4% SWR: It is not a rule and it is not safe (anymore).

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Thesaints
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4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 4:35 pm

As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 4:38 pm

What about the historic periods where real bond yields were zero or negative?

Also, there is a difference between "safe" (i.e. it's alright to consume principal within the stated withdrawal period) and "sustainable," which implies "perpetual" (i.e. inflation-adjusted capital will remain intact over the long-term).
“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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Thesaints
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 4:44 pm

willthrill81 wrote:
Tue Feb 18, 2020 4:38 pm
What about the historic periods where real bond yields were zero or negative?
Only short periods, far and few between. These yields are here to stay.
Also, there is a difference between "safe" (i.e. it's alright to consume principal within the stated withdrawal period) and "sustainable," which implies "perpetual" (i.e. inflation-adjusted capital will remain intact over the long-term).
If you are left with $1 at year 31, it certainly was not a "perpetual" rate, and I'm arguing it was neither "safe". You just got lucky and you could have very well found yourself on the street by year 27.
In short, it is a matter of semantics and, in many cases, of defective understanding of chances. "perpetual" is always "safe". Just "safe" may be anything but.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Unladen_Swallow » Tue Feb 18, 2020 4:44 pm

I prefer saving with a positive mindset rather than in fear.

I am still accumulating, but some random article that says 2% is the new 4% does not scare me. Whatever happens, we will deal with it. I am certain I won't perish.

Living in constant fear of inadequacy does a disservice to us. Not that we must be spendthrifts. But we follow a decent plan, and then adjust as we need to. That is all we can do.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by EddyB » Tue Feb 18, 2020 4:45 pm

Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
Why do you think that posting this 7 year old paper that has been posted and discussed on this site for at least 5 years is going to make anyone tremble?

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Thesaints
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 4:46 pm

Unladen_Swallow wrote:
Tue Feb 18, 2020 4:44 pm
I prefer saving with a positive mindset rather than in fear.

I am still accumulating, but some random article that says 2% is the new 4% does not scare me. Whatever happens, we will deal with it. I am certain I won't perish.

Living in constant fear of inadequacy does a disservice to us. Not that we must be spendthrifts. But we follow a decent plan, and then adjust as we need to. That is all we can do.
Fear of death makes you wear a second parachute, which is "good planning".

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 4:46 pm

Thesaints wrote:
Tue Feb 18, 2020 4:44 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:38 pm
What about the historic periods where real bond yields were zero or negative?
Only short periods, far and few between. These yields are here to stay.
So you now have a working crystal ball?
Thesaints wrote:
Tue Feb 18, 2020 4:44 pm
If you are left with $1 at year 31, it certainly was not a "perpetual" rate, and I'm arguing it was neither "safe". You just got lucky and you could have very well found yourself on the street by year 27.
In short, it is a matter of semantics and, in many cases, of defective understanding of chances. "perpetual" is always "safe". Just "safe" may be anything but.
You're moving the goalposts from where they've been since Bengen defined them in 1994. He allowed for total portfolio consumption within the stated period of time, which would have basically happened to several cohorts of retirees.
“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: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Unladen_Swallow » Tue Feb 18, 2020 4:49 pm

Thesaints wrote:
Tue Feb 18, 2020 4:46 pm
Unladen_Swallow wrote:
Tue Feb 18, 2020 4:44 pm
I prefer saving with a positive mindset rather than in fear.

I am still accumulating, but some random article that says 2% is the new 4% does not scare me. Whatever happens, we will deal with it. I am certain I won't perish.

Living in constant fear of inadequacy does a disservice to us. Not that we must be spendthrifts. But we follow a decent plan, and then adjust as we need to. That is all we can do.
Fear of death makes you wear a second parachute, which is "good planning".
If that is your fear, plan accordingly to do what it takes to not be afraid.

I have no such fear. I only know it is certain. That actually helps.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by TropikThunder » Tue Feb 18, 2020 4:49 pm

Too bad you can’t adjust your spending rate to respond to market performance. I didn’t realize that once you program “4.00%” into the SWR generator it was going to spit out the same amount every year, rain or shine. I feel so hopeless now. :(

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 4:56 pm

TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance.
Which is what everyone else does, especially when the market tanks.

Does anyone really think that any sane human being will withdraw the same inflation-adjusted dollar amount from their portfolio for decades without even looking at what their portfolio is doing?

The SWR concept is useful in that it demonstrates how much one needed to have saved in order to have 'enough' for a 30 year retirement with a very high degree of historical safety. In that regard, it's still fine, but it's not a withdrawal plan and should not be criticized as such.
Last edited by willthrill81 on Tue Feb 18, 2020 4:56 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

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by LilyFleur » Tue Feb 18, 2020 4:56 pm

TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance. I didn’t realize that once you program “4.00%” into the SWR generator it was going to spit out the same amount every year, rain or shine. I feel so hopeless now. :(
We need a sarcasm emoji :mrgreen:
You have a good point. Anyone who reads Bogleheads is aware that one must evaluate SWR every year and fine tune the plan.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by LilyFleur » Tue Feb 18, 2020 5:16 pm

willthrill81 wrote:
Tue Feb 18, 2020 4:56 pm
TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance.
Which is what everyone else does, especially when the market tanks.

Does anyone really think that any sane human being will withdraw the same inflation-adjusted dollar amount from their portfolio for decades without even looking at what their portfolio is doing?

The SWR concept is useful in that it demonstrates how much one needed to have saved in order to have 'enough' for a 30 year retirement with a very high degree of historical safety. In that regard, it's still fine, but it's not a withdrawal plan and should not be criticized as such.
"sane human being" = a smart Boglehead I think is what you mean.
willthrill81, remember that our Boglehead community is filled with people who are intelligent, hard working, and strategic and disciplined in our money management. Not your average bear. I would venture that MOST folks in the general population couldn't even tell you what SWR stands for, much less explain it.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Unladen_Swallow » Tue Feb 18, 2020 5:19 pm

TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance. I didn’t realize that once you program “4.00%” into the SWR generator it was going to spit out the same amount every year, rain or shine. I feel so hopeless now. :(
:D :D
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 5:20 pm

LilyFleur wrote:
Tue Feb 18, 2020 5:16 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:56 pm
TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance.
Which is what everyone else does, especially when the market tanks.

Does anyone really think that any sane human being will withdraw the same inflation-adjusted dollar amount from their portfolio for decades without even looking at what their portfolio is doing?

The SWR concept is useful in that it demonstrates how much one needed to have saved in order to have 'enough' for a 30 year retirement with a very high degree of historical safety. In that regard, it's still fine, but it's not a withdrawal plan and should not be criticized as such.
"sane human being" = a smart Boglehead I think is what you mean.
willthrill81, remember that our Boglehead community is filled with people who are intelligent, hard working, and strategic and disciplined in our money management. Not your average bear. I would venture that MOST folks in the general population couldn't even tell you what SWR stands for, much less explain it.
But they don't have to know it. Several recent studies have found that most retirees do not deplete their portfolios at all. Those with the wherewithal to build those portfolios in the first place seem highly likley to intuitively understand that it's not wise to to blindly spend from one's portfolio.

Seriously, I've never even heard of a rumor of anyone who actually used or planned on strictly following the '4% rule of thumb'.
“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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TheTimeLord
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by TheTimeLord » Tue Feb 18, 2020 5:21 pm

Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
Humor me, what is the real annual rate of return you need for the 4% rule of thumb to work for a 30 year retirement? Remember success is defined as having 0 or more dollars at the end of 30 years.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by FactualFran » Tue Feb 18, 2020 5:24 pm

Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.
Empirical studies behind a Safe Withdrawal Rate of 4% used total returns, not only yield. Even with the low bond yields during the past few years, the annual total returns of the Vanguard Wellington fund (about 2/3 stocks and 1/3 bonds) has supported an initial withdrawal rate of more than 4.0% for all recent starting years while leaving an end of 2019 balance of at least the starting balance adjusted for inflation.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Normchad » Tue Feb 18, 2020 5:29 pm

I’m not swayed. I’m all aboard the 4% train.

I trust past history far more than future prognostications. In order for this to fail, my 30 years has to be worse than the worst 30 years we have ever experienced, ever. I’m willing to take that bet.

Of course II could adjust spending if I needed to. There is a far greater chance that I would increase spending, rather than decrease it.

4% would have worked in every rolling 30 year period, ever. Including the gloomiest and doomiest. Including the Cold War, stagflation, etc.

Why is everybody sure the next 30 years willl be the worst ever?

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ResearchMed
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by ResearchMed » Tue Feb 18, 2020 5:29 pm

TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance. I didn’t realize that once you program “4.00%” into the SWR generator it was going to spit out the same amount every year, rain or shine. I feel so hopeless now. :(
Yup, this is a serious problem with just about all retirement income models.

Very few of us would watch our balances decline faster than expected/planned without cutting back in spending, either a bit or a lot.

We'll no doubt prefer NOT to have to do that, and it would be nice if we even have a bit more than expected.
But so many of our expenses are - or will be - discretionary, and that means not just "if/whether" we spend on Category X, but also "how much" we spend that way. Will we take fewer or shorter or less expensive vacations? Or fewer AND shorter...?

Medical care is perhaps the only category where we do not "budget" or "try to save". That doesn't mean that for each/every hospital stay we get 3 shifts of private duty nurses to sit by our side the entire time, but IF there were to be a need (and there was, twice), we'd do that, for a short time, while it was indeed warranted.

We have had very privileged lives, for the most part, and both of us came from *really* modest backgrounds.
We could return to that if necessary, and still be quite comfortable.

But we wouldn't wait until we thought that "$1 left" was fast approaching.
I suspect many here would be similar, regardless of what "the models showed we could spend"...

RM
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by TheTimeLord » Tue Feb 18, 2020 5:33 pm

Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
You can't be serious. I'll pass on the fear and trembling if you don't mind.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 5:33 pm

Thesaints wrote:
Tue Feb 18, 2020 4:44 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:38 pm
What about the historic periods where real bond yields were zero or negative?
Only short periods, far and few between. These yields are here to stay.
Out of curiosity, are you aware that the inflation-adjusted annualized return of intermediate-term Treasuries from 1900-1981 was only .4%?

Data: Simba backtesting spreadsheet
“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: 4% SWR: It is not a rule and it is not safe (anymore).

Post by LilyFleur » Tue Feb 18, 2020 5:36 pm

FactualFran wrote:
Tue Feb 18, 2020 5:24 pm
Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.
Empirical studies behind a Safe Withdrawal Rate of 4% used total returns, not only yield. Even with the low bond yields during the past few years, the annual total returns of the Vanguard Wellington fund (about 2/3 stocks and 1/3 bonds) has supported an initial withdrawal rate of more than 4.0% for all recent starting years while leaving an end of 2019 balance of at least the starting balance adjusted for inflation.
That is similar to what my Schwab fiduciary guy told me. He ran two Monte Carlo simulations so I can plan my spending with my heirs in mind.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by LilyFleur » Tue Feb 18, 2020 5:46 pm

willthrill81 wrote:
Tue Feb 18, 2020 5:20 pm
LilyFleur wrote:
Tue Feb 18, 2020 5:16 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:56 pm
TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance.
Which is what everyone else does, especially when the market tanks.

Does anyone really think that any sane human being will withdraw the same inflation-adjusted dollar amount from their portfolio for decades without even looking at what their portfolio is doing?

The SWR concept is useful in that it demonstrates how much one needed to have saved in order to have 'enough' for a 30 year retirement with a very high degree of historical safety. In that regard, it's still fine, but it's not a withdrawal plan and should not be criticized as such.
"sane human being" = a smart Boglehead I think is what you mean.
willthrill81, remember that our Boglehead community is filled with people who are intelligent, hard working, and strategic and disciplined in our money management. Not your average bear. I would venture that MOST folks in the general population couldn't even tell you what SWR stands for, much less explain it.
But they don't have to know it. Several recent studies have found that most retirees do not deplete their portfolios at all. Those with the wherewithal to build those portfolios in the first place seem highly likley to intuitively understand that it's not wise to to blindly spend from one's portfolio.

Seriously, I've never even heard of a rumor of anyone who actually used or planned on strictly following the '4% rule of thumb'.
Maybe my comment was a bit off topic, but my point was: you--and most Bogleheads--exist in a bubble that is discrete from the general population. Just look at the average amount of savings most Americans have. Your comment is directed at retirees with portfolios. There are plenty of Americans subsisting on social security and the generosity of their children that we never see or hear about in our daily "bubbles." The whole idea of a 4% SWR is based on the idea of a having a portfolio in the first place. I feel grateful to be here, to have the time and financial security to be retired fairly early and to be working part-time so as to push back when I have to start withdrawing from my portfolio. Sometimes I think we get all wound up here about problems that most of the population only has in their dreams. Really, if one has a portfolio, one doesn't really need to get all excited about the SWR. You are right, it's not really a problem for Bogleheads. Strategy is good, irrational fear is not necessary.

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Thesaints
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 5:48 pm

willthrill81 wrote:
Tue Feb 18, 2020 5:33 pm
Thesaints wrote:
Tue Feb 18, 2020 4:44 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:38 pm
What about the historic periods where real bond yields were zero or negative?
Only short periods, far and few between. These yields are here to stay.
Out of curiosity, are you aware that the inflation-adjusted annualized return of intermediate-term Treasuries from 1900-1981 was only .4%?

Data: Simba backtesting spreadsheet
If so, that's only the average over those 80 years dominate by a couple of extreme and very short periods. Also, I would question why "IT treasuries" are the benchmark for "bonds return".

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Thesaints
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 5:49 pm

LilyFleur wrote:
Tue Feb 18, 2020 5:36 pm
That is similar to what my Schwab fiduciary guy told me. He ran two Monte Carlo simulations so I can plan my spending with my heirs in mind.
Yep. The montecarlo data is all in the past...

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by rai » Tue Feb 18, 2020 5:49 pm

TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance. I didn’t realize that once you program “4.00%” into the SWR generator it was going to spit out the same amount every year, rain or shine. I feel so hopeless now. :(
Exactly. Because look at FireCalc you’ll find a bunch of strands in the middle (good) a few up in the stratosphere like $50MM ending and a few where the portfolio doesn’t last. Nothing to say you can’t spend less if it looks not great.

But if you lock into 2-3% you’ll just have way more of those strands where you end up with $50MM+++
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 5:50 pm

LilyFleur wrote:
Tue Feb 18, 2020 5:46 pm
willthrill81 wrote:
Tue Feb 18, 2020 5:20 pm
LilyFleur wrote:
Tue Feb 18, 2020 5:16 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:56 pm
TropikThunder wrote:
Tue Feb 18, 2020 4:49 pm
Too bad you can’t adjust your spending rate to respond to market performance.
Which is what everyone else does, especially when the market tanks.

Does anyone really think that any sane human being will withdraw the same inflation-adjusted dollar amount from their portfolio for decades without even looking at what their portfolio is doing?

The SWR concept is useful in that it demonstrates how much one needed to have saved in order to have 'enough' for a 30 year retirement with a very high degree of historical safety. In that regard, it's still fine, but it's not a withdrawal plan and should not be criticized as such.
"sane human being" = a smart Boglehead I think is what you mean.
willthrill81, remember that our Boglehead community is filled with people who are intelligent, hard working, and strategic and disciplined in our money management. Not your average bear. I would venture that MOST folks in the general population couldn't even tell you what SWR stands for, much less explain it.
But they don't have to know it. Several recent studies have found that most retirees do not deplete their portfolios at all. Those with the wherewithal to build those portfolios in the first place seem highly likley to intuitively understand that it's not wise to to blindly spend from one's portfolio.

Seriously, I've never even heard of a rumor of anyone who actually used or planned on strictly following the '4% rule of thumb'.
Maybe my comment was a bit off topic, but my point was: you--and most Bogleheads--exist in a bubble that is discrete from the general population. Just look at the average amount of savings most Americans have. Your comment is directed at retirees with portfolios. There are plenty of Americans subsisting on social security and the generosity of their children that we never see or hear about in our daily "bubbles." The whole idea of a 4% SWR is based on the idea of a having a portfolio in the first place. I feel grateful to be here, to have the time and financial security to be retired fairly early and to be working part-time so as to push back when I have to start withdrawing from my portfolio. Sometimes I think we get all wound up here about problems that most of the population only has in their dreams. Really, if one has a portfolio, one doesn't really need to get all excited about the SWR. You are right, it's not really a problem for Bogleheads. Strategy is good, irrational fear is not necessary.
100% agree.

My MiL has been living on SS benefits of about $1.4k/month for the last 15 years quite happily; living in a LCOL area, owning her home outright, and being very frugal have enabled this. She's dipped into her savings only occasionally, mostly when she travels to see family, which isn't often.
“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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Thesaints
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 5:53 pm

Normchad wrote:
Tue Feb 18, 2020 5:29 pm
I’m not swayed. I’m all aboard the 4% train.

I trust past history far more than future prognostications. In order for this to fail, my 30 years has to be worse than the worst 30 years we have ever experienced, ever. I’m willing to take that bet.

Of course II could adjust spending if I needed to. There is a far greater chance that I would increase spending, rather than decrease it.

4% would have worked in every rolling 30 year period, ever. Including the gloomiest and doomiest. Including the Cold War, stagflation, etc.

Why is everybody sure the next 30 years willl be the worst ever?
Because bonds yield is the lowest ever and it cannot go up since it would almost but bankrupt a dozen of Western democracies.
It is the natural evolution of mature capital markets in a world where wars have been banned: there is plenty of available capital and it can't go anywhere else.

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 5:54 pm

Thesaints wrote:
Tue Feb 18, 2020 5:48 pm
willthrill81 wrote:
Tue Feb 18, 2020 5:33 pm
Thesaints wrote:
Tue Feb 18, 2020 4:44 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:38 pm
What about the historic periods where real bond yields were zero or negative?
Only short periods, far and few between. These yields are here to stay.
Out of curiosity, are you aware that the inflation-adjusted annualized return of intermediate-term Treasuries from 1900-1981 was only .4%?

Data: Simba backtesting spreadsheet
If so, that's only the average over those 80 years dominate by a couple of extreme and very short periods. Also, I would question why "IT treasuries" are the benchmark for "bonds return".
I have no idea what you're referring to in the first sentence. If what you say is true and bond returns were very 'lumpy' during this 82 year period, the fact that the '4% rule' (or 3.8%, which has somehow gotten rounded up) worked for all 30 year periods over it shouldn't cause alarm with real bond yields being close to zero right now.

The point remains that high bond yields have definitively not been necessary for the '4% rule' to succeed.

Intermediate-term Treasuries have been shown to be a good proxy for TBM returns.
“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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Thesaints
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Thesaints » Tue Feb 18, 2020 5:54 pm

willthrill81 wrote:
Tue Feb 18, 2020 5:50 pm
My MiL has been living on SS benefits of about $1.4k/month for the last 15 years quite happily; living in a LCOL area, owning her home outright, and being very frugal have enabled this. She's dipped into her savings only occasionally, mostly when she travels to see family, which isn't often.
Those who don't spend don't need any money. They don't tend to have the most enjoyable lifestyles, tho.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Normchad » Tue Feb 18, 2020 5:56 pm

I hope to be in a world in which wars have been banned.

30 years is a long time. I’m betting they won’t be worse than the 30 worst we’ve ever had.

If I’m wrong, I’ll be eating cat food. But also if I’m wrong, no amount of planning or saving would prevent me from needing to eat cat food.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by MathWizard » Tue Feb 18, 2020 6:04 pm

Read ye and tremble!
is not a useful point of action.

Do you have a useful alternative to use 4% SWR in planning?

I don't plan to die at my desk, and
I don't plan to be the richest person in the graveyard.

By the way, my bond funds are doing well. Aren't yours?

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Trader Joe » Tue Feb 18, 2020 6:05 pm

Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
"4% SWR: It is not a rule and it is not safe (anymore)."

For myself, I am more than comfortable with a 4% safe withdrawal rate.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by EddyB » Tue Feb 18, 2020 6:05 pm

willthrill81 wrote:
Tue Feb 18, 2020 5:54 pm
Thesaints wrote:
Tue Feb 18, 2020 5:48 pm
willthrill81 wrote:
Tue Feb 18, 2020 5:33 pm
Thesaints wrote:
Tue Feb 18, 2020 4:44 pm
willthrill81 wrote:
Tue Feb 18, 2020 4:38 pm
What about the historic periods where real bond yields were zero or negative?
Only short periods, far and few between. These yields are here to stay.
Out of curiosity, are you aware that the inflation-adjusted annualized return of intermediate-term Treasuries from 1900-1981 was only .4%?

Data: Simba backtesting spreadsheet
If so, that's only the average over those 80 years dominate by a couple of extreme and very short periods. Also, I would question why "IT treasuries" are the benchmark for "bonds return".
I have no idea what you're referring to in the first sentence. If what you say is true and bond returns were very 'lumpy' during this 82 year period, the fact that the '4% rule' (or 3.8%, which has somehow gotten rounded up) worked for all 30 year periods over it shouldn't cause alarm with real bond yields being close to zero right now.

The point remains that high bond yields have definitively not been necessary for the '4% rule' to succeed.

Intermediate-term Treasuries have been shown to be a good proxy for TBM returns.
Didn't you guys just do this in the fall? History hasn't meaningfully changed, and the argument Thesaints makes is still pure conjecture.

yohac
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by yohac » Tue Feb 18, 2020 6:06 pm

To me the "4% rule" has only ever meant two things: 1) don't even think about retiring until you've saved 25x expenses, and 2) even in retirement, you need a certain percentage in stocks.

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 6:07 pm

Thesaints wrote:
Tue Feb 18, 2020 5:53 pm
Because bonds yield is the lowest ever...
That is false. Real bond yields have been below zero before.
“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: 4% SWR: It is not a rule and it is not safe (anymore).

Post by konic » Tue Feb 18, 2020 6:08 pm

Did we really need another thread on this tired and beaten to death topic? :oops:

Everyone of these ‘4%’ rule topics devolves into a partisan bickering with all the usual suspects arguing past each other on why the other side is mistaken.

Let’s move on to better topics. This forum is getting too repetitive and that too with the same set of people getting involved in such repetition.

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by LilyFleur » Tue Feb 18, 2020 6:09 pm

Normchad wrote:
Tue Feb 18, 2020 5:56 pm
I hope to be in a world in which wars have been banned.

30 years is a long time. I’m betting they won’t be worse than the 30 worst we’ve ever had.

If I’m wrong, I’ll be eating cat food. But also if I’m wrong, no amount of planning or saving would prevent me from needing to eat cat food.
If Bogleheads are ever eating cat food, the future is dystopian, indeed.

But I think OP is focused on dystopia.

willthrill81's MIL owns her own home. Lots of people have it a lot worse. The ability to be content and frugal is a great legacy for her children and grandchildren.

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TheTimeLord
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by TheTimeLord » Tue Feb 18, 2020 6:09 pm

TheTimeLord wrote:
Tue Feb 18, 2020 5:21 pm
Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
Humor me, what is the real annual rate of return you need for the 4% rule of thumb to work for a 30 year retirement? Remember success is defined as having 0 or more dollars at the end of 30 years.
Can someone help with this?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 6:10 pm

TheTimeLord wrote:
Tue Feb 18, 2020 6:09 pm
TheTimeLord wrote:
Tue Feb 18, 2020 5:21 pm
Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
Humor me, what is the real annual rate of return you need for the 4% rule of thumb to work for a 30 year retirement? Remember success is defined as having 0 or more dollars at the end of 30 years.
Can someone help with this?
With zero volatility, 1.22% real returns guarantee that the '4% rule' works (i.e. full capital depletion).
“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

Mr. Rumples
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Mr. Rumples » Tue Feb 18, 2020 6:12 pm

I increased my withdrawal rate from 2% of balance each year to 3%, that seems prudent. Four % is fine and dandy, but as a bit of a history nut, that data only goes back so far. I live in a state ravaged by a rebellion in 1676, a Revolution in 1776, a British invasion in the War of 1812 and of course, the Civil War. This doesn't include countless panics, more than one depression and so forth. There is no set formula for me other than prudence and I might still be wrong.

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 6:15 pm

Mr. Rumples wrote:
Tue Feb 18, 2020 6:12 pm
I increased my withdrawal rate from 2% of balance each year to 3%, but that's as far as I will go. Four % is fine and dandy, but as a bit of a history nut, that data only goes back so far. I live in a state ravaged by a rebellion in 1676, a Revolution in 1776, a British invasion in the War of 1812 and of course, the Civil War. This doesn't include countless panics, more than one depression and so forth. There is no set formula for me other than prudence.
You're not talking about the '4% rule'. You're talking about a percentage of the portfolio being withdrawn each year. That's very different.

If you're withdrawing a percentage of the balance each year, then the risk of completely depleting your portfolio is mathematically zero. But even if you wanted to at least maintain your starting capital over the long-term, 4% of the portfolio's balance each year is a fine way to go.
“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: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Mr. Rumples » Tue Feb 18, 2020 6:17 pm

True, my apologies.

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TheTimeLord
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by TheTimeLord » Tue Feb 18, 2020 6:20 pm

willthrill81 wrote:
Tue Feb 18, 2020 6:10 pm
TheTimeLord wrote:
Tue Feb 18, 2020 6:09 pm
TheTimeLord wrote:
Tue Feb 18, 2020 5:21 pm
Thesaints wrote:
Tue Feb 18, 2020 4:35 pm
As I have been posting for a while, attracting all kind of criticism, in an environment characterized by historically extremely low bond yields, all the rather empirical arguments in defense of a sustainable 4% withdrawal kind of go out of the window. In order to support total portfolio yield one will have to increase allocation to stocks, which in turn increases portfolio volatility, which in turn increases early depletion risk during a constant withdrawal phase.

Read ye and tremble!
https://www.onefpa.org/journal/Pages/Th ... World.aspx
Humor me, what is the real annual rate of return you need for the 4% rule of thumb to work for a 30 year retirement? Remember success is defined as having 0 or more dollars at the end of 30 years.
Can someone help with this?
With zero volatility, 1.22% real returns guarantee that the '4% rule' works (i.e. full capital depletion).
Thank you. Even knowing this I somehow manage not to tremble.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

Normchad
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Normchad » Tue Feb 18, 2020 6:22 pm

Just imagine what would happen if you made 4% real......

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 6:25 pm

Normchad wrote:
Tue Feb 18, 2020 6:22 pm
Just imagine what would happen if you made 4% real......
Assuming no volatility, you could start withdrawing 5.78% of the initial balance.
“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: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Unladen_Swallow » Tue Feb 18, 2020 6:27 pm

In the name of science, I will tremble.

If anything changes, hope someone let's me know. Lest I tremble away...
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by FactualFran » Tue Feb 18, 2020 6:28 pm

willthrill81 wrote:
Tue Feb 18, 2020 6:10 pm
With zero volatility, 1.22% real returns guarantee that the '4% rule' works (i.e. full capital depletion).
It is 1.22% if one gets an interest free loan for up to 12 months (the withdrawal for a year is made at the end of the year). For those who cannot get an interest free loan for up to 12 months, a real return of 1.31% each year is needed (the withdrawal for a year is taken at the end of the previous year).

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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by Unladen_Swallow » Tue Feb 18, 2020 6:32 pm

FactualFran wrote:
Tue Feb 18, 2020 6:28 pm
willthrill81 wrote:
Tue Feb 18, 2020 6:10 pm
With zero volatility, 1.22% real returns guarantee that the '4% rule' works (i.e. full capital depletion).
It is 1.22% if one gets an interest free loan for up to 12 months (the withdrawal for a year is made at the end of the year). For those who cannot get an interest free loan for up to 12 months, a real return of 1.31% each year is needed (the withdrawal for a year is taken at the end of the previous year).
Everything in CDs even at today's rates would suffice. No?
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

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willthrill81
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Re: 4% SWR: It is not a rule and it is not safe (anymore).

Post by willthrill81 » Tue Feb 18, 2020 6:33 pm

FactualFran wrote:
Tue Feb 18, 2020 6:28 pm
willthrill81 wrote:
Tue Feb 18, 2020 6:10 pm
With zero volatility, 1.22% real returns guarantee that the '4% rule' works (i.e. full capital depletion).
It is 1.22% if one gets an interest free loan for up to 12 months (the withdrawal for a year is made at the end of the year). For those who cannot get an interest free loan for up to 12 months, a real return of 1.31% each year is needed (the withdrawal for a year is taken at the end of the previous year).
Yes, it depends on whether a withdrawal is made immediately at the point of retirement or not.
“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: 4% SWR: It is not a rule and it is not safe (anymore).

Post by MoneyMarathon » Tue Feb 18, 2020 6:36 pm

willthrill81 wrote:
Tue Feb 18, 2020 4:56 pm
Does anyone really think that any sane human being will withdraw the same inflation-adjusted dollar amount from their portfolio for decades without even looking at what their portfolio is doing?
Maybe people who aren't on the edge of failure (who will leave some left over regardless of market performance).

IMO, continuing to consume through a downturn is not only a comfortable way to live, it's also highly ethical. In the sense of that which tends to the greater good if others in the same situation were to do it. It's not much but one's own spending helps the economy, and people with access to wealth can be better situated to weather a downturn.

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