30 years. But there is only a 20% chance you will actually live to 90 anyway. (again being generous - for 30 years you would want to use the probability of getting to 95).. 0.04 * 0.2 = 0.8% probability of running out of money. = 99.2% chance you will be okay... even if you have ZERO wiggle room in your 4% inflation adjusted withdrawal budget.
Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
Agreed that this point is mostly overlooked on this forum. Actuaries do incorporate this. We bogleheads don't, but should.
+1 It certainly does seem to be brushed aside here, many believe they'll be living well into their 90s. Some will, most won't.
I completely agree that as medical science stands now, a good BHer at age 65 is pretty unlikely to have a 30 year retirement. That said, if one is married, the odds are higher that one of the couple will make it that long. So people worry about their spouse.

However, I believe the main reason it gets brushed aside is

1) population statistics are not that useful when dealing with a single person (or couple) and most importantly,
2) if you start running out of money at age 90+, it's not like you are going to have a lot of income producing options.
seajay
Posts: 134
Joined: Sat May 01, 2021 3:26 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by seajay »

Marseille07 wrote: Sun May 16, 2021 10:34 pmA retiree would have to adjust withdrawals after a year like 2008 and percentage-based methods would let you do just that.
4% SWR, 4% of the initial portfolio value drawn at the start for the first year spending, 96% remainder invested, where that initial $$$ value is uplifted by inflation as the amount drawn at the start of subsequent years for spending ... is a reflection of the worst case historic situation, a peak to trough 30 year period for a 60/40 that drew down to zero. Being the worst other cases (start/end) dates were better.

Why revise that downward? If anything you might start with 4% of the current, or past inflation adjusted high, whichever is the greater, and provided the outcome is within the bounds of historic worst case outcomes that would be fine.

$1M into a 60/40 US Stock/Total Bond started January 2000 with a 4% SWR

at the end of 2009 had around $610,000 in inflation adjusted value remaining and drew near $52,100 at the start of 2010 for income.

Another investor who started in January 2010 with $610K and drew $52,100 for spending, a 8.5% SWR, would as of recent be doing fine. At the end of April 2021 have $580K of the inflation adjusted $610K start date amount still available.

That can be improved if you're starting with a lump sum and half-in at year start, half-in at year end ... as that average will tend to avoid having lumped all-in at the worst possible time. It may be more appropriate to also not bother with rebalancing, just take withdrawals from either stocks or bonds to steer weightings back towards target 60/40 weightings. In which case trade costs are just one sell trade per year to provide the cash. In my case the brokerage platform levies a monthly $15 type fee, but provides a free trade as part of that, so rather than yearly withdrawals I can draw a monthly 'wage' instead for no extra cost.

Conceptually you could uplift the SW $$$ value by inflation or to 4% of the past historic inflation adjusted high, whichever were the greater. If you just stick with classic SWR and uplift by inflation then typically over time the SWR $$$ value tends to become a smaller percentage amount of the portfolio value, perhaps 2% for instance. As such it more often/broadly tends to become safer over time. But not always, in a bad case for instance, such as since 2000, that risk reduction over time has been absent.
EnjoyIt
Posts: 5700
Joined: Sun Dec 29, 2013 8:06 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by EnjoyIt »

TN_Boy wrote: Mon May 17, 2021 8:21 am
59Gibson wrote: Mon May 17, 2021 7:22 am
Derpalator wrote: Mon May 17, 2021 5:34 am
goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm

Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
Agreed that this point is mostly overlooked on this forum. Actuaries do incorporate this. We bogleheads don't, but should.
+1 It certainly does seem to be brushed aside here, many believe they'll be living well into their 90s. Some will, most won't.
I completely agree that as medical science stands now, a good BHer at age 65 is pretty unlikely to have a 30 year retirement. That said, if one is married, the odds are higher that one of the couple will make it that long. So people worry about their spouse.

However, I believe the main reason it gets brushed aside is

1) population statistics are not that useful when dealing with a single person (or couple) and most importantly,
2) if you start running out of money at age 90+, it's not like you are going to have a lot of income producing options.
Don't forget, at age 90, odds are that you aren't traveling the globe, driving very much, eating out, and going to shows. You aren't spending as much on clothes, are not keeping up with the latest tech and gadgets, and hopefully have a strong family network to assist you when you need it. Most people just don't spend as much when they start hitting those older years. I just look at my own family in their 70s whose spending has decreased over the years. Social Security covers all their needs and most of their wants. Their portfolio just keeps getting bigger despite me trying to convince them to spend a bit more.
Last edited by EnjoyIt on Mon May 17, 2021 8:36 am, edited 1 time in total.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
ryman554
Posts: 1369
Joined: Sun Jan 12, 2014 9:44 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by ryman554 »

TN_Boy wrote: Mon May 17, 2021 8:21 am
59Gibson wrote: Mon May 17, 2021 7:22 am
Derpalator wrote: Mon May 17, 2021 5:34 am
goblue100 wrote: Sat May 01, 2021 8:11 pm
willthrill81 wrote: Wed Apr 08, 2020 1:05 pm

Yes, I've often reminded everyone that the probability of 65 year olds outliving their portfolio is tiny, even without any flexibility in withdrawals.
The quote in my tag line speaks to this issue.
Agreed that this point is mostly overlooked on this forum. Actuaries do incorporate this. We bogleheads don't, but should.
+1 It certainly does seem to be brushed aside here, many believe they'll be living well into their 90s. Some will, most won't.
I completely agree that as medical science stands now, a good BHer at age 65 is pretty unlikely to have a 30 year retirement. That said, if one is married, the odds are higher that one of the couple will make it that long. So people worry about their spouse.

However, I believe the main reason it gets brushed aside is

1) population statistics are not that useful when dealing with a single person (or couple) and most importantly,
2) if you start running out of money at age 90+, it's not like you are going to have a lot of income producing options.
Exactly. Insurance companies rely on statistics and the central limit theorem... They care not that some folks live forever, it's already baked into their model. Now if a whole cohort manage to live longer, say because of a new miracle drug which doubled life expectancy, then they would have a big problem.

For you, a retiree, you have a sample of 1, and have not much information to determine where on the death bell curve you're gonna land on. So you've got two options: prepare for a long retirement and save a lot of money, or don't. There are legitimate tradeoffs either way and have been discussed to death (pardon the pun), but as folks here tend conservative, most end up accumulating more than they will need on the (slight/slim/even) chance of living long.
seajay
Posts: 134
Joined: Sat May 01, 2021 3:26 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by seajay »

seajay wrote: Mon May 17, 2021 8:26 amBut not always, in a bad case for instance, such as since 2000, that risk reduction over time has been absent.
... for 60/40. For all 'Equities' 2000 4% SWR as of the start of 2020 that was down to the equivalent of a 3.3% inflation adjusted amount of the portfolio value being drawn.
namajones
Posts: 207
Joined: Sat Aug 08, 2020 12:41 pm

Re: Year 2000 retirees using the '4% rule' - Where are they now?

Post by namajones »

willthrill81 wrote: Sun May 02, 2021 9:39 am

But in truth, it shouldn't really matter if the historic odds were 95% or 100%. Nobody is going to determine on day 1 of retirement how much they will withdraw from their portfolio every year, in inflation-adjusted dollars, every year for the next three decades without any regard for the performance of their portfolio. That would be certifiably insane. The point of the '4% rule' is whether it's a good starting point for those planning for a 30 year retirement, and it still seems perfectly fine when used in that regard. This is even more the case if the retiree will have significant discretionary spending baked into their planned spending, which could be reduced if necessary. And as goblue100 pointed out, few 65 year olds will make it to 95. About 20% of American men aged 65 won't even survive to age 74.
This is what I always assumed. My own spreadsheet has my 401(k) lasting to infinity, or well beyond the years that I calculated it (or will be on this planet), so I'm always a bit puzzled when people talk about "how long" a portfolio will last.
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