## Larry Swedroe: 3% is the new 4%

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

Thesaints wrote: Thu Feb 28, 2019 6:24 pm
willthrill81 wrote: Thu Feb 28, 2019 6:06 pm But you must determine what the cost of that margin of safety is. Many would argue that 4% already has plenty of safety already built in to it.
Just look at the table. For just 40 years, a 4% rate fails in at least 10% of cases with any portfolio. And we have already discussed how not failing can mean barely making to 40 years, but not making to 41 (and we have not discussed at all the fact that 90% chance on the table could very well be an 85% chance in reality, if not lower).
It could easily take 5-10 years to go f ... ference.
Not everyone can retire when they want, on their terms. Illusion of being able to do so is rather dangerous.

According to the SSA, a 55 year old has ... of safety.
It is a bell curve. Planning for 32, while the table says 27 is a puny margin.
In general, if you're uncomfortable with at least starting retirement with 4% withdrawals, I think that you'd be best served by using some of your portfolio to buy a SPIA.
The discomfort won't manifest itself at start, but further along the way.
You seem to continue to ignore that risks are multiplicative. For instance, a 10% chance of surviving to age 90 and a 10% chance of portfolio depletion does not mean that you have a 10% chance of portfolio depletion but rather just 1% (10% x 10%). Given my above analysis, it seems that a .0015% probability of ruin, assuming no changes are made along the way to your withdrawal strategy, is too high for you.

In layman's terms, the probability of a 60 year old surviving to age 100 is tiny. The probability of a SWR designed for 40 years actually being depleted in exactly 40 years is tiny. The probability that both will happen is basically infinitesimal.
Last edited by willthrill81 on Thu Feb 28, 2019 7:04 pm, edited 1 time in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
visualguy
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### Re: Larry Swedroe: 3% is the new 4%

The validity of the SWRs is a relatively minor concern in my opinion. Not really worried about 4% or close to it for 30 years, 3.5% or close to it for 40 years, 3% for 50 years, etc. These seem conservative-enough. The bigger concern in my view is underestimating the expenses. That poses a much higher risk in my opinion, and it's much harder to figure out in advance because there are so many unknowns, some with a potentially big impact.
Thesaints
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Thu Feb 28, 2019 6:35 pm You seem to continue to ignore that risks are multiplicative. For instance, a 10% chance of surviving to age 90 and a 10% chance of portfolio depletion does not mean that you have a 10% chance of portfolio depletion but rather just 1% (10% x 10%). Given my above analysis, it seems that a .0015% probability of ruin, assuming no changes are made along the way to your withdrawal strategy, is too high for you.
You are not taking into account that only failure will be evident as soon as it manifests itself. Barely making it will look a lot like impending failure soon enough.
Also, the chance of getting to age 90 might only be 10% for a new born baby, but it is a lot higher as people age and becomes 100% for those aged 90, at which point they have a substantial chance of reaching age 95.
Again, how do you determine early enough that your withdrawal rate is not safe anymore ?
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

Thesaints wrote: Thu Feb 28, 2019 7:57 pm
willthrill81 wrote: Thu Feb 28, 2019 6:35 pm You seem to continue to ignore that risks are multiplicative. For instance, a 10% chance of surviving to age 90 and a 10% chance of portfolio depletion does not mean that you have a 10% chance of portfolio depletion but rather just 1% (10% x 10%). Given my above analysis, it seems that a .0015% probability of ruin, assuming no changes are made along the way to your withdrawal strategy, is too high for you.
Also, the chance of getting to age 90 might only be 10% for a new born baby, but it is a lot higher as people age and becomes 100% for those aged 90, at which point they have a substantial chance of reaching age 95.
But you must survive to age 90 in order to "have a substantial chance of reaching age 95." Based on the SSA data, there is a 20% chance that a 65 year old male will not survive to age 74. Making it to age 90 is far from a given.
Thesaints wrote: Thu Feb 28, 2019 7:57 pmAgain, how do you determine early enough that your withdrawal rate is not safe anymore ?
This is a good point, one that I've brought up before as well. But simply reducing one's withdrawal rate to something like 3% doesn't solve it.

For instance, year 2000 retirees using the 4% fixed real dollar withdrawals with a 60/40 portfolio of \$1 million starting had an inflation-adjusted balance of \$557,598 at the end of 2008. Things definitely didn't look good. But if a 3% rate was used instead, their balance would still be down to \$641,137. That's obviously better, but is it good enough for you to not have doubts that you might be in trouble, considering that you were only 9 years into your retirement? I'm not sure.

This is why I prefer flexible withdrawal strategies. Using the time value of money formula to calculate annual withdrawals is what I'm most drawn toward. Besides it making a lot of mathematical sense, it's also impossible to prematurely deplete a portfolio. But you still have to determine how long you want to amortize your payments over, although you can reassess that each year, so in the event that you do make it to age 90, you reevaluate your remaining life expectancy and adjust your withdrawals accordingly.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Thesaints
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Thu Feb 28, 2019 8:48 pm But you must survive to age 90 in order to "have a substantial change of reaching age 95." Based on the SSA data, there is a 20% chance that a 65 year old male will not survive to age 74. Making it to age 90 is far from a given.
If you don't reach old age all of your problems are solved. You won't need any advice either, those are only useful to those who do have to blow the 90 candles out.
This is a good point, one that I've brought up before as well. But simply reducing one's withdrawal rate to something like 3% doesn't solve it.

For instance, year 2000 retirees using the 4% fixed real dollar withdrawals with a 60/40 portfolio of \$1 million starting had an inflation-adjusted balance of \$557,598 at the end of 2008. Things definitely didn't look good. But if a 3% rate was used instead, their balance would still be down to \$641,137.
Yes, but going forward the latter withdraws less and it will take less good market results to stay on track.
This is why I prefer flexible withdrawal strategies. Using the time value of money formula to calculate annual withdrawals is what I'm most drawn toward. Besides it making a lot of mathematical sense, it's also impossible to prematurely deplete a portfolio. But you still have to determine how long you want to amortize your payments over, although you can reassess that each year, so in the event that you do make it to age 90, you reevaluate your remaining life expectancy and adjust your withdrawals accordingly.
That's a way to improve things. After all, it is essentially more information that you get and it would not be wise to discard it a priori.

Personally, I think that an annuity/pension that covers at least the essential expenses goes a long way in facilitating planning. That way the greatest unknown factor "how many more years am I going to live ?" is partially eliminated.
acegolfer
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### Re: Larry Swedroe: 3% is the new 4%

Is Larry Swedroe now selling investment products?
MisterMister
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Thu Feb 28, 2019 8:48 pm
Thesaints wrote: Thu Feb 28, 2019 7:57 pm
willthrill81 wrote: Thu Feb 28, 2019 6:35 pm You seem to continue to ignore that risks are multiplicative. For instance, a 10% chance of surviving to age 90 and a 10% chance of portfolio depletion does not mean that you have a 10% chance of portfolio depletion but rather just 1% (10% x 10%). Given my above analysis, it seems that a .0015% probability of ruin, assuming no changes are made along the way to your withdrawal strategy, is too high for you.
Also, the chance of getting to age 90 might only be 10% for a new born baby, but it is a lot higher as people age and becomes 100% for those aged 90, at which point they have a substantial chance of reaching age 95.
But you must survive to age 90 in order to "have a substantial chance of reaching age 95." Based on the SSA data, there is a 20% chance that a 65 year old male will not survive to age 74. Making it to age 90 is far from a given.
Thesaints wrote: Thu Feb 28, 2019 7:57 pmAgain, how do you determine early enough that your withdrawal rate is not safe anymore ?
This is a good point, one that I've brought up before as well. But simply reducing one's withdrawal rate to something like 3% doesn't solve it.

For instance, year 2000 retirees using the 4% fixed real dollar withdrawals with a 60/40 portfolio of \$1 million starting had an inflation-adjusted balance of \$557,598 at the end of 2008. Things definitely didn't look good. But if a 3% rate was used instead, their balance would still be down to \$641,137. That's obviously better, but is it good enough for you to not have doubts that you might be in trouble, considering that you were only 9 years into your retirement? I'm not sure.

This is why I prefer flexible withdrawal strategies. Using the time value of money formula to calculate annual withdrawals is what I'm most drawn toward. Besides it making a lot of mathematical sense, it's also impossible to prematurely deplete a portfolio. But you still have to determine how long you want to amortize your payments over, although you can reassess that each year, so in the event that you do make it to age 90, you reevaluate your remaining life expectancy and adjust your withdrawals accordingly.
With regard to the TVM method, here's a spreadsheet I put together that may be handy for some people. It's in the form of a graduated or growing annuity, with an option for a planned inheritance. I hesitated to post since it's quite simple but I've not seen anything quite like it around, as most forecasting uses much more involved backtesting to historical returns. So it may be useful to run some quick what-if numbers.

Anyone who wants to use it will need to make a copy so that they can edit the input values.
mptness
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### Re: Larry Swedroe: 3% is the new 4%

I am a big fan of Larry Swedroe and enjoyed listening to the interview. In addition to 3% possibly being the new 4%, another key point he made was that retirees tend to be too conservative by not taking enough risk. Most of the Monte Carlo simulators show very little difference in success rate between a portfolio with 20% equities vs. 60% when using 3% withdrawal rate for 30 years. I think most would agree that 20% equities is very conservative, so my question to Larry is: If I am retired and withdrawing 3%, How can I be too conservative? Using the Vanguard calculator, I hardly move the needle until I am less that 10% equities and if I go to 70% equities, the success rate actually falls by 1% from 98% success rate to 97%. Is this just a short coming of the simulator?

Nisiprius observed this earlier in this thread:
Well, if the right number is really 3%, the reward is no longer all that much greater. The superiority over just sticking it in a bank becomes tenuous. For example, Vanguard's calculator is showing that a portfolio of 100% cash will sustain a 3% withdrawal rate with 90% success.
Last edited by mptness on Fri Mar 01, 2019 4:40 pm, edited 1 time in total.
Hatch Batten
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### Re: Larry Swedroe: 3% is the new 4%

I'm still about a decade from putting withdrawal rates into action (barring a job loss that ends my working days early). I've spent a bit of time researching SWRs, although not as much yet as I've put into researching investing for my accumulation phase.

4% seems to rest on some assumptions and limitations of the Trinity Study and how its results have been interpreted. Time horizon has been discussed in this thread, so I won't touch on that (although it can make a big difference). Here are some other assumptions we can examine:
• US stocks and bonds only
• conservative allocation
• money used primarily for general fixed expenses (housing, food)
Knowing some parameters we want to target in a retirement portfolio should allow us to come up with model portfolios that are likely to outperform the simple 50/50 US stocks/US bonds portfolio that seems widely used for these discussions. With the right tools we can characterize portfolios that are more likely to survive and might allow us a higher SWR. They tend to have a higher CAGR and lower start date sensitivity. One example is the Pinwheel Portfolio at Portfolio Charts (which includes some gold for managing inflation risk, and REITs + international stocks for diversification). I've made my own model portfolio variation for testing purposes that is 18% LCV, 18% MCB, 4% Pacific, 4% EM, 18% Intermediate Treasuries, 19% Gold, and 19% REITs.

Between backtesting better diversified portfolios, and looking at results for the portfolios in the Trinity Study that tilt toward stocks, I'd guess we might be able to get a safe withdrawal rate of more like 6%.

The stock/bond mix is also important as we discuss the idea of 'stagnation'. If there's been a stagnation post-1975 that bears directly on investment returns, it's stagnating interest rates and their effect on bond yields. Inflation-adjusted stock returns have trended higher in this time period. Yet another reason to run the numbers and look for a bit more customization and creativity in a retirement portfolio.

Finally, examining our retirement income mix and matching it with our expenses should allow us to target our fixed expenses (needs) with fixed income resources (pension, social fund), and variable expenses (wants) with volatile investment assets. Scaling back luxury spending when markets are bad could make a big difference. Maybe we spend 4% of our portfolios on the things that make us comfortable, and then allocate another 2% to things that are indulgences, but only when markets have done well.
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

mptness wrote: Fri Mar 01, 2019 2:57 pm I am a big fan of Larry Swedroe and enjoyed listening to the interview. In addition to 3% possibly being the new 4%, another key point he made was that retirees tend to be too conservative by not taking enough risk. Most of the Monte Carlo simulators show very little difference in success rate between a portfolio with 20% equities vs. 60% when using 3% withdrawal rate for 30 years. I think most would agree that 20% equities is very conservative, so my question to Larry is: If I am retired and withdrawing 3%, How can I be too conservative? Using the Vanguard calculator, I hardly move the needle until I am less that 10% equities and if I go to 70% equities, the success rate actually falls by 1% from 98% success rate to 97%. Is this just a short coming of the simulator?

Nisiprius observed this earlier in this thread:
Well, if the right number is really 3%, the reward is no longer all that much greater. The superiority over just sticking it in a bank becomes tenuous. For example, Vanguard's calculator is showing that a portfolio of 100% cash will sustain a 3% withdrawal rate with 90% success.
It's important to keep in mind that while 'success rates', which are potentially very misleading in this context because they assume that you will rigidly follow the withdrawal scheme no matter what, are only part of the story. The other side of it is that higher equity allocations have historically led to higher ending portfolio balances.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Greg in Idaho
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### Re: Larry Swedroe: 3% is the new 4%

From a practical perspective, moving the bar that far means no long being in the game (for me at least), since it means "just" putting away over 700K more to be safe...not earning that much more, saving that much more. Sure, I'll get right on that.

If we are just making theoretical points for illustrative purposes, fine. But the notion that you can actually choose between 4% and 3% seems a bit silly in practical terms, even among BH's.

Nonetheless, the recent few years of this kind of analysis/fearmongering has put me in a more conservative frame of mind, padding my numbers a bit, and tempering my plans.
MisterMister
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### Re: Larry Swedroe: 3% is the new 4%

Greg in Idaho wrote: Sat Mar 02, 2019 9:54 am From a practical perspective, moving the bar that far means no long being in the game (for me at least), since it means "just" putting away over 700K more to be safe...not earning that much more, saving that much more. Sure, I'll get right on that.

If we are just making theoretical points for illustrative purposes, fine. But the notion that you can actually choose between 4% and 3% seems a bit silly in practical terms, even among BH's.

Nonetheless, the recent few years of this kind of analysis/fearmongering has put me in a more conservative frame of mind, padding my numbers a bit, and tempering my plans.
Hmm. My impression is that there are quite a few BH's who could choose between 3-4%. But your point is still valid, because I think people who could easily move from 4% to 3% are not the ones who are most likely to need to do it.
Time2Quit
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### Re: Larry Swedroe: 3% is the new 4%

Don’t know much about this guy, but he claims to have re-run the Bergen study with current data.

https://clark.com/personal-finance-cred ... etirement/
"It is not the man who has too little, but the man who craves more, that is poor." --Seneca
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

MisterMister wrote: Sat Mar 02, 2019 10:02 am
Greg in Idaho wrote: Sat Mar 02, 2019 9:54 am From a practical perspective, moving the bar that far means no long being in the game (for me at least), since it means "just" putting away over 700K more to be safe...not earning that much more, saving that much more. Sure, I'll get right on that.

If we are just making theoretical points for illustrative purposes, fine. But the notion that you can actually choose between 4% and 3% seems a bit silly in practical terms, even among BH's.

Nonetheless, the recent few years of this kind of analysis/fearmongering has put me in a more conservative frame of mind, padding my numbers a bit, and tempering my plans.
Hmm. My impression is that there are quite a few BH's who could choose between 3-4%. But your point is still valid, because I think people who could easily move from 4% to 3% are not the ones who are most likely to need to do it.
Depending on portfolio performance and the investor's savings rate, it could easily take 5 years but maybe 10 years or longer to go from a 4% WR to a 3%.

For instance, if an investor needed \$1 million using a 4% WR, they would need \$1.33 million at a 3% WR. If they were contributing \$10k annually (1% of their starting portfolio) with a 60/40 portfolio beginning in the year 2000, it would have been 2012 before they reached an inflation-adjusted \$1.33 portfolio. Had the start date been 2010, it would have been 2013 before they reached an inflation-adjusted \$1.33 million.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Greg in Idaho
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### Re: Larry Swedroe: 3% is the new 4%

MisterMister wrote: Sat Mar 02, 2019 10:02 am
Greg in Idaho wrote: Sat Mar 02, 2019 9:54 am From a practical perspective, moving the bar that far means no long being in the game (for me at least), since it means "just" putting away over 700K more to be safe...not earning that much more, saving that much more. Sure, I'll get right on that.

If we are just making theoretical points for illustrative purposes, fine. But the notion that you can actually choose between 4% and 3% seems a bit silly in practical terms, even among BH's.

Nonetheless, the recent few years of this kind of analysis/fearmongering has put me in a more conservative frame of mind, padding my numbers a bit, and tempering my plans.
Hmm. My impression is that there are quite a few BH's who could choose between 3-4%. But your point is still valid, because I think people who could easily move from 4% to 3% are not the ones who are most likely to need to do it.
Fair point...caught me generalizing from my own context...and the perspective of "have I reached my number?" vs. "how much should I plan to withdraw/spend each year? (2%? 3%? 4%?)..."
Last edited by Greg in Idaho on Sat Mar 02, 2019 12:07 pm, edited 1 time in total.
MisterMister
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Sat Mar 02, 2019 10:55 am Depending on portfolio performance and the investor's savings rate, it could easily take 5 years but maybe 10 years or longer to go from a 4% WR to a 3%.

For instance, if an investor needed \$1 million using a 4% WR, they would need \$1.33 million at a 3% WR. If they were contributing \$10k annually (1% of their starting portfolio) with a 60/40 portfolio beginning in the year 2000, it would have been 2012 before they reached an inflation-adjusted \$1.33 portfolio. Had the start date been 2010, it would have been 2013 before they reached an inflation-adjusted \$1.33 million.
Ah, I was not looking at it from the perspective of who has 25-30 years of remaining employment, but from one who is either in retirement already or will retire soon. Such a person may have 30-35 years of retirement. They can no longer plan for a 3 or 4% WR from the angle of new savings, but if they've done well, and are thrifty they are perhaps still just drawing down what they need (which could well be under 3%).

But I see your point from a mathematical perspective, and I'd been interested to know the source you used to make the 2000-2012 to 2010-2013 comparison.

In conclusion I'd say that a much greater risk to people who will not retire for 30 years is the evolving socio-economic landscape and how it will be shaped by the deepening wealth gap, entitlement programs, automation, and so on. Seems to me the next 50 years could be quite different from the last 100 on those fronts. Maybe that period will be good for investors, maybe not, but those uncertainties and risks seem to me to far outweigh 3-4% WR thinking. Still, one must plan.

Your posts are always insightful, thanks.
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

MisterMister wrote: Sat Mar 02, 2019 11:24 am
willthrill81 wrote: Sat Mar 02, 2019 10:55 am Depending on portfolio performance and the investor's savings rate, it could easily take 5 years but maybe 10 years or longer to go from a 4% WR to a 3%.

For instance, if an investor needed \$1 million using a 4% WR, they would need \$1.33 million at a 3% WR. If they were contributing \$10k annually (1% of their starting portfolio) with a 60/40 portfolio beginning in the year 2000, it would have been 2012 before they reached an inflation-adjusted \$1.33 portfolio. Had the start date been 2010, it would have been 2013 before they reached an inflation-adjusted \$1.33 million.
Ah, I was not looking at it from the perspective of who has 25-30 years of remaining employment, but from one who is either in retirement already or will retire soon. Such a person may have 30-35 years of retirement. They can no longer plan for a 3 or 4% WR from the angle of new savings, but if they've done well, and are thrifty they are perhaps still just drawing down what they need (which could well be under 3%).
Certainly the age of the potential retiree matters. If we're talking about someone who could easily have 40 years or longer in retirement, then a 3% WR is perfectly plausible. But for someone who's in their 60s, the odds are high that they don't have 30 years left. For them, going from 4% to 3% could easily mean sacrificing one-third of their remaining life expectancy just to further pad something that hasn't failed in nearly a century (i.e. 4% WR).
MisterMister wrote: Sat Mar 02, 2019 11:24 amBut I see your point from a mathematical perspective, and I'd been interested to know the source you used to make the 2000-2012 to 2010-2013 comparison.
Portfolio Visualizer.
MisterMister wrote: Sat Mar 02, 2019 11:24 amIn conclusion I'd say that a much greater risk to people who will not retire for 30 years is the evolving socio-economic landscape and how it will be shaped by the deepening wealth gap, entitlement programs, automation, and so on. Seems to me the next 50 years could be quite different from the last 100 on those fronts. Maybe that period will be good for investors, maybe not, but those uncertainties and risks seem to me to far outweigh 3-4% WR thinking. Still, one must plan.

Your posts are always insightful, thanks.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
YRT70
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### Re: Larry Swedroe: 3% is the new 4%

Just finished listening to this podcast. Really interesting. Will read this thread now, curious what people have to say about it.
CurlyDave
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### Re: Larry Swedroe: 3% is the new 4%

HomerJ wrote: Sat Feb 02, 2019 11:37 pm
...Wade Pfau (and Swedroe to a lesser extent) said "3% is the new 4%" in 2011.

They were wrong.

They might be right this time, but maybe not. Even if the next 10-15 years are indeed bad with low returns, they will likely be followed by 10-15 good years with high returns. The 9%-10% historical long-term stock market return? That INCLUDES the bad years...

Again, Swedroe may be right. I'm not saying that he's wrong. I'm just saying it's reasonable to question his predictions...
+1

Of course things are different this time. So much has changed today's market is almost not recognizable.

I learned investing in the mid 1950s, starting at the age of 10 or 11. Too young to legally trade stocks, but my mother taught me, helped with selection and then traded for me. There was this newfangled thing called "mutual funds" but they were highly distrusted and sold at a discount to the stocks they held.

Back then prices were in fractional dollars -- 12 1/8 for instance. You placed your orders, with a broker and one or two days later you would find out what price the order had executed at. If you didn't have enough money to buy a "round" lot of 100 shares, you had to deal with an odd-lot broker who charged a higher commission.

Today, I can get real time quotes of issues trading on the Hang Seng market if I want. And trade any size lot I desire on US markets in dollars and cents per share.
* * * * * * * * * * * * * * * *
If I had listened to the predictions of lower returns back in 2011, I would have put more into bonds, and would be a lot poorer than I am today.

So, I am going to keep living life one day at a time and keep going forward. I never did really "retire" but 12 years ago I declared myself financially independent and quit working for someone else. If I have to cut back withdrawals because the portfolio is getting depleted, I will cross that bridge when I come to it.

The only thing that hasn't changed is the human desire to get ahead.
rascott
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### Re: Larry Swedroe: 3% is the new 4%

averagedude wrote: Sun Feb 03, 2019 9:13 am Im sticking with 4%. There are many people who retired in 1999 and have withstood 2 huge bear markets, and have actually increased their account balances. Assuming you have no debts with your mortage paid off, their are several levers you can pull during market declines, such as spending less, working part time, and making distributions from fixed income. I just don't see many examples where someone retires with 25 times their expenses, and are struggling financially in their nineties, unless they have had long term care issues. If you are middle to middle-upper class, i don't care if you have 50 times your expenses, if you spend 20+ years in a long term care facility, you aren't going to have enough.

+1
Northern Flicker
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### Re: Larry Swedroe: 3% is the new 4%

Opinions will differ, but mine is that these uncertainties just further motivate the use of income flooring instead of SWR.
Risk is not a guarantor of return.
rj49
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### Re: Larry Swedroe: 3% is the new 4%

DIrk Cotton at theretirementcafe.blogspot.com has written, along with others, how the 4% rule isn't realistic, since nobody would actually follow a rigid 4% with inflation adjustment to portfolio depletion. People spend more when the market and investments are doing well, but if there's a market crash, they cut back spending (if possible). Cotton writes a lot how it's the big unexpected financial and personal setbacks that are more likely to result in bankruptcy and financial catastrophe (divorce, death, illness, addiction, supporting parents or adult children), not bond rates or market downturns. It also ignores decreased discretionary spending with aging, the outsized impact of expensive splurges (sports cars, vacation homes, megamansion, boat, RV, trophy wife), government health care/pensions, and having a paid-off mortgage. There are plenty of other articles and experts saying how outdated and useless a SWR is, but that doesn't seem to stop the arguments about how many angels dancing on the head of a pin can withdraw what percentage of savings every year. Oh, and then there's the unknown date of your death and finding purpose in what life you have left...do you want "He managed a 6.39% SWR by tilting to international small cap value" on your gravestone?

It's pretty simple, really. Live within your means, have enough safe income to cover the necessities (floor), when you're flush, go to Europe and get a new roof, and if the market crashes, cook at home and do daytrips. Find ways to do non-retail therapy and exercise and eat well, so boredom, depression, and medical bills are less likely to be a worry. And find a passion...instead of just investing like Mr. Bogle, live like Mr. Bogle, helping and spreading wisdom and goodwill until your final breath.
smectym
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### Re: Larry Swedroe: 3% is the new 4%

Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
Valuethinker
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### Re: Larry Swedroe: 3% is the new 4%

Greg in Idaho wrote: Sat Mar 02, 2019 9:54 am From a practical perspective, moving the bar that far means no long being in the game (for me at least), since it means "just" putting away over 700K more to be safe...not earning that much more, saving that much more. Sure, I'll get right on that.

If we are just making theoretical points for illustrative purposes, fine. But the notion that you can actually choose between 4% and 3% seems a bit silly in practical terms, even among BH's.

Nonetheless, the recent few years of this kind of analysis/fearmongering has put me in a more conservative frame of mind, padding my numbers a bit, and tempering my plans.
It really is not fearmongering.

It's taking a realistic view, given where interest rates are (and correspondingly high equity market valuations) of what's likely in terms of financial market returns, retiring now.

The problem is most of us don't choose our retirement date: either our employers do OR our health issues choose it for us.

UK inflation linked bonds yield minus 2.0%. That has affected the timing of my planned retirement as well as job choice.
LiveSimple
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### Re: Larry Swedroe: 3% is the new 4%

So with these 3% or 4% and we leave money on the table, and we go underground, what is the use ????

Also does the 3 % or 4 % or even 10% depends on the pot, how much one has in their portfolio ?
ryman554
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### Re: Larry Swedroe: 3% is the new 4%

LiveSimple wrote: Thu Sep 05, 2019 4:13 am So with these 3% or 4% and we leave money on the table, and we go underground, what is the use ????
I'm sure your heirs/charities can find a use.
Also does the 3 % or 4 % or even 10% depends on the pot, how much one has in their portfolio ?
To first order, no. Time left to live, as life gets short, yes.

To second order, those with more can afford to proportionately draw more because the essential living expenses is composed of a smaller percentage of the withdrawal. A better way to say it is that if the withdrawal contains a lot of "wants", you can go higher. Go too high, get hit with a recession and a big medical bill at the same time.....
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

ryman554 wrote: Thu Sep 05, 2019 12:26 pm
LiveSimple wrote: Thu Sep 05, 2019 4:13 am Also does the 3 % or 4 % or even 10% depends on the pot, how much one has in their portfolio ?
To first order, no. Time left to live, as life gets short, yes.

To second order, those with more can afford to proportionately draw more because the essential living expenses is composed of a smaller percentage of the withdrawal. A better way to say it is that if the withdrawal contains a lot of "wants", you can go higher. Go too high, get hit with a recession and a big medical bill at the same time.....
Those who 'oversave' have the luxury of being able to take on more risks than those who barely saved 'enough'. Someone with a \$10 million portfolio and \$200k of annual expenses can easily afford to be 100% stock and is historically very likely to see their portfolio grow in leaps and bounds over the course of their retirement. Someone with \$500k and \$20k of expenses not covered by non-portfolio income sources has a much lower capacity to take on risk.

Similarly, even among those with the same withdrawal rate, retirees with larger portfolios have a greater degree of security because they can reduce their expenses more easily than those with smaller portfolios. This doesn't mean that they would want to do so nor that it wouldn't be painful for them, but they could. It's easier to go from \$200k of income to \$150k than it is to go from \$40k to \$30k.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
randomguy
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### Re: Larry Swedroe: 3% is the new 4%

smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:) VPW discussions add nothing to a discussion about if you think future returns will be as bad as Larry thinks they will be.
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

randomguy wrote: Thu Sep 05, 2019 5:42 pm
smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:)
That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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### Re: Larry Swedroe: 3% is the new 4%

smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
I mentioned it upthread. The point is it's ALL variable percentage. As I noted upthread, human behavior and psychology tells us that when the markets are tanking, retirees are not going to blindly stick to a rigid withdrawal plan, despite what the models/studies/message boards tell that. They will cut back. How much, and when, is a personal choice and will depend on how much fat can be trimmed from their expenses. This is why it's critical to not retire when one is "on the margins" (expenses vs income) or reliant on a fixed withdrawal strategy. You need wiggle room.

Let's also remember that downturns can last years, not just months.
Last edited by Admiral on Fri Sep 06, 2019 9:38 am, edited 1 time in total.
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
VPW is hardly the only variable withdrawal approach out there. There are many, and they all have their pros and cons.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
smitcat
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Thu Sep 05, 2019 5:49 pm
randomguy wrote: Thu Sep 05, 2019 5:42 pm
smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:)
That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
EnjoyIt
Posts: 5366
Joined: Sun Dec 29, 2013 8:06 pm

### Re: Larry Swedroe: 3% is the new 4%

Is it just me, or is the title "3% is the new 4%" nothing more than click bait?

I should write an article that says 2.9% is the new 4%. I'm sure I will get lots of clicks for that.

It reminds of a joke in the movie "There is something about Marry" regarding 8 minute abs.
https://youtu.be/JB2di69FmhE

We seem to rehash the same thing over and over and over again. 4% will not be 100% risk free. Neither is 3%, 2% or 1%. Nothing is 100% risk free.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
EnjoyIt
Posts: 5366
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### Re: Larry Swedroe: 3% is the new 4%

smitcat wrote: Fri Sep 06, 2019 9:36 am
willthrill81 wrote: Thu Sep 05, 2019 5:49 pm
randomguy wrote: Thu Sep 05, 2019 5:42 pm
smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:)
That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
I expect our retirement spending to be V shaped. Spend a bit more when younger with more energy. Spend less as our energy decreases. Spend more when we need assistance doing things we used to do ourselves and spend even more when health issues arise. Maybe spending will look more like a J due to the astronomical costs of healthcare and nursing home care.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
willthrill81
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### Re: Larry Swedroe: 3% is the new 4%

EnjoyIt wrote: Fri Sep 06, 2019 9:45 am
smitcat wrote: Fri Sep 06, 2019 9:36 am
willthrill81 wrote: Thu Sep 05, 2019 5:49 pm
randomguy wrote: Thu Sep 05, 2019 5:42 pm
smectym wrote: Thu Sep 05, 2019 3:01 am Can’t read all 521 posts, but I read a slug of them, none of which mentioned Variable Percentage Withdrawal (“VPW”), as opposed to setting a rigid 4%, 3%, 3.33%, or other withdrawal rate at the outset of drawdown, then letting it ride come what may.

Is there a cogent critique and rejection of VPW methodology such that debates on this thread continue to drone on without referencing or acknowledging it? VPW makes so much sense that continuing to bicker over a particular unchanging set-and-forget % at Day One of retirement seems outmoded, redundant, and pointless. But what am I missing? Thanks
Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:)
That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
I expect our retirement spending to be V shaped. Spend a bit more when younger with more energy. Spend less as our energy decreases. Spend more when we need assistance doing things we used to do ourselves and spend even more when health issues arise. Maybe spending will look more like a J due to the astronomical costs of healthcare and nursing home care.
Data from the Bureau of Labor Statistics has shown that, on average, retirees spend 1-2% fewer real dollars each year of their retirement. This decline slows down in their 80s due to rising healthcare costs, but that alone isn't enough to make overall spending go up. But of course, that's just 'on average', and any specific household may experience something very different.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
EnjoyIt
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Fri Sep 06, 2019 9:51 am
EnjoyIt wrote: Fri Sep 06, 2019 9:45 am
smitcat wrote: Fri Sep 06, 2019 9:36 am
willthrill81 wrote: Thu Sep 05, 2019 5:49 pm
randomguy wrote: Thu Sep 05, 2019 5:42 pm

Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:)
That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
I expect our retirement spending to be V shaped. Spend a bit more when younger with more energy. Spend less as our energy decreases. Spend more when we need assistance doing things we used to do ourselves and spend even more when health issues arise. Maybe spending will look more like a J due to the astronomical costs of healthcare and nursing home care.
Data from the Bureau of Labor Statistics has shown that, on average, retirees spend 1-2% fewer real dollars each year of their retirement. This decline slows down in their 80s due to rising healthcare costs, but that alone isn't enough to make overall spending go up. But of course, that's just 'on average', and any specific household may experience something very different.
Thanks for the heads up.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
am
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### Re: Larry Swedroe: 3% is the new 4%

EnjoyIt wrote: Fri Sep 06, 2019 9:42 am Is it just me, or is the title "3% is the new 4%" nothing more than click bait?

I should write an article that says 2.9% is the new 4%. I'm sure I will get lots of clicks for that.

It reminds of a joke in the movie "There is something about Marry" regarding 8 minute abs.
https://youtu.be/JB2di69FmhE

We seem to rehash the same thing over and over and over again. 4% will not be 100% risk free. Neither is 3%, 2% or 1%. Nothing is 100% risk free.
I have a feeling that if 4% doesn’t work, then times may be so bad that 3 and 2 may fail as well. We’re talking bottom 1% outcomes historically. I’m sure it can get worse then that.

You may also die before being able to use your nest egg or 10 yrs into retirement and it won’t be an issue, You need to basically get to retirement, have a 1% or worse historical outcome, and live through many years of retirement. All those things happening are very low.
willthrill81
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Location: USA

### Re: Larry Swedroe: 3% is the new 4%

am wrote: Sat Sep 07, 2019 4:04 pm
EnjoyIt wrote: Fri Sep 06, 2019 9:42 am Is it just me, or is the title "3% is the new 4%" nothing more than click bait?

I should write an article that says 2.9% is the new 4%. I'm sure I will get lots of clicks for that.

It reminds of a joke in the movie "There is something about Marry" regarding 8 minute abs.
https://youtu.be/JB2di69FmhE

We seem to rehash the same thing over and over and over again. 4% will not be 100% risk free. Neither is 3%, 2% or 1%. Nothing is 100% risk free.
I have a feeling that if 4% doesn’t work, then times may be so bad that 3 and 2 may fail as well. We’re talking bottom 1% outcomes historically. I’m sure it can get worse then that.
I too suspect that that might be true.

Also, I have a hard time believing that anyone can accurately forecast that the next 30 years' returns and the sequence of those returns will be such that 4% will fail but 3% will succeed.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
am
Posts: 3665
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Sat Sep 07, 2019 4:11 pm
am wrote: Sat Sep 07, 2019 4:04 pm
EnjoyIt wrote: Fri Sep 06, 2019 9:42 am Is it just me, or is the title "3% is the new 4%" nothing more than click bait?

I should write an article that says 2.9% is the new 4%. I'm sure I will get lots of clicks for that.

It reminds of a joke in the movie "There is something about Marry" regarding 8 minute abs.
https://youtu.be/JB2di69FmhE

We seem to rehash the same thing over and over and over again. 4% will not be 100% risk free. Neither is 3%, 2% or 1%. Nothing is 100% risk free.
I have a feeling that if 4% doesn’t work, then times may be so bad that 3 and 2 may fail as well. We’re talking bottom 1% outcomes historically. I’m sure it can get worse then that.
I too suspect that that might be true.

Also, I have a hard time believing that anyone can accurately forecast that the next 30 years' returns and the sequence of those returns will be such that 4% will fail but 3% will succeed.
If your going to talk about bottom 1% or worse results, how do you protect your assets from government confiscation, hyperinflation, civil war/revolution, closure of equity markets etc. I wonder if those citizens saw it coming during the last century?

If returns are so bad that 2-3% doesn’t work, what is happening? I have a feeling it’s not going to be a Lehman brothers type failure or collapse of a real estate market. Not saying you should use 8% swr, but 4% is more than reasonable with close surveillance.
MathIsMyWayr
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### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Sat Sep 07, 2019 4:11 pm I have a hard time believing that anyone can accurately forecast that the next 30 years' returns and the sequence of those returns will be such that 4% will fail but 3% will succeed.
I don't place much faith in finance things, but mulling over 4% or 3% is not without merit. 4% has some historical backing and the argument for 3% reflects the current or expected trend. There is no guarantee that 3% will not fail whereas 4% will. What is crystal clear is that 3% has a wider margin of error than 4%. Automobile liability coverage of \$250K and \$500K makes a definite difference even though the probability of costly at-fault accident is unknown. It is all about an unknown benefit (long lasting savings) vs. a known cost (savings rate and/or years of working).
willthrill81
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Location: USA

### Re: Larry Swedroe: 3% is the new 4%

MathIsMyWayr wrote: Sat Sep 07, 2019 4:41 pm
willthrill81 wrote: Sat Sep 07, 2019 4:11 pm I have a hard time believing that anyone can accurately forecast that the next 30 years' returns and the sequence of those returns will be such that 4% will fail but 3% will succeed.
I don't place much faith in finance things, but mulling over 4% or 3% is not without merit. 4% has some historical backing and the argument for 3% reflects the current or expected trend. There is no guarantee that 3% will not fail whereas 4% will. What is crystal clear is that 3% has a wider margin of error than 4%.
And so does 2%. And 1%.
MathIsMyWayr wrote: Sat Sep 07, 2019 4:41 pmIt is all about an unknown benefit (long lasting savings) vs. a known cost (savings rate and/or years of working).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
bck63
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### Re: Larry Swedroe: 3% is the new 4%

Riprap wrote: Sat Feb 02, 2019 10:01 pm What's his rationale? Not interested in listening.
A post declaring one’s non-interest in listening to a shared podcast is novel, or perhaps odd, particularly since the respondent’s interest was piqued enough to ask a question about said podcast.
smitcat
Posts: 6999
Joined: Mon Nov 07, 2016 10:51 am

### Re: Larry Swedroe: 3% is the new 4%

willthrill81 wrote: Fri Sep 06, 2019 9:51 am
EnjoyIt wrote: Fri Sep 06, 2019 9:45 am
smitcat wrote: Fri Sep 06, 2019 9:36 am
willthrill81 wrote: Thu Sep 05, 2019 5:49 pm
randomguy wrote: Thu Sep 05, 2019 5:42 pm

Most people want income from their portfolio and would rather spend money when they are young than dying the richest person in the graveyard:)
That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
I expect our retirement spending to be V shaped. Spend a bit more when younger with more energy. Spend less as our energy decreases. Spend more when we need assistance doing things we used to do ourselves and spend even more when health issues arise. Maybe spending will look more like a J due to the astronomical costs of healthcare and nursing home care.
Data from the Bureau of Labor Statistics has shown that, on average, retirees spend 1-2% fewer real dollars each year of their retirement. This decline slows down in their 80s due to rising healthcare costs, but that alone isn't enough to make overall spending go up. But of course, that's just 'on average', and any specific household may experience something very different.
I generally do not plan based upon the average statistics - after all the average folks are the ones that typically have much lower retirement savings and typically much lower incomes - per statistics.
This leads many to have very little choice in these types of spending issues...
EnjoyIt
Posts: 5366
Joined: Sun Dec 29, 2013 8:06 pm

### Re: Larry Swedroe: 3% is the new 4%

smitcat wrote: Sun Sep 08, 2019 8:00 am
willthrill81 wrote: Fri Sep 06, 2019 9:51 am
EnjoyIt wrote: Fri Sep 06, 2019 9:45 am
smitcat wrote: Fri Sep 06, 2019 9:36 am
willthrill81 wrote: Thu Sep 05, 2019 5:49 pm

That's why I'm leaning strongly toward the formula that VPW is based on: the time value of money formula. I'll use my own forecasts of future market returns rather than relying on the historic returns embedded in the VPW tables, and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive.
"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
I expect our retirement spending to be V shaped. Spend a bit more when younger with more energy. Spend less as our energy decreases. Spend more when we need assistance doing things we used to do ourselves and spend even more when health issues arise. Maybe spending will look more like a J due to the astronomical costs of healthcare and nursing home care.
Data from the Bureau of Labor Statistics has shown that, on average, retirees spend 1-2% fewer real dollars each year of their retirement. This decline slows down in their 80s due to rising healthcare costs, but that alone isn't enough to make overall spending go up. But of course, that's just 'on average', and any specific household may experience something very different.
I generally do not plan based upon the average statistics - after all the average folks are the ones that typically have much lower retirement savings and typically much lower incomes - per statistics.
This leads many to have very little choice in these types of spending issues...
I see myself at some point in life still traveling, but needing extra amenities when I do so. I may travel less often, but each trip will cost more. I can see myself hiring people to do minor home maintenance things that I currently do myself. I can see myself hiring a home aid at some late point in my life. Maybe we will need nursing home care which we all know isn't cheap. This is why I believe I will be spending more in my late years of retirement compared to the middle years.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
smitcat
Posts: 6999
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### Re: Larry Swedroe: 3% is the new 4%

EnjoyIt wrote: Sun Sep 08, 2019 8:15 am
smitcat wrote: Sun Sep 08, 2019 8:00 am
willthrill81 wrote: Fri Sep 06, 2019 9:51 am
EnjoyIt wrote: Fri Sep 06, 2019 9:45 am
smitcat wrote: Fri Sep 06, 2019 9:36 am

"and we'll likely front-load our withdrawals by 1-2% when we're younger, healthier, more active, and, most importantly, still alive."
A very important point to keep in mind - even prior to any types or stages of retirement.
I expect our retirement spending to be V shaped. Spend a bit more when younger with more energy. Spend less as our energy decreases. Spend more when we need assistance doing things we used to do ourselves and spend even more when health issues arise. Maybe spending will look more like a J due to the astronomical costs of healthcare and nursing home care.
Data from the Bureau of Labor Statistics has shown that, on average, retirees spend 1-2% fewer real dollars each year of their retirement. This decline slows down in their 80s due to rising healthcare costs, but that alone isn't enough to make overall spending go up. But of course, that's just 'on average', and any specific household may experience something very different.
I generally do not plan based upon the average statistics - after all the average folks are the ones that typically have much lower retirement savings and typically much lower incomes - per statistics.
This leads many to have very little choice in these types of spending issues...
I see myself at some point in life still traveling, but needing extra amenities when I do so. I may travel less often, but each trip will cost more. I can see myself hiring people to do minor home maintenance things that I currently do myself. I can see myself hiring a home aid at some late point in my life. Maybe we will need nursing home care which we all know isn't cheap. This is why I believe I will be spending more in my late years of retirement compared to the middle years.
Well I think you plan is a great one....hope it works out real well.
DaufuskieNate
Posts: 424
Joined: Wed May 28, 2014 11:53 am

### Re: Larry Swedroe: 3% is the new 4%

bck63 wrote: Sun Sep 08, 2019 7:24 am
Riprap wrote: Sat Feb 02, 2019 10:01 pm What's his rationale? Not interested in listening.
A post declaring one’s non-interest in listening to a shared podcast is novel, or perhaps odd, particularly since the respondent’s interest was piqued enough to ask a question about said podcast.
Doesn't seem novel or odd to me. I much prefer reading transcripts to listening to podcasts. Goes much quicker. I lose patience with podcasts.
bck63
Posts: 1444
Joined: Fri Sep 28, 2018 4:59 pm

### Re: Larry Swedroe: 3% is the new 4%

DaufuskieNate wrote: Sun Sep 08, 2019 9:28 am
bck63 wrote: Sun Sep 08, 2019 7:24 am
Riprap wrote: Sat Feb 02, 2019 10:01 pm What's his rationale? Not interested in listening.
A post declaring one’s non-interest in listening to a shared podcast is novel, or perhaps odd, particularly since the respondent’s interest was piqued enough to ask a question about said podcast.
Doesn't seem novel or odd to me. I much prefer reading transcripts to listening to podcasts. Goes much quicker. I lose patience with podcasts.
Agreed 100%. And due to my undiagnosed ADD, I often have to go back and listen to parts of podcasts twice. Easier to read a transcript.
dbr
Posts: 34269
Joined: Sun Mar 04, 2007 9:50 am

### Re: Larry Swedroe: 3% is the new 4%

bck63 wrote: Sun Sep 08, 2019 10:47 am
DaufuskieNate wrote: Sun Sep 08, 2019 9:28 am
bck63 wrote: Sun Sep 08, 2019 7:24 am
Riprap wrote: Sat Feb 02, 2019 10:01 pm What's his rationale? Not interested in listening.
A post declaring one’s non-interest in listening to a shared podcast is novel, or perhaps odd, particularly since the respondent’s interest was piqued enough to ask a question about said podcast.
Doesn't seem novel or odd to me. I much prefer reading transcripts to listening to podcasts. Goes much quicker. I lose patience with podcasts.
Agreed 100%. And due to my undiagnosed ADD, I often have to go back and listen to parts of podcasts twice. Easier to read a transcript.
I don't listen to podcasts, especially the long winded one's that would take an hour or more of my time.

I think it is perfectly reasonable to ask a question about the content without listening first.
EnjoyIt
Posts: 5366
Joined: Sun Dec 29, 2013 8:06 pm

### Re: Larry Swedroe: 3% is the new 4%

dbr wrote: Sun Sep 08, 2019 11:26 am
bck63 wrote: Sun Sep 08, 2019 10:47 am
DaufuskieNate wrote: Sun Sep 08, 2019 9:28 am
bck63 wrote: Sun Sep 08, 2019 7:24 am
Riprap wrote: Sat Feb 02, 2019 10:01 pm What's his rationale? Not interested in listening.
A post declaring one’s non-interest in listening to a shared podcast is novel, or perhaps odd, particularly since the respondent’s interest was piqued enough to ask a question about said podcast.
Doesn't seem novel or odd to me. I much prefer reading transcripts to listening to podcasts. Goes much quicker. I lose patience with podcasts.
Agreed 100%. And due to my undiagnosed ADD, I often have to go back and listen to parts of podcasts twice. Easier to read a transcript.
I don't listen to podcasts, especially the long winded one's that would take an hour or more of my time.

I think it is perfectly reasonable to ask a question about the content without listening first.
I hate podcasts. I prefer to read as I read way faster than someone speaks.
I can understand maybe a 15-20 second video explaining and drawing out difficult to explain item, but to go on and on over 30 minutes is mind numbing.
I also prefer reading the news as opposed to watching it for the same reason.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
22twain
Posts: 2650
Joined: Thu May 10, 2012 5:42 pm

### Re: Larry Swedroe: 3% is the new 4%

DaufuskieNate wrote: Sun Sep 08, 2019 9:28 amI much prefer reading transcripts to listening to podcasts. Goes much quicker.
And some of us are hearing-impaired and have trouble following spoken material without the visual cues that come from watching the speaker, or captions on a video recording.
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