siamond wrote: ↑Sat Feb 17, 2018 8:07 pm

Kitces said:

*In fact, over the past 140+ years, the safe withdrawal rate for a 30-year retirement period has shown a whopping 0.91 correlation to the annualized real return of the portfolio over the first 15 years of the time period!*

FWIW, I've come to have doubts that using "real returns" like this is as meaningful it appears. After all, there are two parts to real returns: nominal returns and inflation. I think it can be useful to try to decompose things and see the relative contributions of nominal returns and inflation. I've done two small analyses along these lines:

https://medium.com/@justusjp/misunderst ... 49d601a018
I found that inflation was more correlated with SWRs than nominal returns. Which makes a bit of sense: returns can go up and down, after a crash there's (usually) always a recovery. But the same doesn't hold for inflation. After the high inflation of the 1970s and 1980s there was no corresponding deflation (or even particularly low inflation) to balance it out.

This is the correlation of SWR to (nominal) equity returns over the first N-years of retirement

And here's the correlation of SWR to inflation over the first N-years of retirement

Inflation is the more gradual risk but (by looking at the total areas under the curves) it is clearly the significantly larger risk. And things like CAPE10 don't tell us anything about future inflation.

I looked at r-squared for real returns over the first N-years of retirement

After thinking about it for a while I became more convinced that (nominal) equity returns are not that relevant to retirement. Well, that's not entirely true -- it would be more fair to say that (nominal) equity returns are dramatically over-rated in their impact on retirement and that inflation is a substantially bigger problem.

https://medium.com/@justusjp/sequence-o ... 7b613c9641
This is easiest to see by looking at nominal withdrawals using a somewhat realistic withdrawal strategy:

Even in the worst stock crash in US history, the change in withdrawals just isn't as dramatic as most people have been led to believe. And if we look at

**every other significant crash in US history** it is difficult to see significant hardship in withdrawals:

Here's 1966 -- "the worst year to retire" -- and had 2 crashes and bear markets in the first decade of retirement -- which you can't even really see in their withdrawals....

Here's the most recent crashes...

What really turns a retirement bad is inflation. And CAPE doesn't tell us anything about future inflation.

Again, I'm not saying that equity returns are completely meaningless. And we should take steps to make our retirements as efficient as possible. But future equity returns seem to me like a 2nd or even 3rd rate impact compared to other forces -- like inflation and unplanned expenses.