The 0.5% Rule (SWR) [Safe Withdrawal Rate]

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CorduroyGivenToFly
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The 0.5% Rule (SWR) [Safe Withdrawal Rate]

Post by CorduroyGivenToFly »

https://www.financialsamurai.com/proper ... awal-rate/

Financial Samurai suggests the new safe withdrawal rate should
Be 0.5%. Seems like he’s exaggerating, but his point has to do with the expected rates on the 10-year now vs. when the Trinity study was completed. Does this analysis have any merit?
Last edited by CorduroyGivenToFly on Sun Aug 16, 2020 12:02 am, edited 1 time in total.
ruud
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Re: The 0.5% Rule (SWR)

Post by ruud »

If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
.
02nz
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Re: The 0.5% Rule (SWR)

Post by 02nz »

Unless you're in the top 0.5% of savers, that website will make you feel like you're way behind. What he writes isn't remotely realistic for the vast majority of people, even on this board.
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knpstr
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Re: The 0.5% Rule (SWR)

Post by knpstr »

why not 0.01%? If SWR is 0.5% it means you virtually can't retire via stocks/bonds. Even a modest $40,000/yr would require an $8,000,000 nest egg.

$8,000,000 in paid off RE would give an income of $400,000/yr (using very conservative 5% cap).

So if these "ultra-low" SWR are to be taken seriously, alternative investments should also be taken seriously.
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livesoft
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Re: The 0.5% Rule (SWR)

Post by livesoft »

CorduroyGivenToFly wrote: Sat Aug 15, 2020 5:48 pm https://www.financialsamurai.com/proper ... awal-rate/

Financial Samurai suggests the new safe withdrawal rate should
Be 0.5%. Seems like he’s exaggerating, but his point has to do with the expected rates on then 10-year now vs. when the Trinity study was completed. Does this analysis have any merit?
Didn't click; won't click. I can say it does have merit to generate page views and the spread of the link.
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Themiscyra
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Re: The 0.5% Rule (SWR)

Post by Themiscyra »

If I read that blog post correctly, Financial Samurai doesn’t ever want to spend down any of his nest egg ever. He wants to only spend the passive income he earns from it each year. I don’t think that makes sense for most people. Spending down some of the money one has saved is okay, I think. The 0.5% rule puts the goal out of reach for too many people too.
oldfort
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Re: The 0.5% Rule (SWR)

Post by oldfort »

ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
oldfort
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Re: The 0.5% Rule (SWR)

Post by oldfort »

It might not be crazy if you wanted to be 100% bonds and have a 50+ year FIRE retirement. Ignoring bequest motives, it would be crazy conservative for most people with a decent allocation to stocks and retiring at 60+.
Broken Man 1999
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Re: The 0.5% Rule (SWR)

Post by Broken Man 1999 »

Themiscyra wrote: Sat Aug 15, 2020 6:09 pm If I read that blog post correctly, Financial Samurai doesn’t ever want to spend down any of his nest egg ever. He wants to only spend the passive income he earns from it each year. I don’t think that makes sense for most people. Spending down some of the money one has saved is okay, I think. The 0.5% rule puts the goal out of reach for too many people too.
Indeed!

From the link:

"...But I also believe the ideal withdrawal rate in retirement doesn’t touch principal so long as your estate is below the estate tax threshold..."

What a load of rubbish!

Broken Man 1999
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Northern Flicker
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Re: The 0.5% Rule (SWR)

Post by Northern Flicker »

oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
Risk is not a guarantor of return.
oldfort
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Re: The 0.5% Rule (SWR)

Post by oldfort »

Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
marcopolo
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Re: The 0.5% Rule (SWR)

Post by marcopolo »

oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
How would taxes eat 1% If you are only spending 0.5%?
That would be some crazy high effective tax rate!
Once in a while you get shown the light, in the strangest of places if you look at it right.
RickyAZ
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Re: The 0.5% Rule (SWR)

Post by RickyAZ »

What's the point? Why even plan if that ends up being the result? It's as ludicrous as Suzy Orman saying you need 6$million to retire. Seriously if you get below 3% then people are just gonna blow it off, spend it all on cruises, claim SS early and hope for the best, move back in with the kids, [political comment removed by admin LadyGeek].
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CorduroyGivenToFly
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Re: The 0.5% Rule (SWR)

Post by CorduroyGivenToFly »

I generally have a lot of respect for this FI blogger and his many ratios and tables and guidelines. I’ve been following him for years. This particular post makes me wonder if he’s out of touch or losing it. But I think his core point on interest rates is a sound one directionally. What would it take for the community to agree on something under 4% for a SWR?
oldfort
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Re: The 0.5% Rule (SWR)

Post by oldfort »

marcopolo wrote: Sat Aug 15, 2020 7:59 pm
oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
How would taxes eat 1% If you are only spending 0.5%?
That would be some crazy high effective tax rate!
Assuming your money is all in taxable accounts, you pay taxes on interest and dividends, even without realizing any capital gains. Actively managed mutual funds can generate a lot of capital gains. Your tax rate is your tax rate on income, not spending.
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physixfan
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Re: The 0.5% Rule (SWR)

Post by physixfan »

I agree that the 4% withdraw rate is a conclusion from the past economical environment and things are different now with such a low bond yield in 2020 and beyond. However, 0.5% withdraw rate is too conservative. If the portfolio is 100% 10-yr treasury bond, then 0.5 withdraw rate is the conclusion. But for a portfolio containing a mix of stock and bond, there is risk premium. In general, I think a 2% withdraw rate is reasonable.
marcopolo
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Re: The 0.5% Rule (SWR)

Post by marcopolo »

oldfort wrote: Sat Aug 15, 2020 8:27 pm
marcopolo wrote: Sat Aug 15, 2020 7:59 pm
oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm

200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
How would taxes eat 1% If you are only spending 0.5%?
That would be some crazy high effective tax rate!
Assuming your money is all in taxable accounts, you pay taxes on interest and dividends, even without realizing any capital gains. Actively managed mutual funds can generate a lot of capital gains. Your tax rate is your tax rate on income, not spending.

His whole point was that yields are so low that you can afford to only spend 0.5%.

If your portfolio is generating enough yield to owe 1% in taxes, then you could certainly afford to spend more, and his whole premise becomes even more silly than it already is.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: The 0.5% Rule (SWR)

Post by AlohaJoe »

CorduroyGivenToFly wrote: Sat Aug 15, 2020 8:19 pm I generally have a lot of respect for this FI blogger and his many ratios and tables and guidelines. I’ve been following him for years. This particular post makes me wonder if he’s out of touch or losing it.
He has been out of touch for a long time. He caters to an audience that is extraordinarily anxious about money. No amount of money will ever make them feel secure because they can always imagine an even worse worst case scenario. He had a post a few years ago about how having a family business is a good plan because it means that if there's a massive recession in 20 years at the very instant when his now infant son graduates university he'll be able to make him a Chief Marketing Officer and pad his CV instead of having him be unemployed. So he's going to try to keep his blog running for 20 years Just In Case that happens. And the comments were full of "great idea" and "I'm doing that too".

It is basically the complete opposite of Jack Bogle's Enough. Nothing will ever be enough for FinancialSamurai.
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Re: The 0.5% Rule (SWR)

Post by jarjarM »

While I think 4% rule, which is tested against one of the best performing stock market of the last 150 years in the world, is a bit aggressive, 0.5% is ludicrous. No one, except the top 0.1%, can retire.
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1210sda
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Re: The 0.5% Rule (SWR)

Post by 1210sda »

1. So, the Trinity study looked at bonds (along with stocks) from 1925 to 1995. This guy looked at current rates and decides that's where they'll be for who knows how many years.

2. He feels that if you can generate 5% return, you'll be ok spending 4%. In fact, you'll have 1% left over.(reminds me of some famous personality who says if you earn 12% return and inflation is at 4%, you can spend 8%).

3. i guess he's disregarding sequence of return risk. Maybe at .7% return sorr is not an issue. Confused!
Last edited by 1210sda on Sat Aug 15, 2020 9:35 pm, edited 1 time in total.
Samosa22
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Re: The 0.5% Rule (SWR)

Post by Samosa22 »

0.5% is okey but still a bit risky. The Safest Withdrawal Rate is 0.00%.
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000
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Re: The 0.5% Rule (SWR)

Post by 000 »

It is needless hyperbole.

However advocating the 4% rule is even more dangerous.

IMO 2% is closer to "conservative, safe, but not absurd".
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Re: The 0.5% Rule (SWR)

Post by willthrill81 »

When the author, Sam Dogen, said not long ago that his family could not live comfortably in San Francisco on $250k of annual income, more than double that area's median household income and about four times the nation's median household income, it became clear to me that his advice is no longer applicable to 99.999% of the population, myself included.
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Re: The 0.5% Rule (SWR)

Post by knpstr »

marcopolo wrote: Sat Aug 15, 2020 7:59 pm
oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
How would taxes eat 1% If you are only spending 0.5%?
That would be some crazy high effective tax rate!
Hahaha really?
You guys think you have to pay tax on cash that you save in your house? He said if you "just put it under your mattress" Meaning it is all cashed out/taxed. It isn't getting taxed again.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
000
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Re: The 0.5% Rule (SWR)

Post by 000 »

knpstr wrote: Sat Aug 15, 2020 9:39 pm Hahaha really?
You guys think you have to pay tax on cash that you save in your house? He said if you "just put it under your mattress" Meaning it is all cashed out/taxed. It isn't getting taxed again.
Inflation is a tax. And it will be taxed when it is used (sales/property/etc taxes).
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Re: The 0.5% Rule (SWR)

Post by oldfort »

knpstr wrote: Sat Aug 15, 2020 9:39 pm
marcopolo wrote: Sat Aug 15, 2020 7:59 pm
oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm

200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
How would taxes eat 1% If you are only spending 0.5%?
That would be some crazy high effective tax rate!
Hahaha really?
You guys think you have to pay tax on cash that you save in your house? He said if you "just put it under your mattress" Meaning it is all cashed out/taxed. It isn't getting taxed again.
Cash stuck literally under a mattress is a stupid hypo. Unless you're a drug dealer, no one is going to store their money this way. The only situation where this might make sense for a normal person is if you assume inflation will be negative indefinitely.
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knpstr
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Re: The 0.5% Rule (SWR)

Post by knpstr »

oldfort wrote: Sat Aug 15, 2020 9:46 pm Cash stuck literally under a mattress is a stupid hypo. Unless you're a drug dealer, no one is going to store their money this way. The only situation where this might make sense for a normal person is if you assume inflation will be negative indefinitely.
That was the point.
You know what else is "stupid hypo"? A 0.5% SWR
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sfnerd
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Re: The 0.5% Rule (SWR)

Post by sfnerd »

CorduroyGivenToFly wrote: Sat Aug 15, 2020 8:19 pm I generally have a lot of respect for this FI blogger and his many ratios and tables and guidelines. I’ve been following him for years. This particular post makes me wonder if he’s out of touch or losing it. But I think his core point on interest rates is a sound one directionally. What would it take for the community to agree on something under 4% for a SWR?
We would probably accept a lower SWR when evidence shows that it is warranted. If you look at past threads, there is plenty of discussion on low interest rate environments, and how they haven't disrupted a 4% SWR in the past (kind of the opposite).

Even if you accept a lower SWR, it would be just slightly south of 4% based on the most conservative scenarios. Even for extreme early retirement the lowest the math shows is higher than 3%.

If you believe that it's lower than that, you might as well plan to work your entire life, and give up on investing.
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knpstr
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Re: The 0.5% Rule (SWR)

Post by knpstr »

000 wrote: Sat Aug 15, 2020 9:40 pm
knpstr wrote: Sat Aug 15, 2020 9:39 pm Hahaha really?
You guys think you have to pay tax on cash that you save in your house? He said if you "just put it under your mattress" Meaning it is all cashed out/taxed. It isn't getting taxed again.
Inflation is a tax. And it will be taxed when it is used (sales/property/etc taxes).
Thanks. The original post included something about inflation. (poster must have astutely anticipated people having a fuss about inflation).
And not sure about you, but I count my expense including tax.
Too much work to figure out my expenses before sales tax then add sales tax back in, hahaha

Obviously people don't "put their retirement under their mattress". Just as obviously, a 0.5% SWR is absurd.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
marcopolo
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Re: The 0.5% Rule (SWR)

Post by marcopolo »

sfnerd wrote: Sat Aug 15, 2020 9:59 pm
CorduroyGivenToFly wrote: Sat Aug 15, 2020 8:19 pm I generally have a lot of respect for this FI blogger and his many ratios and tables and guidelines. I’ve been following him for years. This particular post makes me wonder if he’s out of touch or losing it. But I think his core point on interest rates is a sound one directionally. What would it take for the community to agree on something under 4% for a SWR?
We would probably accept a lower SWR when evidence shows that it is warranted. If you look at past threads, there is plenty of discussion on low interest rate environments, and how they haven't disrupted a 4% SWR in the past (kind of the opposite).

Even if you accept a lower SWR, it would be just slightly south of 4% based on the most conservative scenarios. Even for extreme early retirement the lowest the math shows is higher than 3%.

If you believe that it's lower than that, you might as well plan to work your entire life, and give up on investing.
While I generally agree with your point, and think many here are overly cautious, I am curious what "math shows" that the lowest SWR is higher than 3%? I would love for that to be true, but I am not aware of any such certainty.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: The 0.5% Rule (SWR)

Post by 000 »

willthrill81 wrote: Sat Aug 15, 2020 9:38 pm When the author, Sam Dogen, said not long ago that his family could not live comfortably in San Francisco on $250k of annual income, more than double that area's median household income and about four times the nation's median household income, it became clear to me that his advice is no longer applicable to 99.999% of the population, myself included.
So the author's minimum goal is (250000 * 0.5) / 0.005 == $25 Million. (Assuming 50% tax rate).

Yeah. I would say that goal does not apply to me.
Last edited by 000 on Sat Aug 15, 2020 10:07 pm, edited 1 time in total.
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Re: The 0.5% Rule (SWR)

Post by Northern Flicker »

oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
You can do it the same way you ignore your grocery bill when calculating how many withdrawals are supported if you use the initial 0.5% withdrawal with no inflation correction and no portfolio return. Taxes are an expense. Moreover, my mattress does not generate capital gains or dividends. It will generate 200 fixed size withdrawals each 0.5% of the original principal. Whether or not that can cover your costs is a separate matter.

But the point was to demonstrate how ridiculously conservative 0.5% SWR would be, not to propose a planning tool or investment and withdrawal strategy.
Last edited by Northern Flicker on Sun Aug 16, 2020 5:47 pm, edited 1 time in total.
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Re: The 0.5% Rule (SWR)

Post by knpstr »

Northern Flicker wrote: Sat Aug 15, 2020 10:06 pm
oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm
ruud wrote: Sat Aug 15, 2020 5:56 pm If you stick the money under a mattress, a 0.5% withdrawal rate lasts for 200 years. Even if you account for inflation, it sounds overly conservative.
200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
You can do it the same way you ignore your grocery bill when calculating how many withdrawals are supported if you use the initial 0.5% withdrawal with no inflation correction and no portfolio return. Taxes are an expense. Moreover, my mattress does not generate capital gains or dividends. It will generate 200 fixed size withdrawals each 0.5% of the original principal. Whether of not that can cover your costs is a separate matter.

But the point was to demonstrate how ridiculously conservative 0.5% SWR would be, not to propose a planning tool or investment and withdrawal strategy.
Interestingly those complaining about accounting for "taxes and inflation" have no complaint about the proposed 200 year retirement. Hahaha
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
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Re: The 0.5% Rule (SWR)

Post by willthrill81 »

sfnerd wrote: Sat Aug 15, 2020 9:59 pm
CorduroyGivenToFly wrote: Sat Aug 15, 2020 8:19 pm I generally have a lot of respect for this FI blogger and his many ratios and tables and guidelines. I’ve been following him for years. This particular post makes me wonder if he’s out of touch or losing it. But I think his core point on interest rates is a sound one directionally. What would it take for the community to agree on something under 4% for a SWR?
We would probably accept a lower SWR when evidence shows that it is warranted. If you look at past threads, there is plenty of discussion on low interest rate environments, and how they haven't disrupted a 4% SWR in the past (kind of the opposite).

Even if you accept a lower SWR, it would be just slightly south of 4% based on the most conservative scenarios. Even for extreme early retirement the lowest the math shows is higher than 3%.

If you believe that it's lower than that, you might as well plan to work your entire life, and give up on investing.
That's pretty much what Suze Orman has been recommending for the last two years. :oops:
“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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firebirdparts
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Re: The 0.5% Rule (SWR)

Post by firebirdparts »

knpstr wrote: Sat Aug 15, 2020 10:08 pm Interestingly those complaining about accounting for "taxes and inflation" have no complaint about the proposed 200 year retirement. Hahaha
What is wrong with people?
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crswvc
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The 0.5% Rule (SWR)

Post by crswvc »

marcopolo wrote: Sat Aug 15, 2020 7:59 pm How would taxes eat 1% If you are only spending 0.5%?
That would be some crazy high effective tax rate!
Welcome to the world of the wealth tax :annoyed
Last edited by crswvc on Sat Aug 15, 2020 10:38 pm, edited 1 time in total.
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2pedals
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Re: The 0.5% Rule (SWR)

Post by 2pedals »

0.5% as the new 4% SWR a bunch of malarkey. 200x spending is morbidly obese FIRE.
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Re: The 0.5% Rule (SWR)

Post by willthrill81 »

knpstr wrote: Sat Aug 15, 2020 10:08 pm
Northern Flicker wrote: Sat Aug 15, 2020 10:06 pm
oldfort wrote: Sat Aug 15, 2020 7:22 pm
Northern Flicker wrote: Sat Aug 15, 2020 7:05 pm
oldfort wrote: Sat Aug 15, 2020 6:14 pm

200 years ignores inflation and taxation.
0.5% annual withdrawal from your mattress lasts 200 years regardless of the fraction of each withdrawal that goes to the govt. The posting did imply that accounting for inflation would shorten the timeframe.
How can you completely ignore taxation? If taxes eat 1% each year, then your effective withdrawal rate is 1.5%: 0.5% to you plus 1% to Uncle Sam.
You can do it the same way you ignore your grocery bill when calculating how many withdrawals are supported if you use the initial 0.5% withdrawal with no inflation correction and no portfolio return. Taxes are an expense. Moreover, my mattress does not generate capital gains or dividends. It will generate 200 fixed size withdrawals each 0.5% of the original principal. Whether of not that can cover your costs is a separate matter.

But the point was to demonstrate how ridiculously conservative 0.5% SWR would be, not to propose a planning tool or investment and withdrawal strategy.
Interestingly those complaining about accounting for "taxes and inflation" have no complaint about the proposed 200 year retirement. Hahaha
That's just the point. A .5% SWR is 200x. Think about that. You need to save 200 times your annual expenses?!? What kind of drivel is that?!? Even with TIPS having a negative real yield, I could buy a TIPS ladder that would take me to age 100 for about 62x, and that's completely disregarding Social Security.
2pedals wrote: Sat Aug 15, 2020 10:38 pm 0.5% as the new 4% SWR a bunch of malarkey. 200x spending is morbidly obese FIRE.
It's like 'I'm so big that I'm my own zip code obese FIRE'.
“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
chinchin
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Re: The 0.5% Rule (SWR)

Post by chinchin »

The thing about FS is you can't take him literally. His point is that if you want yield, you have to go farther out on the risk curve.
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willthrill81
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Re: The 0.5% Rule (SWR)

Post by willthrill81 »

chinchin wrote: Sat Aug 15, 2020 10:56 pm The thing about FS is you can't take him literally. His point is that if you want yield, you have to go farther out on the risk curve.
His argument would have gone a lot farther if he had just said that. But I guess you need extreme hyperbole to get clicks. It's all about the clicks.

And here we've put down those who want to live only on stock dividends. That seems downright brilliant compared to saying that anybody needs 200x to retire early.
“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
Normchad
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Re: The 0.5% Rule (SWR)

Post by Normchad »

Such drivel.

So many people willing to happily say that history has no predictive value and 4% is recklessly spend.

Same crowd absolutely convinced they can correctly predict the future, and it will definitely be worse than any period in the past.
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market timer
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Re: The 0.5% Rule (SWR)

Post by market timer »

He has a point if he plans to live forever. It is rare for any retiree to require even a 40-year plan. With real rates slightly negative, and factoring in tax, you could support a 40-year retirement with a 2% SWR completely risk free.

Longer lived institutions, like university endowments, indeed have a much lower SWR today than at any time in generations. I'd estimate the SWR for perpetual portfolios to have declined by a similar amount as the yield on 30-year TIPS, i.e., from 2% historically to -0.3% today.
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Re: The 0.5% Rule (SWR)

Post by MathIsMyWayr »

willthrill81 wrote: Sat Aug 15, 2020 9:38 pm When the author, Sam Dogen, said not long ago that his family could not live comfortably in San Francisco on $250k of annual income, more than double that area's median household income and about four times the nation's median household income, it became clear to me that his advice is no longer applicable to 99.999% of the population, myself included.
I would not call him out of touch. Unfortunately this is the reality whether you like it or not. Paying mortgage or saving for down payment for a house while paying rent, saving for retirement, saving for kids' college education, and other living expenses burn $250k rather quick in the Bay Area. The key is to "live comfortably." How many of us feel comfortable financially? Even the notion of the majority of general population being finally comfortable is a pipe dream. How many wild animals do not have to worry about their next meal? The whole nature including the human society is built on insecurity. Otherwise, why do we even have to strive for better life?
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willthrill81
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Re: The 0.5% Rule (SWR)

Post by willthrill81 »

MathIsMyWayr wrote: Sat Aug 15, 2020 11:39 pm
willthrill81 wrote: Sat Aug 15, 2020 9:38 pm When the author, Sam Dogen, said not long ago that his family could not live comfortably in San Francisco on $250k of annual income, more than double that area's median household income and about four times the nation's median household income, it became clear to me that his advice is no longer applicable to 99.999% of the population, myself included.
I would not call him out of touch. Unfortunately this is the reality whether you like it or not. Paying mortgage or saving for down payment for a house while paying rent, saving for retirement, saving for kids' college education, and other living expenses burn $250k rather quick in the Bay Area. The key is to "live comfortably." How many of us feel comfortable financially? Even the notion of the majority of general population being finally comfortable is a pipe dream. How many wild animals do not have to worry about their next meal? The whole nature including the human society is built on insecurity. Otherwise, why do we even have to strive for better life?
Sam shouldn't have a mortgage, he's already FI and has no need to save further, and his kids' college tuition is already in hand. I know that the Bay Area is pricey, but anyone who says that they cannot be comfortable spending a quarter of a million a year is, at best, choosing to live in a bubble.

"Enough is as good as a feast."
-English proverb

And personally, I feel very comfortable financially, even though I'm a good dozen years or so away from being FI. I have no clue why you're bringing the general population up. Half of those 65-69 (i.e. of traditional retirement age) don't even have a total net worth equal to what Sam's family spends in a year.
“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
wootwoot
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Re: The 0.5% Rule (SWR)

Post by wootwoot »

Financial Samurai has some interesting ideas about finance. I've found that they seem to apply to his own personal situation and don't work for 99% of individuals. He is really out of touch with the way most people live.
Last edited by wootwoot on Sun Aug 16, 2020 12:09 am, edited 1 time in total.
MathIsMyWayr
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Re: The 0.5% Rule (SWR)

Post by MathIsMyWayr »

willthrill81 wrote: Sat Aug 15, 2020 11:48 pm
MathIsMyWayr wrote: Sat Aug 15, 2020 11:39 pm
willthrill81 wrote: Sat Aug 15, 2020 9:38 pm When the author, Sam Dogen, said not long ago that his family could not live comfortably in San Francisco on $250k of annual income, more than double that area's median household income and about four times the nation's median household income, it became clear to me that his advice is no longer applicable to 99.999% of the population, myself included.
I would not call him out of touch. Unfortunately this is the reality whether you like it or not. Paying mortgage or saving for down payment for a house while paying rent, saving for retirement, saving for kids' college education, and other living expenses burn $250k rather quick in the Bay Area. The key is to "live comfortably." How many of us feel comfortable financially? Even the notion of the majority of general population being finally comfortable is a pipe dream. How many wild animals do not have to worry about their next meal? The whole nature including the human society is built on insecurity. Otherwise, why do we even have to strive for better life?
Sam shouldn't have a mortgage, he's already FI and has no need to save further, and his kids' college tuition is already in hand. I know that the Bay Area is pricey, but anyone who says that they cannot be comfortable spending a quarter of a million a year is, at best, choosing to live in a bubble.

"Enough is as good as a feast."
-English proverb

And personally, I feel very comfortable financially, even though I'm a good dozen years or so away from being FI. I have no clue why you're bringing the general population up. Half of those 65-69 (i.e. of traditional retirement age) don't even have a total net worth equal to what Sam's family spends in a year.
Taxes must be over $50k on an income of $250k. Your retirement savings must be higher accordingly. Rents are high, $50k and higher. You also have to save for a down payment for a house. Yes, houses are on the expensive side. They go for 7 figures. An average is meaningless unless it applies to you. Dying on an operating table may be low, but the low probability means nothing if you are of a high risk. I am not denying that an annual income of $250k is decent, but it does not relieve you of a financial concern.
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Re: The 0.5% Rule (SWR)

Post by Ari »

The author failed to take into consideration that in 1998, the S&P 500 returned 28.8%. 2020 YTD, it's only 5.76. This means we must multiply the SWR by a further 0.2%, landing us at 0.1% SWR.
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MathIsMyWayr
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Re: The 0.5% Rule (SWR)

Post by MathIsMyWayr »

Ari wrote: Sun Aug 16, 2020 12:09 am The author failed to take into consideration that in 1998, the S&P 500 returned 28.8%. 2020 YTD, it's only 5.76. This means we must multiply the SWR by a further 0.2%, landing us at 0.1% SWR.
0.2% x 0.5% SWR = 0.001% SWR:confused
Ari
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Re: The 0.5% Rule (SWR)

Post by Ari »

MathIsMyWayr wrote: Sun Aug 16, 2020 12:19 am
Ari wrote: Sun Aug 16, 2020 12:09 am The author failed to take into consideration that in 1998, the S&P 500 returned 28.8%. 2020 YTD, it's only 5.76. This means we must multiply the SWR by a further 0.2%, landing us at 0.1% SWR.
0.2% x 0.5% SWR = 0.001% SWR:confused
My brilliant satire foiled by nonsensical math. Hoist by my own petard.
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Re: The 0.5% Rule (SWR)

Post by ScubaHogg »

000 wrote: Sat Aug 15, 2020 9:35 pm It is needless hyperbole.

However advocating the 4% rule is even more dangerous.

IMO 2% is closer to "conservative, safe, but not absurd".
2% is really low. You could throw it all in TIPS yielding 0% real and it would still last about 50 years. How long do you want it to last?
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