Ben Felix - How to Retire Early (The 4% Rule)

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randomguy
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by randomguy » Sat May 16, 2020 9:19 am

smitcat wrote:
Fri May 15, 2020 2:38 pm


"I expect pretty much everyone goes through life matching their expenses, goals, and aspirations to their resources."
But those expenses do not typically remain the same at 20,30,40,50 etc.

"Most people live on a pretty steady income if they were working. I think they can do the same in retirement."
The comment was couched for someone in their 30's that are projecting their expenses to remain flat and consistent throughout their remaining lifetimes.
Most people don't get huge raises after the initial part of their career. They don't go from making 50k to 100k in real dollars. Yes life changes. That 30 year gets married and has a kid. Their budget goes from spending 10k year on travel, booze and video games to paying for a diapers and house. But that fact they are making 70k from a portfolio instead of 70k from a job doesn't change the fundamental problem of needing to match spending to income.

Most early retiree will have a slowly increasing real spending level as their portfolios grow in real terms. But yes sometimes income will fall. But workers are sometimes laid off. Sometimes you take a job that pays 10% less. And so on. People adapt.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by HomerJ » Sat May 16, 2020 9:21 am

ScubaHogg wrote:
Sat May 16, 2020 8:39 am
willthrill81 wrote:
Fri May 15, 2020 1:19 pm
The 'lean FIRE' crowd could get into trouble with budgeting though. If your annual budget is only $20k, you don't have much room to cut back.
Conversely, in America it is pretty simple generally to get a job that pays $10-20K a year. A lean FIRE person (of which I’m not one) could easily earn upwards of 100% of their budget at almost anytime (short of being infirm). For some reason that fact never gets mentioned when they are being criticized for their WD projections.
Good point
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by ValuationsMatter » Sat May 16, 2020 9:41 am

NoRegret wrote:
Sat May 16, 2020 1:39 am

Let me start by saying that I'm targeting a 3-3.3% WR in my own retirement planning: 40+ year starting at age 56, some years from now. That said I see multiple problems with Backtest driven SWR research.

1. A minor quibble and only tangentially relevant: stock market index returns were not accessible to individual investors for the majority of the backtest period. At best, they were probably getting index - 1.5% per year. (The relevance is that since investors are getting more of the market return, future market returns may be lower.)

2. Another counter factual is that nobody was financing their retirement out of stock market wealth. Pensions were mostly in bonds back then or flush with contributions. DC plans are a modern development and it remains to be seen what happens when the majority of retirees rely on the stock market to fund their living expenses.

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.

While targeting 3-3.3% WR myself, by no means do I think it's iron-clad -- that's why it's only a first order target and I'll have multiple fall backs.

Cheers,
NR
Excellent points. Thank you.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Sat May 16, 2020 9:47 am

ScubaHogg wrote:
Sat May 16, 2020 8:39 am
willthrill81 wrote:
Fri May 15, 2020 1:19 pm
The 'lean FIRE' crowd could get into trouble with budgeting though. If your annual budget is only $20k, you don't have much room to cut back.
Conversely, in America it is pretty simple generally to get a job that pays $10-20K a year. A lean FIRE person (of which I’m not one) could easily earn upwards of 100% of their budget at almost anytime (short of being infirm). For some reason that fact never gets mentioned when they are being criticized for their WD projections.
That's very true. In our state, a full-time minimum wage job will gross almost $30k. So even if this person's spending needs were $60k, such a job would almost (after taxes, which wouldn't be much) enable them to cut their portfolio withdrawals in half. That's a huge boost. However, as Karsten from Early Retirement Now has pointed out, in some historic scenarios, a (former) retiree would have needed such a job for many years.
“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: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Sat May 16, 2020 10:13 am

NoRegret wrote:
Sat May 16, 2020 1:39 am
1. A minor quibble and only tangentially relevant: stock market index returns were not accessible to individual investors for the majority of the backtest period. At best, they were probably getting index - 1.5% per year. (The relevance is that since investors are getting more of the market return, future market returns may be lower.)

2. Another counter factual is that nobody was financing their retirement out of stock market wealth. Pensions were mostly in bonds back then or flush with contributions. DC plans are a modern development and it remains to be seen what happens when the majority of retirees rely on the stock market to fund their living expenses.

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.
1. I agree that that is only tangentially relevant, at most.

2. What people did with money withdrawn from the stock market in years past is completely irrelevant.

3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

Look at the chart below from Michael Kitces. It shows what the 30 year safe withdrawal rates were for all 30 year periods going back to 1871. In the early 1920s, for instance, the SWR was 9% or even higher, but only a decade later it was under 5%. In the mid 1930s it was about 7%, but then it was only 4% in 1937. The point is that the precise sequence of returns is important and varies significantly from one starting year to the next. Observe how many times the SWR varied by 1.5% or more from one starting year to the very next.

Image
https://www.kitces.com/blog/what-return ... ased-upon/

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
“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: Ben Felix - How to Retire Early (The 4% Rule)

Post by EnjoyIt » Sat May 16, 2020 10:21 am

willthrill81 wrote:
Sat May 16, 2020 9:47 am
ScubaHogg wrote:
Sat May 16, 2020 8:39 am
willthrill81 wrote:
Fri May 15, 2020 1:19 pm
The 'lean FIRE' crowd could get into trouble with budgeting though. If your annual budget is only $20k, you don't have much room to cut back.
Conversely, in America it is pretty simple generally to get a job that pays $10-20K a year. A lean FIRE person (of which I’m not one) could easily earn upwards of 100% of their budget at almost anytime (short of being infirm). For some reason that fact never gets mentioned when they are being criticized for their WD projections.
That's very true. In our state, a full-time minimum wage job will gross almost $30k. So even if this person's spending needs were $60k, such a job would almost (after taxes, which wouldn't be much) enable them to cut their portfolio withdrawals in half. That's a huge boost. However, as Karsten from Early Retirement Now has pointed out, in some historic scenarios, a (former) retiree would have needed such a job for many years.
I don't know if this will last, but today I find it relatively easy to get a few thousand a year from bank, brokerage, and credit card bonuses. It's not a ton of money, but someone who spends $30k/yr, an extra $3k-5k is a petty big deal. I'm pretty sure baring COVID, I could probably make a few thousand a year driving for UBER. I also know that many places are hiring right now part time and full time.

Let's look at some math:
$30k a year from a 4% portfolio requires a $750k portfolio. Me personally I would be at 60/40 which means $450k is in equities and $300k in bonds
If we have a 50% equities decline that $450k will be worth $225k.
Add that to the bond portfolio of $300k and the retiree has $525k.
I think many, would agree that 4% withdrawal right after a correction has a higher probable success rate compared to 4% withdrawals prior to said correction.
With that in mind this retiree has $525k and 4% will provide $21k/yr. All they need is to make up the difference which is $9k and I do not believe that is very hard to accomplish for an early retiree.
Another option is to work Full time for a year or two which will fund the $9k shortfall for several years.

In time, ideally, the market recovers and the retiree can drop the job.

Working part time has many positives as well:
They get to build up their SS
They get closer to SS and by then will rely less on their portfolio
By working they will have a Roth option and may be able to move money around from taxable to Roth.
Getting out of the house and being social
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Sat May 16, 2020 10:31 am

EnjoyIt wrote:
Sat May 16, 2020 10:21 am
willthrill81 wrote:
Sat May 16, 2020 9:47 am
ScubaHogg wrote:
Sat May 16, 2020 8:39 am
willthrill81 wrote:
Fri May 15, 2020 1:19 pm
The 'lean FIRE' crowd could get into trouble with budgeting though. If your annual budget is only $20k, you don't have much room to cut back.
Conversely, in America it is pretty simple generally to get a job that pays $10-20K a year. A lean FIRE person (of which I’m not one) could easily earn upwards of 100% of their budget at almost anytime (short of being infirm). For some reason that fact never gets mentioned when they are being criticized for their WD projections.
That's very true. In our state, a full-time minimum wage job will gross almost $30k. So even if this person's spending needs were $60k, such a job would almost (after taxes, which wouldn't be much) enable them to cut their portfolio withdrawals in half. That's a huge boost. However, as Karsten from Early Retirement Now has pointed out, in some historic scenarios, a (former) retiree would have needed such a job for many years.
I don't know if this will last, but today I find it relatively easy to get a few thousand a year from bank, brokerage, and credit card bonuses. It's not a ton of money, but someone who spends $30k/yr, an extra $3k-5k is a petty big deal. I'm pretty sure baring COVID, I could probably make a few thousand a year driving for UBER. I also know that many places are hiring right now part time and full time.

Let's look at some math:
$30k a year from a 4% portfolio requires a $750k portfolio. Me personally I would be at 60/40 which means $450k is in equities and $300k in bonds
If we have a 50% equities decline that $450k will be worth $225k.
Add that to the bond portfolio of $300k and the retiree has $525k.
I think many, would agree that 4% withdrawal right after a correction has a higher probable success rate compared to 4% withdrawals prior to said correction.
With that in mind this retiree has $525k and 4% will provide $21k/yr. All they need is to make up the difference which is $9k and I do not believe that is very hard to accomplish for an early retiree.
Another option is to work Full time for a year or two which will fund the $9k shortfall for several years.

In time, ideally, the market recovers and the retiree can drop the job.

Working part time has many positives as well:
They get to build up their SS
They get closer to SS and by then will rely less on their portfolio
By working they will have a Roth option and may be able to move money around from taxable to Roth.
Getting out of the house and being social
Good analysis.

When we churned a lot of credit card bonuses a couple of years ago, we got about $7k in benefits, including airline miles, free hotel nights, and cash back. Had we gone for bank and brokerage bonuses, we could easily have added another $3k to that.

As long as the economy isn't in complete shambles, it should be easy for an educated, able-bodied person to earn $10k.
“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

MarkRoulo
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by MarkRoulo » Sat May 16, 2020 10:36 am

willthrill81 wrote:
Sat May 16, 2020 10:13 am
NoRegret wrote:
Sat May 16, 2020 1:39 am

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.
3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
This isn’t a question of similar results or not. The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.

There isn’t a “solution” either. We just can’t be as certain as we want to be.

Folks still need to make decisions, but we/they are fooling themselves if they are as confident as the 95% success claims imply.

EnjoyIt
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by EnjoyIt » Sat May 16, 2020 10:41 am

willthrill81 wrote:
Sat May 16, 2020 10:31 am
EnjoyIt wrote:
Sat May 16, 2020 10:21 am
willthrill81 wrote:
Sat May 16, 2020 9:47 am
ScubaHogg wrote:
Sat May 16, 2020 8:39 am
willthrill81 wrote:
Fri May 15, 2020 1:19 pm
The 'lean FIRE' crowd could get into trouble with budgeting though. If your annual budget is only $20k, you don't have much room to cut back.
Conversely, in America it is pretty simple generally to get a job that pays $10-20K a year. A lean FIRE person (of which I’m not one) could easily earn upwards of 100% of their budget at almost anytime (short of being infirm). For some reason that fact never gets mentioned when they are being criticized for their WD projections.
That's very true. In our state, a full-time minimum wage job will gross almost $30k. So even if this person's spending needs were $60k, such a job would almost (after taxes, which wouldn't be much) enable them to cut their portfolio withdrawals in half. That's a huge boost. However, as Karsten from Early Retirement Now has pointed out, in some historic scenarios, a (former) retiree would have needed such a job for many years.
I don't know if this will last, but today I find it relatively easy to get a few thousand a year from bank, brokerage, and credit card bonuses. It's not a ton of money, but someone who spends $30k/yr, an extra $3k-5k is a petty big deal. I'm pretty sure baring COVID, I could probably make a few thousand a year driving for UBER. I also know that many places are hiring right now part time and full time.

Let's look at some math:
$30k a year from a 4% portfolio requires a $750k portfolio. Me personally I would be at 60/40 which means $450k is in equities and $300k in bonds
If we have a 50% equities decline that $450k will be worth $225k.
Add that to the bond portfolio of $300k and the retiree has $525k.
I think many, would agree that 4% withdrawal right after a correction has a higher probable success rate compared to 4% withdrawals prior to said correction.
With that in mind this retiree has $525k and 4% will provide $21k/yr. All they need is to make up the difference which is $9k and I do not believe that is very hard to accomplish for an early retiree.
Another option is to work Full time for a year or two which will fund the $9k shortfall for several years.

In time, ideally, the market recovers and the retiree can drop the job.

Working part time has many positives as well:
They get to build up their SS
They get closer to SS and by then will rely less on their portfolio
By working they will have a Roth option and may be able to move money around from taxable to Roth.
Getting out of the house and being social
Good analysis.

When we churned a lot of credit card bonuses a couple of years ago, we got about $7k in benefits, including airline miles, free hotel nights, and cash back. Had we gone for bank and brokerage bonuses, we could easily have added another $3k to that.

As long as the economy isn't in complete shambles, it should be easy for an educated, able-bodied person to earn $10k.
$10k is a lot of money even for a person who retires spending $100k/yr. That could be the difference between a 4% to a 3.6% withdrawal. Cut back spending by another $10k which I think we all agree is much easier for someone who spends $100k/yr to do. and the withdrawal rate is now 3.2% which I think outside of the most fearful people will agree is very very safe.

Because of COVID, our expenses have gone down by over 30%. No daycare and no travel. Plus, I have had more free time to go for a few bank and brokerage bonuses. Despite the pay cut at work, I am much better cashflow wise compared to last year.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by hoops777 » Sat May 16, 2020 10:53 am

If someone has been successful enough and smart enough to think about retiring very early, they should know the figure they need to be certain they do not have to find a job when they are 63 or whatever. If you are leaving that open as a possibility you are creating stress whether you know it or not.
K.I.S.S........so easy to say so difficult to do.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by geerhardusvos » Sat May 16, 2020 11:48 am

willthrill81 wrote:
Sat May 16, 2020 10:13 am
NoRegret wrote:
Sat May 16, 2020 1:39 am
1. A minor quibble and only tangentially relevant: stock market index returns were not accessible to individual investors for the majority of the backtest period. At best, they were probably getting index - 1.5% per year. (The relevance is that since investors are getting more of the market return, future market returns may be lower.)

2. Another counter factual is that nobody was financing their retirement out of stock market wealth. Pensions were mostly in bonds back then or flush with contributions. DC plans are a modern development and it remains to be seen what happens when the majority of retirees rely on the stock market to fund their living expenses.

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.
1. I agree that that is only tangentially relevant, at most.

2. What people did with money withdrawn from the stock market in years past is completely irrelevant.

3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

Look at the chart below from Michael Kitces. It shows what the 30 year safe withdrawal rates were for all 30 year periods going back to 1871. In the early 1920s, for instance, the SWR was 9% or even higher, but only a decade later it was under 5%. In the mid 1930s it was about 7%, but then it was only 4% in 1937. The point is that the precise sequence of returns is important and varies significantly from one starting year to the next. Observe how many times the SWR varied by 1.5% or more from one starting year to the very next.

Image
https://www.kitces.com/blog/what-return ... ased-upon/

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
Great responses, thanks, Will.

My experience after a few years reading various blogs, including this one, that no one brings more data and constructive solutions than the people who say that somewhere between 3 and 4% withdrawal rate is very solid for 30 year, and often times longer than 30 years. No one has shown me data to support saying that a less than 3% withdrawal rate is necessary in any historical circumstance. Everyone’s situation is different, no one knows the future, we all have to do the best for our own families and make decision a based on the data available to us, and in the end because we are all paying attention and well educated, we should be able to survive. What we are going through as a country is very difficult, but I have every belief, just like we have before, that we will come out growing and innovative again. Every time I dig into the data, I have more and more confidence in a 4% withdrawal rate to support a long retirement. And in many many cases, 4.5% wr lasted well past 30 years. Avoid SORR and 4% is as iron clad as one could ask for in this uncertain world. 4% has the cushion and buffer baked into it. My parents live solely off of Social Security. I might not have that much of a benefit, but people who are sacrificing good years of their life in their 40s and 50s and 60s because they want a sub 3% withdrawal rate is nonsense and foolish in my opinion. No man in my family has lived longer than 86 years in 3 generations.

No time in the history of the human race has there been less poverty. The statistics about hunger, employment, education, etc. are astounding when comparing our current year to 1940 or even 1970. Medical and technological advances that are unprecedented, and these benefits throughout the world will support growth into the next 100 years, and that growth might look different, and we might go through many various challenges like the current one, but we will come out ahead. It’s not different this time!
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by geerhardusvos » Sat May 16, 2020 11:55 am

MarkRoulo wrote:
Sat May 16, 2020 10:36 am
willthrill81 wrote:
Sat May 16, 2020 10:13 am
NoRegret wrote:
Sat May 16, 2020 1:39 am

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.
3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
This isn’t a question of similar results or not. The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.

There isn’t a “solution” either. We just can’t be as certain as we want to be.

Folks still need to make decisions, but we/they are fooling themselves if they are as confident as the 95% success claims imply.
Classic example of someone who wants absolute certainty and does not understand the data we have available to us.

All humans are striving for certainty. They need it. They want it. But it doesn’t exist in this world. So make a decision based off the analysis in the data available to us. My family has. That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio.
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by Forester » Sat May 16, 2020 12:02 pm

Elroy Dimson forecasts a 2% real return for the global 60/40.

Image

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by geerhardusvos » Sat May 16, 2020 12:18 pm

Forester wrote:
Sat May 16, 2020 12:02 pm
Elroy Dimson forecasts a 2% real return for the global 60/40.

Image
Ah yes, we’ve seen how accurate these predictions have been in the past!!!!!

By the way, even with a 2 to 3% real return, the 4% withdrawal rate works just fine for a 30 year retirement
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by NoRegret » Sat May 16, 2020 1:20 pm

willthrill81 wrote:
Sat May 16, 2020 10:13 am
2. What people did with money withdrawn from the stock market in years past is completely irrelevant.
Point is that if people were withdrawing en masse from the stock market to fund their retirement, historic returns would have been lower.

Today we know that net fund flows have been negative for a while only to be more than made up by corporate buybacks. We'll have to see how the future unfolds.
willthrill81 wrote:
Sat May 16, 2020 10:13 am
3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

Look at the chart below from Michael Kitces. It shows what the 30 year safe withdrawal rates were for all 30 year periods going back to 1871. In the early 1920s, for instance, the SWR was 9% or even higher, but only a decade later it was under 5%. In the mid 1930s it was about 7%, but then it was only 4% in 1937. The point is that the precise sequence of returns is important and varies significantly from one starting year to the next. Observe how many times the SWR varied by 1.5% or more from one starting year to the very next.

Image
https://www.kitces.com/blog/what-return ... ased-upon/

I'm aware of this data. They take 120 yrs of history and construct 91 rolling 30-yr history from it. Looking at the chart, I don't see 91 independent trials. I do see historical periods of market history that we all know about: the panic of 1907, the roaring 20's, the Great Depression, post-war bull market, the inflationary bear market of the 60's, and so on. I'm not an expert, but if I were to do a frequency decomposition, I'm guessing 10 components can give a good fit. We're talking ranges of confidence here, I just don't see how 1 of 91 rolling periods can be construed as 1/91 chance of failure. But if people want to, go at it.
willthrill81 wrote:
Sat May 16, 2020 10:13 am
The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
I agree that a straight Monte Carlo is too harsh a test. It's possible to do Monte Carlo with mean reversion around an underlying growth rate. I doubt there is a good "solution" to the problem. Just like we can't all be rich, sometimes it's just what life is.

Cheers, NR
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by EnjoyIt » Sat May 16, 2020 1:21 pm

hoops777 wrote:
Sat May 16, 2020 10:53 am
If someone has been successful enough and smart enough to think about retiring very early, they should know the figure they need to be certain they do not have to find a job when they are 63 or whatever. If you are leaving that open as a possibility you are creating stress whether you know it or not.
Some would rather take the small chance of needing to work in the future while others would prefer to work now and help ensure the need for future work is 0. You sound like you would rather work longer now. There are plenty of people who are willing to take that small chance.

To be honest, when I was working my butt off and building my wealth, I could not wait for 25x so that I can pull the plug and retire. I figured if a bad market came around shortly after I could just pick up extra work. When we hit 25x my spouse and I decided to work a little longer though part time. This extra cash is used to increase our discretionary spending which will allow us increased flexibility in retirement if a recession comes around. We are still looking at 4% starting point but we will be able to make bigger and bigger cuts in our spending with less difficulty. Right now it seems our expenses are cut by about 30% thanks to COVID. That would take a 4% withdrawal rate down to 2.8%. I doubt there are many who think 2.8% won't survive 50 years.
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by hoops777 » Sat May 16, 2020 1:34 pm

Very true. We all make our own choices and everyone has their own needs,desires and risk tolerance. To each their own.
K.I.S.S........so easy to say so difficult to do.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by NoRegret » Sat May 16, 2020 2:16 pm

geerhardusvos wrote:
Sat May 16, 2020 12:18 pm
Forester wrote:
Sat May 16, 2020 12:02 pm
Elroy Dimson forecasts a 2% real return for the global 60/40.

Image
Ah yes, we’ve seen how accurate these predictions have been in the past!!!!!
The stock market has benefited a great deal from multiple expansion and corporate profits as a share of the economy. It was a boon to retirees and near retirees (who ought to be reducing their equity AA to lock in the gains), and made fools of those basing their forecasts on mean reversion in both. Can it continue? Certainly and that's why more people are looking for right tail hedges.

While we enjoy the gifts from the markets and have a laugh at the expense of those forecasters it doesn't hurt to understand why and be attuned to when conditions change.
geerhardusvos wrote:
Sat May 16, 2020 12:18 pm
By the way, even with a 2 to 3% real return, the 4% withdrawal rate works just fine for a 30 year retirement
If the 2% real return is stable, it would indeed support a 4% real withdrawal for 30 years. But the SORR is tremendous if we have historical level of volatility.
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Sat May 16, 2020 2:45 pm

NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
2. What people did with money withdrawn from the stock market in years past is completely irrelevant.
Point is that if people were withdrawing en masse from the stock market to fund their retirement, historic returns would have been lower.
You're overlooking the fact that in order for people in times past to have a portfolio to withdraw from that they would have first had to make contributions to buy stocks in the first place.
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
I agree that a straight Monte Carlo is too harsh a test. It's possible to do Monte Carlo with mean reversion around an underlying growth rate. I doubt there is a good "solution" to the problem. Just like we can't all be rich, sometimes it's just what life is.
If there's no solution, then I don't see a point in opining about the problem. Retirees can't wait 810 more years until we get 30 non-overlapping periods of returns. We have to do the best we can with the data we have. And those data indicate that at least so far, 4% has been a very fine starting point for retirees of a traditional age and usually fine for early retirees too. If the future turns out to be gloomier than the past, then retirees will just have to find a way to make things work just like they did during their working years. Those who are really concerned about the future being worse than the worst of the past can buy a SPIA, assemble a TIPS/I-bonds ladder, etc. to add to the income floor that their SS benefits (will) provide.
“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: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Sat May 16, 2020 2:56 pm

NoRegret wrote:
Sat May 16, 2020 2:16 pm
If the 2% real return is stable, it would indeed support a 4% real withdrawal for 30 years. But the SORR is tremendous if we have historical level of volatility.
The 2% real return doesn't have to be stable for the '4% rule' to work. I've said this repeatedly in similar threads.
willthrill81 wrote:
Sun Apr 26, 2020 10:33 am
Again, Kitces' work in this area is very enlightening for this topic. He noted this in a post a few years ago.
In part, the lack of relationship between long-term returns and safe withdrawal rates is because ultimately, when taking withdrawals, it doesn’t matter if returns average out in the end, because a period of 10-15 years of low returns means there may be little or no account balance remaining when the good returns finally arrive for the last half of retirement. Accordingly, while 30-year returns have little relationship to safe withdrawal rates, returns over the first 15 years of the retirement time horizon have a much stronger relationship; in fact, the 15-year real (inflation-adjusted) return of the portfolio actually has a whopping 0.91 correlation to the safe withdrawal rate, as shown in the graph below.
https://www.kitces.com/blog/what-return ... ased-upon/

A .91 correlation is extremely strong in the finance space. Anything higher than that is very likely to be deterministic (i.e. there is a 'hard' mathematical relationship between the two, and that may actually be largely true with this one). So it seems safe to say that the first 15 years' of returns a retiree encounters are strongly predictive of the retiree's 30 year SWR.

Then what were the 15 year real returns for the lowest 30 year SWRs? Kitces answered that.
The average real return on a 60/40 (re-)balanced portfolio associated with the worst safe withdrawal rate scenarios in history was a mere 0.86% average annual compound growth rate over the first 15 years of retirement.
https://www.kitces.com/blog/what-return ... ased-upon/

Current bond yields are most predictive of the future 10 years' returns, but for the sake of discussion, let's say that bonds will return 0% over the next 15 years. This means that retirees with a 60/40 portfolio would need stocks to return 1.43% real during the first 15 years of a 30 year retirement in order to match the returns of the periods where the SWR was 4%.

Current stock valuations are nowhere near high enough to suggest that stocks would return less than 1.43% real over the next 15 years. Even in the beginning of the year 2000, when CAPE went up to 44, the forward 15 year real returns of stock were 2.45%. Currently, CAPE is at 26.5, which implies forward real returns (again, for the next decade) of 3.77%.

That said, there is certainly historical precedent for U.S. stocks to return less than 1.43% real over a 15 year period. In 10% of historic 15 year periods, U.S. stocks returned less than 1.52% real. Viewed in that light, if we assume that the future will be similar to the past, there's about a 10% chance that U.S. stocks will not be high enough to support a 4% constant real dollar withdrawal rate (i.e. '4% rule).

That's why (1) many posters, myself included, plan on 4% withdrawals not representing bare-bones survival but rather including at least some discretionary spending that could be cut and (2) adopting a flexible withdrawal strategy (i.e. NOT strictly following the '4% rule') that would adapt to poor portfolio performance. Historically, there are other strategies that would have been useful in reducing downside risk, such as even a minor tilt to small and value stocks and gold. TIPS and I-bonds would likely have helped in the worst historic periods of the past as well, especially in the 1970s, when inflation 'beat up' retirees who had already experienced poor 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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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by NoRegret » Sat May 16, 2020 10:32 pm

willthrill81 wrote:
Sat May 16, 2020 2:45 pm
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
2. What people did with money withdrawn from the stock market in years past is completely irrelevant.
Point is that if people were withdrawing en masse from the stock market to fund their retirement, historic returns would have been lower.
You're overlooking the fact that in order for people in times past to have a portfolio to withdraw from that they would have first had to make contributions to buy stocks in the first place.
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
I agree that a straight Monte Carlo is too harsh a test. It's possible to do Monte Carlo with mean reversion around an underlying growth rate. I doubt there is a good "solution" to the problem. Just like we can't all be rich, sometimes it's just what life is.
If there's no solution, then I don't see a point in opining about the problem. Retirees can't wait 810 more years until we get 30 non-overlapping periods of returns. We have to do the best we can with the data we have. And those data indicate that at least so far, 4% has been a very fine starting point for retirees of a traditional age and usually fine for early retirees too. If the future turns out to be gloomier than the past, then retirees will just have to find a way to make things work just like they did during their working years. Those who are really concerned about the future being worse than the worst of the past can buy a SPIA, assemble a TIPS/I-bonds ladder, etc. to add to the income floor that their SS benefits (will) provide.
I wrote a reply but it was eaten by internet gnomes. Anyway, on the first point, money flow matters. Had we observed a generation cohort going through the markets we would realize that the current market has benefited from the Boomers saving for their retirement but we now may be on the back side of that wave.

On the 2nd point. No solution means we are not going to get the certainty we want but life goes on nonetheless. We're in good agreement that we need to embrace uncertainty and be ready for whatever comes out way. I'm slightly more pessimistic about near term returns but 4% for 30 years might still be ok, but I wouldn't do it for 40. Some annuitization makes sense in that case.

Cheers, NR
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by marcopolo » Sat May 16, 2020 10:56 pm

NoRegret wrote:
Sat May 16, 2020 10:32 pm
willthrill81 wrote:
Sat May 16, 2020 2:45 pm
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
2. What people did with money withdrawn from the stock market in years past is completely irrelevant.
Point is that if people were withdrawing en masse from the stock market to fund their retirement, historic returns would have been lower.
You're overlooking the fact that in order for people in times past to have a portfolio to withdraw from that they would have first had to make contributions to buy stocks in the first place.
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
I agree that a straight Monte Carlo is too harsh a test. It's possible to do Monte Carlo with mean reversion around an underlying growth rate. I doubt there is a good "solution" to the problem. Just like we can't all be rich, sometimes it's just what life is.
If there's no solution, then I don't see a point in opining about the problem. Retirees can't wait 810 more years until we get 30 non-overlapping periods of returns. We have to do the best we can with the data we have. And those data indicate that at least so far, 4% has been a very fine starting point for retirees of a traditional age and usually fine for early retirees too. If the future turns out to be gloomier than the past, then retirees will just have to find a way to make things work just like they did during their working years. Those who are really concerned about the future being worse than the worst of the past can buy a SPIA, assemble a TIPS/I-bonds ladder, etc. to add to the income floor that their SS benefits (will) provide.
I wrote a reply but it was eaten by internet gnomes. Anyway, on the first point, money flow matters. Had we observed a generation cohort going through the markets we would realize that the current market has benefited from the Boomers saving for their retirement but we now may be on the back side of that wave.

On the 2nd point. No solution means we are not going to get the certainty we want but life goes on nonetheless. We're in good agreement that we need to embrace uncertainty and be ready for whatever comes out way. I'm slightly more pessimistic about near term returns but 4% for 30 years might still be ok, but I wouldn't do it for 40. Some annuitization makes sense in that case.

Cheers, NR
As of 2019, Millenials outnumber boomers.
They will be buying for years to come.
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: Ben Felix - How to Retire Early (The 4% Rule)

Post by bog007 » Sun May 17, 2020 4:33 am

whats sorr?

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by ignition » Sun May 17, 2020 5:50 am

bog007 wrote:
Sun May 17, 2020 4:33 am
whats sorr?
sequence of returns risk

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by CyclingDuo » Sun May 17, 2020 8:02 am

marcopolo wrote:
Sat May 16, 2020 10:56 pm
NoRegret wrote:
Sat May 16, 2020 10:32 pm
willthrill81 wrote:
Sat May 16, 2020 2:45 pm
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
2. What people did with money withdrawn from the stock market in years past is completely irrelevant.
Point is that if people were withdrawing en masse from the stock market to fund their retirement, historic returns would have been lower.
You're overlooking the fact that in order for people in times past to have a portfolio to withdraw from that they would have first had to make contributions to buy stocks in the first place.
NoRegret wrote:
Sat May 16, 2020 1:20 pm
willthrill81 wrote:
Sat May 16, 2020 10:13 am
The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
I agree that a straight Monte Carlo is too harsh a test. It's possible to do Monte Carlo with mean reversion around an underlying growth rate. I doubt there is a good "solution" to the problem. Just like we can't all be rich, sometimes it's just what life is.
If there's no solution, then I don't see a point in opining about the problem. Retirees can't wait 810 more years until we get 30 non-overlapping periods of returns. We have to do the best we can with the data we have. And those data indicate that at least so far, 4% has been a very fine starting point for retirees of a traditional age and usually fine for early retirees too. If the future turns out to be gloomier than the past, then retirees will just have to find a way to make things work just like they did during their working years. Those who are really concerned about the future being worse than the worst of the past can buy a SPIA, assemble a TIPS/I-bonds ladder, etc. to add to the income floor that their SS benefits (will) provide.
I wrote a reply but it was eaten by internet gnomes. Anyway, on the first point, money flow matters. Had we observed a generation cohort going through the markets we would realize that the current market has benefited from the Boomers saving for their retirement but we now may be on the back side of that wave.

On the 2nd point. No solution means we are not going to get the certainty we want but life goes on nonetheless. We're in good agreement that we need to embrace uncertainty and be ready for whatever comes out way. I'm slightly more pessimistic about near term returns but 4% for 30 years might still be ok, but I wouldn't do it for 40. Some annuitization makes sense in that case.

Cheers, NR
As of 2019, Millenials outnumber boomers.
They will be buying for years to come.
Correct. It appeared in the data for the first time starting in July of 2019. Gen X population is projected to pass Boomers by 2028 as more deaths occur.

https://www.pewresearch.org/fact-tank/2 ... eneration/

Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by smitcat » Sun May 17, 2020 8:08 am

geerhardusvos wrote:
Sat May 16, 2020 11:55 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am
willthrill81 wrote:
Sat May 16, 2020 10:13 am
NoRegret wrote:
Sat May 16, 2020 1:39 am

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.
3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
This isn’t a question of similar results or not. The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.

There isn’t a “solution” either. We just can’t be as certain as we want to be.

Folks still need to make decisions, but we/they are fooling themselves if they are as confident as the 95% success claims imply.
Classic example of someone who wants absolute certainty and does not understand the data we have available to us.

All humans are striving for certainty. They need it. They want it. But it doesn’t exist in this world. So make a decision based off the analysis in the data available to us. My family has. That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio.
"That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio."
Actually there is a lot of work and data that suggests that the 4% rule of thumb would be best reduced for todays environment and also reduced for retirement horizons more than 30 years and for equity values of less than about 70%. Some of this type of work is readily available to review at Early Retirement Now (ERN) , here is a quote from one of their articles that combine SS for early retirees with SWR calculations:
"With today’s lofty equity valuations and measly bond yields, a 3.25% to 3.50% initial withdrawal rate would be much more prudent."
And here is a link to that specific article of the series for further details:
https://earlyretirementnow.com/2017/07/ ... -security/

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by geerhardusvos » Sun May 17, 2020 9:32 am

smitcat wrote:
Sun May 17, 2020 8:08 am
geerhardusvos wrote:
Sat May 16, 2020 11:55 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am
willthrill81 wrote:
Sat May 16, 2020 10:13 am
NoRegret wrote:
Sat May 16, 2020 1:39 am

3. Lastly there aren't that many INDEPENDENT, NON-OVERLAPPING 30 year periods of good historical data, much less 40-60 years. If you have N observations of a random variable, the chance of the next observation falling out of the existing range is on the order of 1/N. It's a big problem if N is small.
3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
This isn’t a question of similar results or not. The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.

There isn’t a “solution” either. We just can’t be as certain as we want to be.

Folks still need to make decisions, but we/they are fooling themselves if they are as confident as the 95% success claims imply.
Classic example of someone who wants absolute certainty and does not understand the data we have available to us.

All humans are striving for certainty. They need it. They want it. But it doesn’t exist in this world. So make a decision based off the analysis in the data available to us. My family has. That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio.
"That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio."
Actually there is a lot of work and data that suggests that the 4% rule of thumb would be best reduced for todays environment and also reduced for retirement horizons more than 30 years and for equity values of less than about 70%. Some of this type of work is readily available to review at Early Retirement Now (ERN) , here is a quote from one of their articles that combine SS for early retirees with SWR calculations:
"With today’s lofty equity valuations and measly bond yields, a 3.25% to 3.50% initial withdrawal rate would be much more prudent."
And here is a link to that specific article of the series for further details:
https://earlyretirementnow.com/2017/07/ ... -security/
Big ERN is a homie. We exchange messages and I have read all his work. Both being German and economics majors, we are kindred spirits. When I leave the megacorp at age 40, I plan for an initial wr of 3.5%-3.8% (for first 2-5 years) to avoid SORR based on his and other work. There’s overwhelming agreement in his community that while the future is unknown, it is likely to be similar to the past over long periods of time. Meaning that 4% WR or more is likely what I will end up being able to withdraw on average over my retirement, but that will be variable and based on market performance. There is a lot of luck with the specific year one retires. So it’s good to avoid SORR in the beginning, and then ramp up from there. A bond glidepath or other strategies can help with this as well.

Someone retiring in their 50s who has 25X and has worked up to that point, is financially independent free and clear especially given their SS income. For a 30 year retirement, 4% WR is supported by Big ERNs analysis of the data, and he’s said that for retirement lengths greater than 30 years a 4% wr often ends up being acceptable (with all the initial portfolio still in tact!!!). But we don’t know if we got lucky with when we decided to retire (will 2030 be a good year for me to retire? Hoping so!). So avoid SORR, and see where you’re at. If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically. Guess what, 4% WR is too in vast majority of cases, especially for 30-40 year retirements. CAPE levels, bond yields, market conditions, etc. are all things that change, and they don’t always reliably predict the future (Econ major here). In fact, I predict that there will be a very difficult economic time for the next 5 to 10 years (while I’m accumulating btw). But only God knows. What usually follows a difficult economic time? Growth.

If you don’t agree with the data or the approach, that’s fine, but you don’t have grounds to keep arguing and nitpicking without understanding the data or providing new relevant data or insights... There is cushion already in 4% WR. It’s been stress tested over the worst economic periods in our history. Those of us who are creative, can manage their money, will be taking a variable withdrawal, etc. will be fine thanks!

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by smitcat » Mon May 18, 2020 6:47 am

geerhardusvos wrote:
Sun May 17, 2020 9:32 am
smitcat wrote:
Sun May 17, 2020 8:08 am
geerhardusvos wrote:
Sat May 16, 2020 11:55 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am
willthrill81 wrote:
Sat May 16, 2020 10:13 am


3. This argument is used often and has some validity but is problematic. It assumes that overlapping periods lead to similar results, and the SWR research has robustly shown that to be completely false.

The other problem with this argument is that those who support it don't offer any real solutions. Some espouse Monte Carlo simulations, but these have their own problems that may result in them having limited value.
This isn’t a question of similar results or not. The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.

There isn’t a “solution” either. We just can’t be as certain as we want to be.

Folks still need to make decisions, but we/they are fooling themselves if they are as confident as the 95% success claims imply.
Classic example of someone who wants absolute certainty and does not understand the data we have available to us.

All humans are striving for certainty. They need it. They want it. But it doesn’t exist in this world. So make a decision based off the analysis in the data available to us. My family has. That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio.
"That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio."
Actually there is a lot of work and data that suggests that the 4% rule of thumb would be best reduced for todays environment and also reduced for retirement horizons more than 30 years and for equity values of less than about 70%. Some of this type of work is readily available to review at Early Retirement Now (ERN) , here is a quote from one of their articles that combine SS for early retirees with SWR calculations:
"With today’s lofty equity valuations and measly bond yields, a 3.25% to 3.50% initial withdrawal rate would be much more prudent."
And here is a link to that specific article of the series for further details:
https://earlyretirementnow.com/2017/07/ ... -security/
Big ERN is a homie. We exchange messages and I have read all his work. Both being German and economics majors, we are kindred spirits. When I leave the megacorp at age 40, I plan for an initial wr of 3.5%-3.8% (for first 2-5 years) to avoid SORR based on his and other work. There’s overwhelming agreement in his community that while the future is unknown, it is likely to be similar to the past over long periods of time. Meaning that 4% WR or more is likely what I will end up being able to withdraw on average over my retirement, but that will be variable and based on market performance. There is a lot of luck with the specific year one retires. So it’s good to avoid SORR in the beginning, and then ramp up from there. A bond glidepath or other strategies can help with this as well.

Someone retiring in their 50s who has 25X and has worked up to that point, is financially independent free and clear especially given their SS income. For a 30 year retirement, 4% WR is supported by Big ERNs analysis of the data, and he’s said that for retirement lengths greater than 30 years a 4% wr often ends up being acceptable (with all the initial portfolio still in tact!!!). But we don’t know if we got lucky with when we decided to retire (will 2030 be a good year for me to retire? Hoping so!). So avoid SORR, and see where you’re at. If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically. Guess what, 4% WR is too in vast majority of cases, especially for 30-40 year retirements. CAPE levels, bond yields, market conditions, etc. are all things that change, and they don’t always reliably predict the future (Econ major here). In fact, I predict that there will be a very difficult economic time for the next 5 to 10 years (while I’m accumulating btw). But only God knows. What usually follows a difficult economic time? Growth.

If you don’t agree with the data or the approach, that’s fine, but you don’t have grounds to keep arguing and nitpicking without understanding the data or providing new relevant data or insights... There is cushion already in 4% WR. It’s been stress tested over the worst economic periods in our history. Those of us who are creative, can manage their money, will be taking a variable withdrawal, etc. will be fine thanks!

Image
"If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically."
So your thoughts are early retirees can use a 3.5% SWR as long as the equity portion is in the 70-80% area.
I agree with that entirely.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by AlohaJoe » Mon May 18, 2020 6:56 am

MarkRoulo wrote:
Sat May 16, 2020 10:36 am
The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.
How many data points are required to have 95% confidence?

EnjoyIt
Posts: 4183
Joined: Sun Dec 29, 2013 8:06 pm

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by EnjoyIt » Mon May 18, 2020 7:05 am

smitcat wrote:
Mon May 18, 2020 6:47 am
geerhardusvos wrote:
Sun May 17, 2020 9:32 am
smitcat wrote:
Sun May 17, 2020 8:08 am
geerhardusvos wrote:
Sat May 16, 2020 11:55 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am


This isn’t a question of similar results or not. The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.

There isn’t a “solution” either. We just can’t be as certain as we want to be.

Folks still need to make decisions, but we/they are fooling themselves if they are as confident as the 95% success claims imply.
Classic example of someone who wants absolute certainty and does not understand the data we have available to us.

All humans are striving for certainty. They need it. They want it. But it doesn’t exist in this world. So make a decision based off the analysis in the data available to us. My family has. That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio.
"That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio."
Actually there is a lot of work and data that suggests that the 4% rule of thumb would be best reduced for todays environment and also reduced for retirement horizons more than 30 years and for equity values of less than about 70%. Some of this type of work is readily available to review at Early Retirement Now (ERN) , here is a quote from one of their articles that combine SS for early retirees with SWR calculations:
"With today’s lofty equity valuations and measly bond yields, a 3.25% to 3.50% initial withdrawal rate would be much more prudent."
And here is a link to that specific article of the series for further details:
https://earlyretirementnow.com/2017/07/ ... -security/
Big ERN is a homie. We exchange messages and I have read all his work. Both being German and economics majors, we are kindred spirits. When I leave the megacorp at age 40, I plan for an initial wr of 3.5%-3.8% (for first 2-5 years) to avoid SORR based on his and other work. There’s overwhelming agreement in his community that while the future is unknown, it is likely to be similar to the past over long periods of time. Meaning that 4% WR or more is likely what I will end up being able to withdraw on average over my retirement, but that will be variable and based on market performance. There is a lot of luck with the specific year one retires. So it’s good to avoid SORR in the beginning, and then ramp up from there. A bond glidepath or other strategies can help with this as well.

Someone retiring in their 50s who has 25X and has worked up to that point, is financially independent free and clear especially given their SS income. For a 30 year retirement, 4% WR is supported by Big ERNs analysis of the data, and he’s said that for retirement lengths greater than 30 years a 4% wr often ends up being acceptable (with all the initial portfolio still in tact!!!). But we don’t know if we got lucky with when we decided to retire (will 2030 be a good year for me to retire? Hoping so!). So avoid SORR, and see where you’re at. If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically. Guess what, 4% WR is too in vast majority of cases, especially for 30-40 year retirements. CAPE levels, bond yields, market conditions, etc. are all things that change, and they don’t always reliably predict the future (Econ major here). In fact, I predict that there will be a very difficult economic time for the next 5 to 10 years (while I’m accumulating btw). But only God knows. What usually follows a difficult economic time? Growth.

If you don’t agree with the data or the approach, that’s fine, but you don’t have grounds to keep arguing and nitpicking without understanding the data or providing new relevant data or insights... There is cushion already in 4% WR. It’s been stress tested over the worst economic periods in our history. Those of us who are creative, can manage their money, will be taking a variable withdrawal, etc. will be fine thanks!

Image
"If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically."
So your thoughts are early retirees can use a 3.5% SWR as long as the equity portion is in the 70-80% area.
I agree with that entirely.
I don't think a blanket statement is appropriate because retiring at 50 with 4% is more than fine once SS hits. Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option. Also, how much leeway is there in one's portfolio to make spending adjustments.

I still like using 4% as a starting strategy and then adjusting based on one's needs is fine. For example one can likely use 6% or more if they retire at 60 but SS will cover all their expenses at 70. On the other hand one retiring spending $25k a year at 30 may find a lot more risk and should dial it down a little, be prepared to go back to work, or have a hobby that makes some income.

If we look at the data, most people who retire at 4% would have found themselves with more money than they started with after 30 years. Most people could have spent 5% and been just fine. The thing is, is that averages don't matter when you are the 1 person out of 100 that finds themselves running out of money.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

smitcat
Posts: 5918
Joined: Mon Nov 07, 2016 10:51 am

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by smitcat » Mon May 18, 2020 7:15 am

EnjoyIt wrote:
Mon May 18, 2020 7:05 am
smitcat wrote:
Mon May 18, 2020 6:47 am
geerhardusvos wrote:
Sun May 17, 2020 9:32 am
smitcat wrote:
Sun May 17, 2020 8:08 am
geerhardusvos wrote:
Sat May 16, 2020 11:55 am


Classic example of someone who wants absolute certainty and does not understand the data we have available to us.

All humans are striving for certainty. They need it. They want it. But it doesn’t exist in this world. So make a decision based off the analysis in the data available to us. My family has. That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio.
"That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio."
Actually there is a lot of work and data that suggests that the 4% rule of thumb would be best reduced for todays environment and also reduced for retirement horizons more than 30 years and for equity values of less than about 70%. Some of this type of work is readily available to review at Early Retirement Now (ERN) , here is a quote from one of their articles that combine SS for early retirees with SWR calculations:
"With today’s lofty equity valuations and measly bond yields, a 3.25% to 3.50% initial withdrawal rate would be much more prudent."
And here is a link to that specific article of the series for further details:
https://earlyretirementnow.com/2017/07/ ... -security/
Big ERN is a homie. We exchange messages and I have read all his work. Both being German and economics majors, we are kindred spirits. When I leave the megacorp at age 40, I plan for an initial wr of 3.5%-3.8% (for first 2-5 years) to avoid SORR based on his and other work. There’s overwhelming agreement in his community that while the future is unknown, it is likely to be similar to the past over long periods of time. Meaning that 4% WR or more is likely what I will end up being able to withdraw on average over my retirement, but that will be variable and based on market performance. There is a lot of luck with the specific year one retires. So it’s good to avoid SORR in the beginning, and then ramp up from there. A bond glidepath or other strategies can help with this as well.

Someone retiring in their 50s who has 25X and has worked up to that point, is financially independent free and clear especially given their SS income. For a 30 year retirement, 4% WR is supported by Big ERNs analysis of the data, and he’s said that for retirement lengths greater than 30 years a 4% wr often ends up being acceptable (with all the initial portfolio still in tact!!!). But we don’t know if we got lucky with when we decided to retire (will 2030 be a good year for me to retire? Hoping so!). So avoid SORR, and see where you’re at. If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically. Guess what, 4% WR is too in vast majority of cases, especially for 30-40 year retirements. CAPE levels, bond yields, market conditions, etc. are all things that change, and they don’t always reliably predict the future (Econ major here). In fact, I predict that there will be a very difficult economic time for the next 5 to 10 years (while I’m accumulating btw). But only God knows. What usually follows a difficult economic time? Growth.

If you don’t agree with the data or the approach, that’s fine, but you don’t have grounds to keep arguing and nitpicking without understanding the data or providing new relevant data or insights... There is cushion already in 4% WR. It’s been stress tested over the worst economic periods in our history. Those of us who are creative, can manage their money, will be taking a variable withdrawal, etc. will be fine thanks!

Image
"If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically."
So your thoughts are early retirees can use a 3.5% SWR as long as the equity portion is in the 70-80% area.
I agree with that entirely.
I don't think a blanket statement is appropriate because retiring at 50 with 4% is more than fine once SS hits. Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option. Also, how much leeway is there in one's portfolio to make spending adjustments.

I still like using 4% as a starting strategy and then adjusting based on one's needs is fine. For example one can likely use 6% or more if they retire at 60 but SS will cover all their expenses at 70. On the other hand one retiring spending $25k a year at 30 may find a lot more risk and should dial it down a little, be prepared to go back to work, or have a hobby that makes some income.

If we look at the data, most people who retire at 4% would have found themselves with more money than they started with after 30 years. Most people could have spent 5% and been just fine. The thing is, is that averages don't matter when you are the 1 person out of 100 that finds themselves running out of money.
There are so many numerous ways to make the 4% rule work most all of the time but its also important to note that you do need to utilize one or more of those methods to make it work all of the time.
"Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option."
I agree someone could go back to work and make it fine - but the 4% rule is then modified.

"Also, how much leeway is there in one's portfolio to make spending adjustments."
I also agree that if one can vary spending enough during the years they draw then it would work as well but the 4% rule is then modified.

There are many ways to augment the 4% rule and make sure that it works - but then you are also augmenting the rule.
But if I were setting up a rule for someone that is a dependent and SS is already figured in, and they cannot augment the rule such that it will be ridged in nature then 4% is not gonna cut it longer term with a 50/50 portfolio.

EnjoyIt
Posts: 4183
Joined: Sun Dec 29, 2013 8:06 pm

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by EnjoyIt » Mon May 18, 2020 7:22 am

smitcat wrote:
Mon May 18, 2020 7:15 am
EnjoyIt wrote:
Mon May 18, 2020 7:05 am
smitcat wrote:
Mon May 18, 2020 6:47 am
geerhardusvos wrote:
Sun May 17, 2020 9:32 am
smitcat wrote:
Sun May 17, 2020 8:08 am


"That data overwhelmingly points to a 4% withdrawal rate working for almost any retirement length with a >50% equity portfolio."
Actually there is a lot of work and data that suggests that the 4% rule of thumb would be best reduced for todays environment and also reduced for retirement horizons more than 30 years and for equity values of less than about 70%. Some of this type of work is readily available to review at Early Retirement Now (ERN) , here is a quote from one of their articles that combine SS for early retirees with SWR calculations:
"With today’s lofty equity valuations and measly bond yields, a 3.25% to 3.50% initial withdrawal rate would be much more prudent."
And here is a link to that specific article of the series for further details:
https://earlyretirementnow.com/2017/07/ ... -security/
Big ERN is a homie. We exchange messages and I have read all his work. Both being German and economics majors, we are kindred spirits. When I leave the megacorp at age 40, I plan for an initial wr of 3.5%-3.8% (for first 2-5 years) to avoid SORR based on his and other work. There’s overwhelming agreement in his community that while the future is unknown, it is likely to be similar to the past over long periods of time. Meaning that 4% WR or more is likely what I will end up being able to withdraw on average over my retirement, but that will be variable and based on market performance. There is a lot of luck with the specific year one retires. So it’s good to avoid SORR in the beginning, and then ramp up from there. A bond glidepath or other strategies can help with this as well.

Someone retiring in their 50s who has 25X and has worked up to that point, is financially independent free and clear especially given their SS income. For a 30 year retirement, 4% WR is supported by Big ERNs analysis of the data, and he’s said that for retirement lengths greater than 30 years a 4% wr often ends up being acceptable (with all the initial portfolio still in tact!!!). But we don’t know if we got lucky with when we decided to retire (will 2030 be a good year for me to retire? Hoping so!). So avoid SORR, and see where you’re at. If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically. Guess what, 4% WR is too in vast majority of cases, especially for 30-40 year retirements. CAPE levels, bond yields, market conditions, etc. are all things that change, and they don’t always reliably predict the future (Econ major here). In fact, I predict that there will be a very difficult economic time for the next 5 to 10 years (while I’m accumulating btw). But only God knows. What usually follows a difficult economic time? Growth.

If you don’t agree with the data or the approach, that’s fine, but you don’t have grounds to keep arguing and nitpicking without understanding the data or providing new relevant data or insights... There is cushion already in 4% WR. It’s been stress tested over the worst economic periods in our history. Those of us who are creative, can manage their money, will be taking a variable withdrawal, etc. will be fine thanks!

Image
"If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically."
So your thoughts are early retirees can use a 3.5% SWR as long as the equity portion is in the 70-80% area.
I agree with that entirely.
I don't think a blanket statement is appropriate because retiring at 50 with 4% is more than fine once SS hits. Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option. Also, how much leeway is there in one's portfolio to make spending adjustments.

I still like using 4% as a starting strategy and then adjusting based on one's needs is fine. For example one can likely use 6% or more if they retire at 60 but SS will cover all their expenses at 70. On the other hand one retiring spending $25k a year at 30 may find a lot more risk and should dial it down a little, be prepared to go back to work, or have a hobby that makes some income.

If we look at the data, most people who retire at 4% would have found themselves with more money than they started with after 30 years. Most people could have spent 5% and been just fine. The thing is, is that averages don't matter when you are the 1 person out of 100 that finds themselves running out of money.
There are so many numerous ways to make the 4% rule work most all of the time but its also important to note that you do need to utilize one or more of those methods to make it work all of the time.
"Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option."
I agree someone could go back to work and make it fine - but the 4% rule is then modified.

"Also, how much leeway is there in one's portfolio to make spending adjustments."
I also agree that if one can vary spending enough during the years they draw then it would work as well but the 4% rule is then modified.

There are many ways to augment the 4% rule and make sure that it works - but then you are also augmenting the rule.
But if I were setting up a rule for someone that is a dependent and SS is already figured in, and they cannot augment the rule such that it will be ridged in nature then 4% is not gonna cut it longer term with a 50/50 portfolio.
I realize that the word "rule" is in the subject title. But, I refuse to use that word when discussing this subject matter.

4% is a great starting point which one can adjust based on their own specific situation. That is why it isn't a rule but a strategy or starting point.

Remember all that back testing is to look at what would happen in 1966-1967. That's it. Will the future look better or worse than those two years.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

smitcat
Posts: 5918
Joined: Mon Nov 07, 2016 10:51 am

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by smitcat » Mon May 18, 2020 7:35 am

EnjoyIt wrote:
Mon May 18, 2020 7:22 am
smitcat wrote:
Mon May 18, 2020 7:15 am
EnjoyIt wrote:
Mon May 18, 2020 7:05 am
smitcat wrote:
Mon May 18, 2020 6:47 am
geerhardusvos wrote:
Sun May 17, 2020 9:32 am


Big ERN is a homie. We exchange messages and I have read all his work. Both being German and economics majors, we are kindred spirits. When I leave the megacorp at age 40, I plan for an initial wr of 3.5%-3.8% (for first 2-5 years) to avoid SORR based on his and other work. There’s overwhelming agreement in his community that while the future is unknown, it is likely to be similar to the past over long periods of time. Meaning that 4% WR or more is likely what I will end up being able to withdraw on average over my retirement, but that will be variable and based on market performance. There is a lot of luck with the specific year one retires. So it’s good to avoid SORR in the beginning, and then ramp up from there. A bond glidepath or other strategies can help with this as well.

Someone retiring in their 50s who has 25X and has worked up to that point, is financially independent free and clear especially given their SS income. For a 30 year retirement, 4% WR is supported by Big ERNs analysis of the data, and he’s said that for retirement lengths greater than 30 years a 4% wr often ends up being acceptable (with all the initial portfolio still in tact!!!). But we don’t know if we got lucky with when we decided to retire (will 2030 be a good year for me to retire? Hoping so!). So avoid SORR, and see where you’re at. If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically. Guess what, 4% WR is too in vast majority of cases, especially for 30-40 year retirements. CAPE levels, bond yields, market conditions, etc. are all things that change, and they don’t always reliably predict the future (Econ major here). In fact, I predict that there will be a very difficult economic time for the next 5 to 10 years (while I’m accumulating btw). But only God knows. What usually follows a difficult economic time? Growth.

If you don’t agree with the data or the approach, that’s fine, but you don’t have grounds to keep arguing and nitpicking without understanding the data or providing new relevant data or insights... There is cushion already in 4% WR. It’s been stress tested over the worst economic periods in our history. Those of us who are creative, can manage their money, will be taking a variable withdrawal, etc. will be fine thanks!

Image
"If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically."
So your thoughts are early retirees can use a 3.5% SWR as long as the equity portion is in the 70-80% area.
I agree with that entirely.
I don't think a blanket statement is appropriate because retiring at 50 with 4% is more than fine once SS hits. Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option. Also, how much leeway is there in one's portfolio to make spending adjustments.

I still like using 4% as a starting strategy and then adjusting based on one's needs is fine. For example one can likely use 6% or more if they retire at 60 but SS will cover all their expenses at 70. On the other hand one retiring spending $25k a year at 30 may find a lot more risk and should dial it down a little, be prepared to go back to work, or have a hobby that makes some income.

If we look at the data, most people who retire at 4% would have found themselves with more money than they started with after 30 years. Most people could have spent 5% and been just fine. The thing is, is that averages don't matter when you are the 1 person out of 100 that finds themselves running out of money.
There are so many numerous ways to make the 4% rule work most all of the time but its also important to note that you do need to utilize one or more of those methods to make it work all of the time.
"Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option."
I agree someone could go back to work and make it fine - but the 4% rule is then modified.

"Also, how much leeway is there in one's portfolio to make spending adjustments."
I also agree that if one can vary spending enough during the years they draw then it would work as well but the 4% rule is then modified.

There are many ways to augment the 4% rule and make sure that it works - but then you are also augmenting the rule.
But if I were setting up a rule for someone that is a dependent and SS is already figured in, and they cannot augment the rule such that it will be ridged in nature then 4% is not gonna cut it longer term with a 50/50 portfolio.
I realize that the word "rule" is in the subject title. But, I refuse to use that word when discussing this subject matter.

4% is a great starting point which one can adjust based on their own specific situation. That is why it isn't a rule but a strategy or starting point.

Remember all that back testing is to look at what would happen in 1966-1967. That's it. Will the future look better or worse than those two years.

"4% is a great starting point which one can adjust based on their own specific situation. That is why it isn't a rule but a strategy or starting point."
Yes - if you are going to be able to modify the 4% withdrawal its a good place to start.
That is not nearly the same as saying 4% will work for retirees in their 40's with a 50/50 AA , no ability to vary withdrawals, no additional income after starting, and already taking into consideration any pensions , SS and the like.
4% pirates code , kinda a guideline = Absolutely
Have a field day with the multiple possibilities of anchoring the 4% 'rule' by having backups then:
- be able to work after retiring
- flex draw when times are poor
- discount future SS, pensions, inheritance ,etc
There are likely dozens of ways to make the 4% 'rule' bullet proof as long as it is not just the stand alone rule.

User avatar
WoodSpinner
Posts: 1493
Joined: Mon Feb 27, 2017 1:15 pm

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by WoodSpinner » Mon May 18, 2020 7:42 am

ValuationsMatter wrote:
Thu May 14, 2020 10:20 am
Just remember that models are only as good as their assumptions. I do data analysis and make models for a living. In modeling, many assumptions are optimistic. Will you have large unforeseen health/legal/disaster expenses? Will markets really behave as they have? Can you really gut your way through a depression level event at 75/25? These are all questions that the model in question doesn't address, but effectively treat the assumption as a given. No, you will not have a year in which expenses must exceed the formula. No, you will not change your asset allocation part way through your retirement after a market down turn scares you. No, markets will not act differently in the future than they have in the past.

It's hard not to choose to be even more conservative than a model's results when you're betting your well being on it. Perhaps I will feel differently in the future, but if I have nothing else to fall back on, I rather like the idea of portfolio growth, even in retirement. I know I can't take it with me, but consider it a payment for my peace of mind.
+1000000

EnjoyIt
Posts: 4183
Joined: Sun Dec 29, 2013 8:06 pm

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by EnjoyIt » Mon May 18, 2020 7:48 am

smitcat wrote:
Mon May 18, 2020 7:35 am
EnjoyIt wrote:
Mon May 18, 2020 7:22 am
smitcat wrote:
Mon May 18, 2020 7:15 am
EnjoyIt wrote:
Mon May 18, 2020 7:05 am
smitcat wrote:
Mon May 18, 2020 6:47 am


"If you are forced to give a blanket recommendation to early retirees, 3.5% WR is properly safe historically."
So your thoughts are early retirees can use a 3.5% SWR as long as the equity portion is in the 70-80% area.
I agree with that entirely.
I don't think a blanket statement is appropriate because retiring at 50 with 4% is more than fine once SS hits. Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option. Also, how much leeway is there in one's portfolio to make spending adjustments.

I still like using 4% as a starting strategy and then adjusting based on one's needs is fine. For example one can likely use 6% or more if they retire at 60 but SS will cover all their expenses at 70. On the other hand one retiring spending $25k a year at 30 may find a lot more risk and should dial it down a little, be prepared to go back to work, or have a hobby that makes some income.

If we look at the data, most people who retire at 4% would have found themselves with more money than they started with after 30 years. Most people could have spent 5% and been just fine. The thing is, is that averages don't matter when you are the 1 person out of 100 that finds themselves running out of money.
There are so many numerous ways to make the 4% rule work most all of the time but its also important to note that you do need to utilize one or more of those methods to make it work all of the time.
"Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option."
I agree someone could go back to work and make it fine - but the 4% rule is then modified.

"Also, how much leeway is there in one's portfolio to make spending adjustments."
I also agree that if one can vary spending enough during the years they draw then it would work as well but the 4% rule is then modified.

There are many ways to augment the 4% rule and make sure that it works - but then you are also augmenting the rule.
But if I were setting up a rule for someone that is a dependent and SS is already figured in, and they cannot augment the rule such that it will be ridged in nature then 4% is not gonna cut it longer term with a 50/50 portfolio.
I realize that the word "rule" is in the subject title. But, I refuse to use that word when discussing this subject matter.

4% is a great starting point which one can adjust based on their own specific situation. That is why it isn't a rule but a strategy or starting point.

Remember all that back testing is to look at what would happen in 1966-1967. That's it. Will the future look better or worse than those two years.

"4% is a great starting point which one can adjust based on their own specific situation. That is why it isn't a rule but a strategy or starting point."
Yes - if you are going to be able to modify the 4% withdrawal its a good place to start.
That is not nearly the same as saying 4% will work for retirees in their 40's with a 50/50 AA , no ability to vary withdrawals, no additional income after starting, and already taking into consideration any pensions , SS and the like.
4% pirates code , kinda a guideline = Absolutely
Have a field day with the multiple possibilities of anchoring the 4% 'rule' by having backups then:
- be able to work after retiring
- flex draw when times are poor
- discount future SS, pensions, inheritance ,etc
There are likely dozens of ways to make the 4% 'rule' bullet proof as long as it is not just the stand alone rule.
Remember 4% and more has worked for most retirees. Most will not need to make any adjustments.
It’s the future that we don’t know.
4% from today has a very high likelihood of being bullet proof. Starting 4% ten years from today may be different.

I think we are arguing with semantics.

And again, I refuse to call it a rule. Because it is never meant to be a rule. It is meant to be a suggested starting point.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

MarkRoulo
Posts: 219
Joined: Mon Jun 22, 2015 10:25 am

Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by MarkRoulo » Mon May 18, 2020 9:37 am

AlohaJoe wrote:
Mon May 18, 2020 6:56 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am
The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.
How many data points are required to have 95% confidence?
Short answer: I don't know, but an annoyingly large number.

Longer answer:

The 810 years that Will mentioned sounds about right. Its the same size as the number I have seen quoted for this.
Part of the problem is that there are subtle variations of this question that produce different answers. You have
to be very precise about which question you want answered. Which is fairly common in statistics :-)

If we think of "not running out of money in a 30 year period" as a successful coin flip, one variant of this question becomes:
How many successes in a row do we need to be 95% confident that we have at least a 50:50 chance of the next period succeeding?
So you bring up Pascal's triangle, slide down until all success is better than 95% of the choices and find that you'll
need 6 periods. To be very (95%) confident that the next period will succeed, too.

But we *tuned* our original 4% based on the original data, so using that as part of our six periods is a form of p-hacking (I think).

And we haven't answered the question: Are we 95% confident that the next period will be a success?

So 810 years (27 periods) sounds about right.

We aren't going to get that data in time to make a decision, so folks (including me) are just going to have to decide how much is "enough" without the level of confidence that they'd like. Nothing to be done about it.

For what it is worth, I wrote up an *ILLUSTRATION* (rather than a proof) of why the rolling periods don't work the way we want them to. You can find it here:
http://mistybeach.com/mark/math/Expecti ... dence.html

No math to speak of as the intent is to provide insight as to why the Trinity Study doesn't do what we want rather than provide an alternative.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by MarkRoulo » Mon May 18, 2020 9:54 am

CyclingDuo wrote:
Sun May 17, 2020 8:02 am
... snip ...

Correct. It appeared in the data for the first time starting in July of 2019. Gen X population is projected to pass Boomers by 2028 as more deaths occur.

https://www.pewresearch.org/fact-tank/2 ... eneration/

Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

Image
From the image: "Note: Millennials refer to the population ages 23 to 38 as of 2019"

So: Born between 1981 and 1996.

How does this population born before 1997 increase from 72 million in 2019 to 75 million between 2019 and 2033?
Immigration?

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Mon May 18, 2020 10:00 am

MarkRoulo wrote:
Mon May 18, 2020 9:37 am
AlohaJoe wrote:
Mon May 18, 2020 6:56 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am
The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.
How many data points are required to have 95% confidence?
Short answer: I don't know, but an annoyingly large number.

Longer answer:

The 810 years that Will mentioned sounds about right. Its the same size as the number I have seen quoted for this.
Part of the problem is that there are subtle variations of this question that produce different answers. You have
to be very precise about which question you want answered. Which is fairly common in statistics :-)

If we think of "not running out of money in a 30 year period" as a successful coin flip, one variant of this question becomes:
How many successes in a row do we need to be 95% confident that we have at least a 50:50 chance of the next period succeeding?
So you bring up Pascal's triangle, slide down until all success is better than 95% of the choices and find that you'll
need 6 periods. To be very (95%) confident that the next period will succeed, too.

But we *tuned* our original 4% based on the original data, so using that as part of our six periods is a form of p-hacking (I think).

And we haven't answered the question: Are we 95% confident that the next period will be a success?

So 810 years (27 periods) sounds about right.

We aren't going to get that data in time to make a decision, so folks (including me) are just going to have to decide how much is "enough" without the level of confidence that they'd like. Nothing to be done about it.

For what it is worth, I wrote up an *ILLUSTRATION* (rather than a proof) of why the rolling periods don't work the way we want them to. You can find it here:
http://mistybeach.com/mark/math/Expecti ... dence.html

No math to speak of as the intent is to provide insight as to why the Trinity Study doesn't do what we want rather than provide an alternative.
On top of that, many of the variables involved seem very likely to be dynamic, rather than static. In such an environment, meaningful confidence intervals may literally be impossible, regardless of how large the sample size is.

But as we both agree, retirees still have to determine how much to withdraw every year. And based on what data we currently have, 4% seems to be a very conservative starting point for those in their mid 60s. It's far from impossible that they will need to reduce this later on, but it seems very likely that they will not be required to do so.
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by CyclingDuo » Mon May 18, 2020 10:22 am

MarkRoulo wrote:
Mon May 18, 2020 9:54 am
CyclingDuo wrote:
Sun May 17, 2020 8:02 am
... snip ...

Correct. It appeared in the data for the first time starting in July of 2019. Gen X population is projected to pass Boomers by 2028 as more deaths occur.

https://www.pewresearch.org/fact-tank/2 ... eneration/

Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

Image
From the image: "Note: Millennials refer to the population ages 23 to 38 as of 2019"

So: Born between 1981 and 1996.

How does this population born before 1997 increase from 72 million in 2019 to 75 million between 2019 and 2033?
Immigration?
Yes. The same thing happened to the Boomer population due to immigration.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by HomerJ » Mon May 18, 2020 10:28 am

smitcat wrote:
Mon May 18, 2020 7:15 am
There are so many numerous ways to make the 4% rule work most all of the time but its also important to note that you do need to utilize one or more of those methods to make it work all of the time.
"Retiring at 30 at 4% is risky, but if markets crumble in the first 5 years adding a few years of work would be necessary and maybe a reasonable option."
I agree someone could go back to work and make it fine - but the 4% rule is then modified.

"Also, how much leeway is there in one's portfolio to make spending adjustments."
I also agree that if one can vary spending enough during the years they draw then it would work as well but the 4% rule is then modified.

There are many ways to augment the 4% rule and make sure that it works - but then you are also augmenting the rule.
Yes, good thing it's just a "rule of thumb", and not a law that people must follow or be thrown in jail.
But if I were setting up a rule for someone that is a dependent and SS is already figured in, and they cannot augment the rule such that it will be ridged in nature then 4% is not gonna cut it longer term with a 50/50 portfolio.
Sure, great. That makes sense if you are setting up a plan for someone else who is not capable.

I don't think that describes most of the people debating this topic.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by ValuationsMatter » Mon May 18, 2020 2:51 pm

AlohaJoe wrote:
Mon May 18, 2020 6:56 am
MarkRoulo wrote:
Sat May 16, 2020 10:36 am
The fundamental problem is that with only three independent data points you simply can’t have 95% confidence.
How many data points are required to have 95% confidence?
That depends on the acceptable error and the variance of the data.

http://www.ltcconline.net/greenl/course ... ciprop.htm

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by Tony-S » Mon May 18, 2020 5:36 pm

EnjoyIt wrote:
Mon May 18, 2020 7:22 am
I realize that the word "rule" is in the subject title. But, I refuse to use that word when discussing this subject matter.
“The (4%) is more what you’d call ‘guidelines’ than actual rules.” – Hector Barbossa, Pirates of the Caribbean

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by Leesbro63 » Mon May 18, 2020 5:55 pm

Tony-S wrote:
Mon May 18, 2020 5:36 pm
EnjoyIt wrote:
Mon May 18, 2020 7:22 am
I realize that the word "rule" is in the subject title. But, I refuse to use that word when discussing this subject matter.
“The (4%) is more what you’d call ‘guidelines’ than actual rules.” – Hector Barbossa, Pirates of the Caribbean
Perhaps "rule" is just short for "rule of thumb"

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by AlohaJoe » Mon May 18, 2020 8:05 pm

MarkRoulo wrote:
Mon May 18, 2020 9:37 am
So 810 years (27 periods) sounds about right.

We aren't going to get that data in time to make a decision
Then we already have the data we need. 27 periods. 1950-2020 is 70 years; call that 2 periods (1950-1979 and 1980-2009). We only need data from 14 countries and as we all know, the world is bigger than just the US, so it is easy to find 14 countries.

Australia, Belgium, Denmark, Finland, Germany, Italy, Japan, Netherlands, Portugal, Spain, Sweden, Czech, UK, and USA all had SWRs over 4% during those 28 independent periods.

So there you go: 28 independent periods where the safe withdrawal rate was over 4%. 95% confidence.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by MarkRoulo » Mon May 18, 2020 8:21 pm

AlohaJoe wrote:
Mon May 18, 2020 8:05 pm
MarkRoulo wrote:
Mon May 18, 2020 9:37 am
So 810 years (27 periods) sounds about right.

We aren't going to get that data in time to make a decision
Then we already have the data we need. 27 periods. 1950-2020 is 70 years; call that 2 periods (1950-1979 and 1980-2009). We only need data from 14 countries and as we all know, the world is bigger than just the US, so it is easy to find 14 countries.

Australia, Belgium, Denmark, Finland, Germany, Italy, Japan, Netherlands, Portugal, Spain, Sweden, Czech, UK, and USA all had SWRs over 4% during those 28 independent periods.

So there you go: 28 independent periods where the safe withdrawal rate was over 4%. 95% confidence.
Nice try, but:

(a) Same period, other countries aren’t independent, and
(b) What I remember reading (but haven’t checked myself) is that the 4% rule failed when extended to other countries. Have you checked those? Or picked carefully :-)

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by AlohaJoe » Mon May 18, 2020 8:37 pm

MarkRoulo wrote:
Mon May 18, 2020 8:21 pm
(a) Same period, other countries aren’t independent, and
(b) What I remember reading (but haven’t checked myself) is that the 4% rule failed when extended to other countries. Have you checked those? Or picked carefully :-)
Of course other countries are independent; that's why they have wildly different maximum safe withdrawal rates over the 1950-1979 cycle. 5.4% SWR for Australia, 7.9% SWR for Belgium, 19.4% for Germany, 4.8% for Portugal, etc. They are at least as independent as the "independent cycles" that 4% Truthers always go on about needing to have.

1900-1930 is not independent from 1931-1960 because the same exact companies that existed in 1930 also existed in 1931. The same macroeconomic forces that drove returns in 1930 drove returns in 1931. The same government policies, the same economic sectors, the same demographics.

Yes, I checked all of the countries I mentioned by using the data from the Jorda-Schularick-Taylor macrohistory database.

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by NoRegret » Mon May 18, 2020 8:50 pm

CyclingDuo wrote:
Sun May 17, 2020 8:02 am
marcopolo wrote:
Sat May 16, 2020 10:56 pm
NoRegret wrote:
Sat May 16, 2020 10:32 pm
willthrill81 wrote:
Sat May 16, 2020 2:45 pm
NoRegret wrote:
Sat May 16, 2020 1:20 pm

Point is that if people were withdrawing en masse from the stock market to fund their retirement, historic returns would have been lower.
You're overlooking the fact that in order for people in times past to have a portfolio to withdraw from that they would have first had to make contributions to buy stocks in the first place.
NoRegret wrote:
Sat May 16, 2020 1:20 pm

I agree that a straight Monte Carlo is too harsh a test. It's possible to do Monte Carlo with mean reversion around an underlying growth rate. I doubt there is a good "solution" to the problem. Just like we can't all be rich, sometimes it's just what life is.
If there's no solution, then I don't see a point in opining about the problem. Retirees can't wait 810 more years until we get 30 non-overlapping periods of returns. We have to do the best we can with the data we have. And those data indicate that at least so far, 4% has been a very fine starting point for retirees of a traditional age and usually fine for early retirees too. If the future turns out to be gloomier than the past, then retirees will just have to find a way to make things work just like they did during their working years. Those who are really concerned about the future being worse than the worst of the past can buy a SPIA, assemble a TIPS/I-bonds ladder, etc. to add to the income floor that their SS benefits (will) provide.
I wrote a reply but it was eaten by internet gnomes. Anyway, on the first point, money flow matters. Had we observed a generation cohort going through the markets we would realize that the current market has benefited from the Boomers saving for their retirement but we now may be on the back side of that wave.

On the 2nd point. No solution means we are not going to get the certainty we want but life goes on nonetheless. We're in good agreement that we need to embrace uncertainty and be ready for whatever comes out way. I'm slightly more pessimistic about near term returns but 4% for 30 years might still be ok, but I wouldn't do it for 40. Some annuitization makes sense in that case.

Cheers, NR
As of 2019, Millenials outnumber boomers.
They will be buying for years to come.
Correct. It appeared in the data for the first time starting in July of 2019. Gen X population is projected to pass Boomers by 2028 as more deaths occur.

https://www.pewresearch.org/fact-tank/2 ... eneration/

Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

Image
Young people at early stages of their career cannot contribute per year anywhere close to a retiree's annual living expense. Of course the numbers of relative age cohorts matters, but what really matters is the total amount contributed vs. the amount withdrawn.

BTW, it's age cohort that determines the fraction in retirement, not generational cohort which naturally matures.

They are fund flow data available so we don't have to guess: e.g. https://www.morningstar.com/articles/96 ... n-9-charts
Lipper, ICI, Morningstar regularly publish such data. Like I said, we may be on the backside of that wave, but we'll have to see what the future holds.

Cheers,
NR
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by MP123 » Mon May 18, 2020 9:05 pm

AlohaJoe wrote:
Mon May 18, 2020 8:37 pm
MarkRoulo wrote:
Mon May 18, 2020 8:21 pm
(a) Same period, other countries aren’t independent, and
(b) What I remember reading (but haven’t checked myself) is that the 4% rule failed when extended to other countries. Have you checked those? Or picked carefully :-)
Of course other countries are independent; that's why they have wildly different maximum safe withdrawal rates over the 1950-1979 cycle. 5.4% SWR for Australia, 7.9% SWR for Belgium, 19.4% for Germany, 4.8% for Portugal, etc. They are at least as independent as the "independent cycles" that 4% Truthers always go on about needing to have.
And how did they do from, say, 1930-1959?

I'm guessing not as well. :twisted:

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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Mon May 18, 2020 9:07 pm

NoRegret wrote:
Mon May 18, 2020 8:50 pm
CyclingDuo wrote:
Sun May 17, 2020 8:02 am
marcopolo wrote:
Sat May 16, 2020 10:56 pm
NoRegret wrote:
Sat May 16, 2020 10:32 pm
willthrill81 wrote:
Sat May 16, 2020 2:45 pm


You're overlooking the fact that in order for people in times past to have a portfolio to withdraw from that they would have first had to make contributions to buy stocks in the first place.



If there's no solution, then I don't see a point in opining about the problem. Retirees can't wait 810 more years until we get 30 non-overlapping periods of returns. We have to do the best we can with the data we have. And those data indicate that at least so far, 4% has been a very fine starting point for retirees of a traditional age and usually fine for early retirees too. If the future turns out to be gloomier than the past, then retirees will just have to find a way to make things work just like they did during their working years. Those who are really concerned about the future being worse than the worst of the past can buy a SPIA, assemble a TIPS/I-bonds ladder, etc. to add to the income floor that their SS benefits (will) provide.
I wrote a reply but it was eaten by internet gnomes. Anyway, on the first point, money flow matters. Had we observed a generation cohort going through the markets we would realize that the current market has benefited from the Boomers saving for their retirement but we now may be on the back side of that wave.

On the 2nd point. No solution means we are not going to get the certainty we want but life goes on nonetheless. We're in good agreement that we need to embrace uncertainty and be ready for whatever comes out way. I'm slightly more pessimistic about near term returns but 4% for 30 years might still be ok, but I wouldn't do it for 40. Some annuitization makes sense in that case.

Cheers, NR
As of 2019, Millenials outnumber boomers.
They will be buying for years to come.
Correct. It appeared in the data for the first time starting in July of 2019. Gen X population is projected to pass Boomers by 2028 as more deaths occur.

https://www.pewresearch.org/fact-tank/2 ... eneration/

Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

Image
Young people at early stages of their career cannot contribute per year anywhere close to a retiree's annual living expense. Of course the numbers of relative age cohorts matters, but what really matters is the total amount contributed vs. the amount withdrawn.

BTW, it's age cohort that determines the fraction in retirement, not generational cohort which naturally matures.

They are fund flow data available so we don't have to guess: e.g. https://www.morningstar.com/articles/96 ... n-9-charts
Lipper, ICI, Morningstar regularly publish such data. Like I said, we may be on the backside of that wave, but we'll have to see what the future holds.

Cheers,
NR
IIRC, research into the impact of generational cohorts aging at different intervals on stocks didn't come up with much.

But even so, Baby Boomers with significant stock holdings aren't going to go to cash overnight. Many of those who are very wealthy (and probably have the most stocks) will keep their stock holdings intact throughout their lifetimes, leaving them behind for heirs who will take advantage of the step-up in cost basis.
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Re: Ben Felix - How to Retire Early (The 4% Rule)

Post by willthrill81 » Mon May 18, 2020 9:11 pm

MarkRoulo wrote:
Mon May 18, 2020 8:21 pm
AlohaJoe wrote:
Mon May 18, 2020 8:05 pm
MarkRoulo wrote:
Mon May 18, 2020 9:37 am
So 810 years (27 periods) sounds about right.

We aren't going to get that data in time to make a decision
Then we already have the data we need. 27 periods. 1950-2020 is 70 years; call that 2 periods (1950-1979 and 1980-2009). We only need data from 14 countries and as we all know, the world is bigger than just the US, so it is easy to find 14 countries.

Australia, Belgium, Denmark, Finland, Germany, Italy, Japan, Netherlands, Portugal, Spain, Sweden, Czech, UK, and USA all had SWRs over 4% during those 28 independent periods.

So there you go: 28 independent periods where the safe withdrawal rate was over 4%. 95% confidence.
Nice try, but:

(a) Same period, other countries aren’t independent, and
(b) What I remember reading (but haven’t checked myself) is that the 4% rule failed when extended to other countries. Have you checked those? Or picked carefully :-)
1. Most of this research assumes that retirees were only investing in their home country. International diversification would have benefited retirees in many nations.

2. Many, perhaps most, of the countries where the '4% rule of thumb' failed were ravaged by war during the period under interest. This has been pointed out repeatedly in these threads. It's probably not reasonable to expect any withdrawal rate to survive if your country gets bombed into rubble.
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