2% withdrawal rate

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
ncbill
Posts: 2053
Joined: Sun Jul 06, 2008 4:03 pm
Location: Western NC

Re: 2% withdrawal rate

Post by ncbill »

zaboomafoozarg wrote: Sun Dec 04, 2022 10:23 pm
zaboomafoozarg wrote: Tue Jun 04, 2019 9:03 pmI've always wanted to retire early but am going to force myself to work until 55. At that point I expect to have a 1.25% SWR.
It's interesting to look back at the past. Since posting this I've decided to keep working until I get to a 1% SWR, hopefully by age 60.

I am almost certain that it will be more than I need, but I want to be extra careful. The future looks terrible.
The tradeoff is that, statistically, a male waiting until that age to retire won't get to enjoy a "full" 30-year retirement.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 2% withdrawal rate

Post by dbr »

Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
The answer is simple. If a person decides that the right answer for a person retiring today is 2% rather than 4% then that person plans their retirement with a spend half what they previously thought and/or they accumulate twice what they had originally planned before they retire. That is a pretty simple choice to make. Of course part of the calculation is whether or not one should now also decide that Social Security will not materialize nor that one could invest today in a 30 year TIPS ladder and guarantee 30 years of 4% inflation indexed income, albeit ending at the end of the 30 years. A 65 year old male person can also buy today an SPIA with a life payout of 8% albeit not inflation indexed.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

2% = 50 years of expenses. 2% is very safe because most people will be dead before they have enough saved to retire. :shock:
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

michaeljc70 wrote: Mon Dec 05, 2022 8:47 am 2% = 50 years of expenses. 2% is very safe because most people will be dead before they have enough saved to retire. :shock:
This isn’t exactly right, because there’s no way to lock in value for large taxable portfolios…which is what most people having 50x have.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

dbr wrote: Mon Dec 05, 2022 8:45 am
Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
The answer is simple. If a person decides that the right answer for a person retiring today is 2% rather than 4% then that person plans their retirement with a spend half what they previously thought and/or they accumulate twice what they had originally planned before they retire. That is a pretty simple choice to make. Of course part of the calculation is whether or not one should now also decide that Social Security will not materialize nor that one could invest today in a 30 year TIPS ladder and guarantee 30 years of 4% inflation indexed income, albeit ending at the end of the 30 years. A 65 year old male person can also buy today an SPIA with a life payout of 8% albeit not inflation indexed.
Social Security, pensions and other income streams are not relevant to whether a pool of money will last 30 years or not at a given withdrawal rate.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 2% withdrawal rate

Post by dbr »

Leesbro63 wrote: Mon Dec 05, 2022 9:03 am
dbr wrote: Mon Dec 05, 2022 8:45 am
Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
The answer is simple. If a person decides that the right answer for a person retiring today is 2% rather than 4% then that person plans their retirement with a spend half what they previously thought and/or they accumulate twice what they had originally planned before they retire. That is a pretty simple choice to make. Of course part of the calculation is whether or not one should now also decide that Social Security will not materialize nor that one could invest today in a 30 year TIPS ladder and guarantee 30 years of 4% inflation indexed income, albeit ending at the end of the 30 years. A 65 year old male person can also buy today an SPIA with a life payout of 8% albeit not inflation indexed.
Social Security, pensions and other income streams are not relevant to whether a pool of money will last 30 years or not at a given withdrawal rate.
It is relevant to what the fate of the investor will be when his assets run out. I know lots of people who live perfectly comfortably in retirement and yet don't have and never did have any assets, including not owning a home. We also get posts on the forum where people have so much in pensions and Social Security that their withdrawal rates are negative, and they still worry about running out of money somehow.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

Leesbro63 wrote: Mon Dec 05, 2022 9:01 am
michaeljc70 wrote: Mon Dec 05, 2022 8:47 am 2% = 50 years of expenses. 2% is very safe because most people will be dead before they have enough saved to retire. :shock:
This isn’t exactly right, because there’s no way to lock in value for large taxable portfolios…which is what most people having 50x have.
It is simple math. 100/2=50. It has nothing to do with locking in value or how big the portfolio is.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

michaeljc70 wrote: Mon Dec 05, 2022 9:07 am
Leesbro63 wrote: Mon Dec 05, 2022 9:01 am
michaeljc70 wrote: Mon Dec 05, 2022 8:47 am 2% = 50 years of expenses. 2% is very safe because most people will be dead before they have enough saved to retire. :shock:
This isn’t exactly right, because there’s no way to lock in value for large taxable portfolios…which is what most people having 50x have.
It is simple math. 100/2=50. It has nothing to do with locking in value or how big the portfolio is.
It has absolutely everything to do with locking in value, or, more correctly, the inability to do so. Ask anyone who retired at the beginning of 1929, 1966, 2008 or 2022. You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

Leesbro63 wrote: Mon Dec 05, 2022 9:11 am
michaeljc70 wrote: Mon Dec 05, 2022 9:07 am
Leesbro63 wrote: Mon Dec 05, 2022 9:01 am
michaeljc70 wrote: Mon Dec 05, 2022 8:47 am 2% = 50 years of expenses. 2% is very safe because most people will be dead before they have enough saved to retire. :shock:
This isn’t exactly right, because there’s no way to lock in value for large taxable portfolios…which is what most people having 50x have.
It is simple math. 100/2=50. It has nothing to do with locking in value or how big the portfolio is.
It has absolutely everything to do with locking in value, or, more correctly, the inability to do so. Ask anyone who retired at the beginning of 1929, 1966, 2008 or 2022. You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
No, I am not assuming that. I stated a 2% SWR requires 50x expenses. Simple math. Whether it will work/last is a totally different topic. I didn't state it will last 50 years.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

Another interesting thing on the Ben Felix podcast, not really related to the main point of the podcast (that 2% is the new 4%, according to their research): How environment affects choice. Some examples shown by surveys:

Hotels listed first in online searches are far more likely to get booked versus even the second one, let alone those farther down the list.

The chance of snow is more likely to cause one to buy an all wheel drive vehicle.

Sunny clear days is more likely to cause one to buy a convertible.

People are more concerned about global warming on hotter days

Names near the top of the ballot tend to attract voters more than names not there. For close elections this can be critical.

And of course never go to a grocery store hungry.

Just some food for thought.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

michaeljc70 wrote: Mon Dec 05, 2022 9:13 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am
michaeljc70 wrote: Mon Dec 05, 2022 9:07 am
Leesbro63 wrote: Mon Dec 05, 2022 9:01 am
michaeljc70 wrote: Mon Dec 05, 2022 8:47 am 2% = 50 years of expenses. 2% is very safe because most people will be dead before they have enough saved to retire. :shock:
This isn’t exactly right, because there’s no way to lock in value for large taxable portfolios…which is what most people having 50x have.
It is simple math. 100/2=50. It has nothing to do with locking in value or how big the portfolio is.
It has absolutely everything to do with locking in value, or, more correctly, the inability to do so. Ask anyone who retired at the beginning of 1929, 1966, 2008 or 2022. You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
No, I am not assuming that. I stated a 2% SWR requires 50x expenses. Simple math. Whether it will work/last is a totally different topic. I didn't state it will last 50 years.
Then I'm not sure what your overall point is. Sticking to the subject at hand, do you think that Bengen's 4% SWR is safe enough? Or do you think Bengen's data was the result of "American good times" (basically Ben Felix's point) and that the real number is 2%?
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

Leesbro63 wrote: Mon Dec 05, 2022 9:28 am
michaeljc70 wrote: Mon Dec 05, 2022 9:13 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am
michaeljc70 wrote: Mon Dec 05, 2022 9:07 am
Leesbro63 wrote: Mon Dec 05, 2022 9:01 am

This isn’t exactly right, because there’s no way to lock in value for large taxable portfolios…which is what most people having 50x have.
It is simple math. 100/2=50. It has nothing to do with locking in value or how big the portfolio is.
It has absolutely everything to do with locking in value, or, more correctly, the inability to do so. Ask anyone who retired at the beginning of 1929, 1966, 2008 or 2022. You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
No, I am not assuming that. I stated a 2% SWR requires 50x expenses. Simple math. Whether it will work/last is a totally different topic. I didn't state it will last 50 years.
Then I'm not sure what your overall point is. Sticking to the subject at hand, do you think that Bengen's 4% SWR is safe enough? Or do you think Bengen's data was the result of "American good times" (basically Ben Felix's point) and that the real number is 2%?
"American good times"? Like the Great Depression, inflation of the 70s/early 80s, multiple world wars, S&L crisis, 2000 internet bust, 2008 mortgage crisis, worldwide pandemic, etc? I also think we (well economists) have a much better grasp of monetary policy then they did 100 years ago.

I'd feel good using 4% (with the underlying assumptions stated in the Trinity study). I used the 4% SWR as a guideline for retiring. However, I am using a VPW with a floor. I don't typically need what the VPW spreadsheet tells me so I really use it as an upper limit. I am not just going to spend money unnecessarily because I can.

A lot has to do with how risk averse you are, what your AA is and any backup options you might have (reverse mortgage/selling home/reducing expenses if needed). I believe the Trinity study relied on not running out of money for 95% of historical cases. If you have absolutely zero flexibility with expenses or think the future will be worse than the past, then you probably need to be more conservative.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

michaeljc70 wrote: Mon Dec 05, 2022 9:47 am
Leesbro63 wrote: Mon Dec 05, 2022 9:28 am
michaeljc70 wrote: Mon Dec 05, 2022 9:13 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am
michaeljc70 wrote: Mon Dec 05, 2022 9:07 am

It is simple math. 100/2=50. It has nothing to do with locking in value or how big the portfolio is.
It has absolutely everything to do with locking in value, or, more correctly, the inability to do so. Ask anyone who retired at the beginning of 1929, 1966, 2008 or 2022. You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
No, I am not assuming that. I stated a 2% SWR requires 50x expenses. Simple math. Whether it will work/last is a totally different topic. I didn't state it will last 50 years.
Then I'm not sure what your overall point is. Sticking to the subject at hand, do you think that Bengen's 4% SWR is safe enough? Or do you think Bengen's data was the result of "American good times" (basically Ben Felix's point) and that the real number is 2%?
"American good times"? Like the Great Depression, inflation of the 70s/early 80s, multiple world wars, S&L crisis, 2000 internet bust, 2008 mortgage crisis, worldwide pandemic, etc? I also think we (well economists) have a much better grasp of monetary policy then they did 100 years ago.

I'd feel good using 4% (with the underlying assumptions stated in the Trinity study). I used the 4% SWR as a guideline for retiring. However, I am using a VPW with a floor. I don't typically need what the VPW spreadsheet tells me so I really use it as an upper limit. I am not just going to spend money unnecessarily because I can.

A lot has to do with how risk averse you are, what your AA is and any backup options you might have (reverse mortgage/selling home/reducing expenses if needed). I believe the Trinity study relied on not running out of money for 95% of historical cases. If you have absolutely zero flexibility with expenses or think the future will be worse than the past, then you probably need to be more conservative.
I like your answer. But I do suggest listening to the podcast. Despite all of those calamities that you mentioned, Ben Felix makes a good case that things were much worse elsewhere and that that "worseness" is the default mode.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: 2% withdrawal rate

Post by Marseille07 »

Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

Marseille07 wrote: Mon Dec 05, 2022 10:40 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Right. But Ben Felix’s point, the topic of this thread, is that 4% is much less safe than that of the American experience of the last 100 years.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: 2% withdrawal rate

Post by marcopolo »

zaboomafoozarg wrote: Sun Dec 04, 2022 10:23 pm
zaboomafoozarg wrote: Tue Jun 04, 2019 9:03 pmI've always wanted to retire early but am going to force myself to work until 55. At that point I expect to have a 1.25% SWR.
It's interesting to look back at the past. Since posting this I've decided to keep working until I get to a 1% SWR, hopefully by age 60.

I am almost certain that it will be more than I need, but I want to be extra careful. The future looks terrible.

Wow. You must really love your job.

You are going to "force yourself" to work another 5 years because you are worried a 1.25% WR at age 55 might fail?!?
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: 2% withdrawal rate

Post by marcopolo »

Leesbro63 wrote: Mon Dec 05, 2022 11:02 am
Marseille07 wrote: Mon Dec 05, 2022 10:40 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Right. But Ben Felix’s point, the topic of this thread, is that 4% is much less safe than that of the American experience of the last 100 years.
Seems kind of like the guys that used to hang around airports with the card board signs saying "The End is Nigh".

People have been making doom and gloom predictions from the start of time. The more sensational, the more clicks it gets.

You (and Ben Felix) think the future looks worse than they did say during the dust bowl when we had 25% unemployment and all the other calamities that went with it, as just one example?
Once in a while you get shown the light, in the strangest of places if you look at it right.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

marcopolo wrote: Mon Dec 05, 2022 11:10 am
Leesbro63 wrote: Mon Dec 05, 2022 11:02 am
Marseille07 wrote: Mon Dec 05, 2022 10:40 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Right. But Ben Felix’s point, the topic of this thread, is that 4% is much less safe than that of the American experience of the last 100 years.
Seems kind of like the guys that used to hang around airports with the card board signs saying "The End is Nigh".

People have been making doom and gloom predictions from the start of time. The more sensational, the more clicks it gets.

You (and Ben Felix) think the future looks worse than they did say during the dust bowl when we had 25% unemployment and all the other calamities that went with it, as just one example?
I wonder how many years of food people using a <2% SWR have in their basement.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

marcopolo wrote: Mon Dec 05, 2022 11:10 am
Leesbro63 wrote: Mon Dec 05, 2022 11:02 am
Marseille07 wrote: Mon Dec 05, 2022 10:40 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Right. But Ben Felix’s point, the topic of this thread, is that 4% is much less safe than that of the American experience of the last 100 years.
Seems kind of like the guys that used to hang around airports with the card board signs saying "The End is Nigh".

People have been making doom and gloom predictions from the start of time. The more sensational, the more clicks it gets.

You (and Ben Felix) think the future looks worse than they did say during the dust bowl when we had 25% unemployment and all the other calamities that went with it, as just one example?
I can’t disagree about how scary things were during the Depression. And yet expected investment returns looked better from 1933 than they did from the go-go time of early 1929.

I get your point that 4% worked through that. And through lots of other turmoil. My own concern is that the current record debt-to-GDP might be the black swan that “finally gets us”. I’d encourage you to listen to the podcast and opine here, again, after doing so.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: 2% withdrawal rate

Post by vineviz »

marcopolo wrote: Mon Dec 05, 2022 11:10 am
Leesbro63 wrote: Mon Dec 05, 2022 11:02 am
Marseille07 wrote: Mon Dec 05, 2022 10:40 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Right. But Ben Felix’s point, the topic of this thread, is that 4% is much less safe than that of the American experience of the last 100 years.
Seems kind of like the guys that used to hang around airports with the card board signs saying "The End is Nigh".

People have been making doom and gloom predictions from the start of time. The more sensational, the more clicks it gets.

You (and Ben Felix) think the future looks worse than they did say during the dust bowl when we had 25% unemployment and all the other calamities that went with it, as just one example?
I'd encourage you to read the research that Felix was discussing, and actually listen to the podcast.

Ben is absolutely NOT a career gloom and doom predictor, and I don't think anyone can take an objective look at the 20th century and conclude that the experience of US financial markets were anything but an outlier among all markets globally.

Whether that was due to skill, luck, or destiny can (and often is) certainly debatable. But our experience was objectively NOT typical or average among developed nations, and that seems like a fact people would want to be aware of.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: 2% withdrawal rate

Post by marcopolo »

vineviz wrote: Mon Dec 05, 2022 11:52 am
marcopolo wrote: Mon Dec 05, 2022 11:10 am
Leesbro63 wrote: Mon Dec 05, 2022 11:02 am
Marseille07 wrote: Mon Dec 05, 2022 10:40 am
Leesbro63 wrote: Mon Dec 05, 2022 9:11 am You are assuming that having 50x what you spend means your money will last 50 years, in real terms. Bear markets can undo that.
Based on our historical data, they didn't and likely won't.

I don't believe we have any stretch where 2% SWR failed to cover a 50-year period.
Right. But Ben Felix’s point, the topic of this thread, is that 4% is much less safe than that of the American experience of the last 100 years.
Seems kind of like the guys that used to hang around airports with the card board signs saying "The End is Nigh".

People have been making doom and gloom predictions from the start of time. The more sensational, the more clicks it gets.

You (and Ben Felix) think the future looks worse than they did say during the dust bowl when we had 25% unemployment and all the other calamities that went with it, as just one example?
I'd encourage you to read the research that Felix was discussing, and actually listen to the podcast.

Ben is absolutely NOT a career gloom and doom predictor, and I don't think anyone can take an objective look at the 20th century and conclude that the experience of US financial markets were anything but an outlier among all markets globally.

Whether that was due to skill, luck, or destiny can (and often is) certainly debatable. But our experience was objectively NOT typical or average among developed nations, and that seems like a fact people would want to be aware of.
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: 2% withdrawal rate

Post by vineviz »

marcopolo wrote: Mon Dec 05, 2022 12:02 pm
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Again, I'd suggest going back to the source. If you listen to the podcast, I think you'll find Felix making no independent claims about the forward SWR. At least, I didn't hear him make any.

He was reviewing a research paper which found the the historical SWR using a global data set was 2.2% or something.

Ben also pointed out some issues he had with that research, and I share those along with some others. I also don't think it is wise to extrapolate the historical SWR into the future regardless of whether it is 2% or 4% or something else.

My earlier point, though, was that countries who were bigger and stronger than the U.S. did experience financial catastrophes in the 20th century that they didn't bounce back from.

I personally don't think it is necessary to plan for a high probability of experiencing that kind of catastrophe, but I also have read enough financial history to know that runs of exceptional luck don't typically repeat forever.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

vineviz wrote: Mon Dec 05, 2022 12:15 pm
marcopolo wrote: Mon Dec 05, 2022 12:02 pm
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Again, I'd suggest going back to the source. If you listen to the podcast, I think you'll find Felix making no independent claims about the forward SWR. At least, I didn't hear him make any.

He was reviewing a research paper which found the the historical SWR using a global data set was 2.2% or something.

Ben also pointed out some issues he had with that research, and I share those along with some others. I also don't think it is wise to extrapolate the historical SWR into the future regardless of whether it is 2% or 4% or something else.

My earlier point, though, was that countries who were bigger and stronger than the U.S. did experience financial catastrophes in the 20th century that they didn't bounce back from.

I personally don't think it is necessary to plan for a high probability of experiencing that kind of catastrophe, but I also have read enough financial history to know that runs of exceptional luck don't typically repeat forever.
I hear that a fair amount on Bogleheads. So... what do you use? What is better?
Lou SL
Posts: 28
Joined: Fri Oct 28, 2022 10:51 am

Re: 2% withdrawal rate

Post by Lou SL »

Glen Davenport wrote: Mon Dec 05, 2022 8:14 am I am 63 years old and I retired at the age of 44. We have been taking an 8% withdrawal from our portfolio for almost 20 years. With a large Social Security benefit waiting for my wife and I at age 70, we are happily enjoying an elevated lifestyle. We weigh the pursuit of happiness higher in priority then our fears of misery (if we end up reducing to a lower withdrawal rate…. so what).

We have a huge amount of home equity, so with the large Social Security benefits, and a Reverse Mortgage available, we have been really enjoying our early retirement and not the least bit concerned about over spending. :happy :happy :happy

Glen
When you say 8% do you mean 8% of the original portfolio plus inflation each year? And did you continue at that amount even through the GFC in 2008/09 when nearly all equities markets dropped nearly 50% or more? Or did you adjust downward for a few or several years?

Thanks.
MarkRoulo
Posts: 1198
Joined: Mon Jun 22, 2015 10:25 am

Re: 2% withdrawal rate

Post by MarkRoulo »

vineviz wrote: Mon Dec 05, 2022 12:15 pm
marcopolo wrote: Mon Dec 05, 2022 12:02 pm
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Again, I'd suggest going back to the source. If you listen to the podcast, I think you'll find Felix making no independent claims about the forward SWR. At least, I didn't hear him make any.

He was reviewing a research paper which found the the historical SWR using a global data set was 2.2% or something.

Ben also pointed out some issues he had with that research, and I share those along with some others. I also don't think it is wise to extrapolate the historical SWR into the future regardless of whether it is 2% or 4% or something else.

My earlier point, though, was that countries who were bigger and stronger than the U.S. did experience financial catastrophes in the 20th century that they didn't bounce back from.

I personally don't think it is necessary to plan for a high probability of experiencing that kind of catastrophe, but I also have read enough financial history to know that runs of exceptional luck don't typically repeat forever.
"bigger and stronger than the U.S." in the 20th century seems like the British Empire? The list of countries "larger" in an economic sense are probably the British Empire and no others, right? Even the UK by itself without the empire was economically smaller than the US in 1900. I'm not aware of any other country or empire larger than the US in 1900.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: 2% withdrawal rate

Post by vineviz »

MarkRoulo wrote: Mon Dec 05, 2022 3:27 pm
"bigger and stronger than the U.S." in the 20th century seems like the British Empire? The list of countries "larger" in an economic sense are probably the British Empire and no others, right? Even the UK by itself without the empire was economically smaller than the US in 1900. I'm not aware of any other country or empire larger than the US in 1900.
You're right, the list I had in mind (and should have consulted before posting) was the 1870 GDP list which obviously is NOT the 20th century.

Still, the US was certainly not the first country to reach "developed markets" status: the UK, Netherlands, Belgium, France, Norway, Germany, Denmark, and Switzerland all achieved that before the US.

Even by the beginning of 1914 it would have been far from obvious that the United States was the horse to bet on for the next 100 years. The London stock market was by far the dominant exchange before World War 1, and without the benefit of hindsight it's certainly not clear that the NYSE would evolve to be the global center of trading.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

MarkRoulo wrote: Mon Dec 05, 2022 3:27 pm
vineviz wrote: Mon Dec 05, 2022 12:15 pm
marcopolo wrote: Mon Dec 05, 2022 12:02 pm
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Again, I'd suggest going back to the source. If you listen to the podcast, I think you'll find Felix making no independent claims about the forward SWR. At least, I didn't hear him make any.

He was reviewing a research paper which found the the historical SWR using a global data set was 2.2% or something.

Ben also pointed out some issues he had with that research, and I share those along with some others. I also don't think it is wise to extrapolate the historical SWR into the future regardless of whether it is 2% or 4% or something else.

My earlier point, though, was that countries who were bigger and stronger than the U.S. did experience financial catastrophes in the 20th century that they didn't bounce back from.

I personally don't think it is necessary to plan for a high probability of experiencing that kind of catastrophe, but I also have read enough financial history to know that runs of exceptional luck don't typically repeat forever.
"bigger and stronger than the U.S." in the 20th century seems like the British Empire? The list of countries "larger" in an economic sense are probably the British Empire and no others, right? Even the UK by itself without the empire was economically smaller than the US in 1900. I'm not aware of any other country or empire larger than the US in 1900.
The US hasn't had the best performance though. Australia and South Africa beat the US when looking from 1900. Russia, New Zealand, the UK and Canada came fairly close also. Some of those countries surprise me. The world average isn't that far behind the US (5.2% vs. 6.5%). This data is a few years old (Credit Suisse Global Investment Returns Yearbook). Of course, a 1% difference in annual performance over a long period of time adds up. My point being you don't need to be a leading super power for a long time to have good equity returns.
MarkRoulo
Posts: 1198
Joined: Mon Jun 22, 2015 10:25 am

Re: 2% withdrawal rate

Post by MarkRoulo »

vineviz wrote: Mon Dec 05, 2022 5:16 pm
MarkRoulo wrote: Mon Dec 05, 2022 3:27 pm
"bigger and stronger than the U.S." in the 20th century seems like the British Empire? The list of countries "larger" in an economic sense are probably the British Empire and no others, right? Even the UK by itself without the empire was economically smaller than the US in 1900. I'm not aware of any other country or empire larger than the US in 1900.
You're right, the list I had in mind (and should have consulted before posting) was the 1870 GDP list which obviously is NOT the 20th century.

Still, the US was certainly not the first country to reach "developed markets" status: the UK, Netherlands, Belgium, France, Norway, Germany, Denmark, and Switzerland all achieved that before the US.

Even by the beginning of 1914 it would have been far from obvious that the United States was the horse to bet on for the next 100 years. The London stock market was by far the dominant exchange before World War 1, and without the benefit of hindsight it's certainly not clear that the NYSE would evolve to be the global center of trading.
Thanks!

I'm mostly on you side here, I think, I just found the claim as stated odd :-)

Still, I think we could put together a pretty reasonable forward looking international portfolio in 1900 without cheating by using hindsight. I think my list of horses to bet on would look something like this:
  • UK (solid, industrialized, stable)
  • American (large, industrialized, growing, up and coming)
  • Argentina (per-capita GDP similar to the US, growing, very bright future!)
  • Egypt (Suez canal is a can't lose, right?)
  • Russia (growth prospects, stable government [same dynasty in charge for almost 300 years])
I don't know the exact mix, of course ...

Not really all that hard to come up with a short list of horses to bet on as long as you don't go crazy about optimization :-)
MarkRoulo
Posts: 1198
Joined: Mon Jun 22, 2015 10:25 am

Re: 2% withdrawal rate

Post by MarkRoulo »

michaeljc70 wrote: Mon Dec 05, 2022 5:27 pm
MarkRoulo wrote: Mon Dec 05, 2022 3:27 pm
vineviz wrote: Mon Dec 05, 2022 12:15 pm
marcopolo wrote: Mon Dec 05, 2022 12:02 pm
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Again, I'd suggest going back to the source. If you listen to the podcast, I think you'll find Felix making no independent claims about the forward SWR. At least, I didn't hear him make any.

He was reviewing a research paper which found the the historical SWR using a global data set was 2.2% or something.

Ben also pointed out some issues he had with that research, and I share those along with some others. I also don't think it is wise to extrapolate the historical SWR into the future regardless of whether it is 2% or 4% or something else.

My earlier point, though, was that countries who were bigger and stronger than the U.S. did experience financial catastrophes in the 20th century that they didn't bounce back from.

I personally don't think it is necessary to plan for a high probability of experiencing that kind of catastrophe, but I also have read enough financial history to know that runs of exceptional luck don't typically repeat forever.
"bigger and stronger than the U.S." in the 20th century seems like the British Empire? The list of countries "larger" in an economic sense are probably the British Empire and no others, right? Even the UK by itself without the empire was economically smaller than the US in 1900. I'm not aware of any other country or empire larger than the US in 1900.
The US hasn't had the best performance though. Australia and South Africa beat the US when looking from 1900. Russia, New Zealand, the UK and Canada came fairly close also. Some of those countries surprise me. The world average isn't that far behind the US (5.2% vs. 6.5%). This data is a few years old (Credit Suisse Global Investment Returns Yearbook). Of course, a 1% difference in annual performance over a long period of time adds up. My point being you don't need to be a leading super power for a long time to have good equity returns.
You don't need to be a leading super power for a long time to have good equity returns, but there are a lot of ways to fail. But ... does your data set show that investing in Russian stocks in 1900 would have generated a long-term return over the past 120 years that wasn't too far off American stocks????? Because that part around 1917 where everything got confiscated seems like if would have put a damper on the stock returns ...
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

MarkRoulo wrote: Mon Dec 05, 2022 5:43 pm
michaeljc70 wrote: Mon Dec 05, 2022 5:27 pm
MarkRoulo wrote: Mon Dec 05, 2022 3:27 pm
vineviz wrote: Mon Dec 05, 2022 12:15 pm
marcopolo wrote: Mon Dec 05, 2022 12:02 pm
I don't disagree that there have been some very fortunate times in American history. But, it is also quite clear there have also been numerous calamitous times. None of them drove SWR to 2%. Where, outside of one's country being bombed into oblivion, did SWR get that low? If he had been arguing that the forward SWR is 3.5%, or maybe even 3%, he would have a little more credibility (IMHO). Claiming it is 2% just smacks of sensationalism to me. I don't think even you, with all your models, truly believes we are going to be in a regime with 2% SWR, do you?
Again, I'd suggest going back to the source. If you listen to the podcast, I think you'll find Felix making no independent claims about the forward SWR. At least, I didn't hear him make any.

He was reviewing a research paper which found the the historical SWR using a global data set was 2.2% or something.

Ben also pointed out some issues he had with that research, and I share those along with some others. I also don't think it is wise to extrapolate the historical SWR into the future regardless of whether it is 2% or 4% or something else.

My earlier point, though, was that countries who were bigger and stronger than the U.S. did experience financial catastrophes in the 20th century that they didn't bounce back from.

I personally don't think it is necessary to plan for a high probability of experiencing that kind of catastrophe, but I also have read enough financial history to know that runs of exceptional luck don't typically repeat forever.
"bigger and stronger than the U.S." in the 20th century seems like the British Empire? The list of countries "larger" in an economic sense are probably the British Empire and no others, right? Even the UK by itself without the empire was economically smaller than the US in 1900. I'm not aware of any other country or empire larger than the US in 1900.
The US hasn't had the best performance though. Australia and South Africa beat the US when looking from 1900. Russia, New Zealand, the UK and Canada came fairly close also. Some of those countries surprise me. The world average isn't that far behind the US (5.2% vs. 6.5%). This data is a few years old (Credit Suisse Global Investment Returns Yearbook). Of course, a 1% difference in annual performance over a long period of time adds up. My point being you don't need to be a leading super power for a long time to have good equity returns.
You don't need to be a leading super power for a long time to have good equity returns, but there are a lot of ways to fail. But ... does your data set show that investing in Russian stocks in 1900 would have generated a long-term return over the past 120 years that wasn't too far off American stocks????? Because that part around 1917 where everything got confiscated seems like if would have put a damper on the stock returns ...
Russia surprised me too. Same with South Africa. According to Credit Suisse, Russia's avg annual return was 5.8% vs 6.5% for the US.

If you look at the major English speaking countries (US, UK, Australia, Canada, New Zealand), the returns are pretty good since 1900 at 6.2%. I didn't include S. Africa which would have boosted the return even higher.
User avatar
Lawrence of Suburbia
Posts: 691
Joined: Mon Aug 08, 2022 12:04 pm

Re: 2% withdrawal rate

Post by Lawrence of Suburbia »

FWIW I just ran some rough year-end numbers and I think it's entirely possible that my 2023 withdrawal rate will be ~2% ...! I've probably forgotten something ...
DaufuskieNate wrote: Sun Jun 02, 2019 8:30 am
MnD wrote: Sun Jun 02, 2019 8:07 am I really hope this board doesn't go down the road of giving the impression that ultra-low SWR's are best practices driven by wealth brags and misers for whom portfolio growth and feeding has become a lifetime addiction and the end rather than the means to a long, happy, healthy and active retirement with a nice income to enjoy it with.
I hope this board continues to provide a forum where a wide variety of perspectives can be discussed and debated. Too often, we have those who want to shut down certain topics in the interest of saving "newcomers" from non-orthodox Boglehead doctrine. Well, guess what? Non-orthodox doctrine can be found all over the web, often sponsored by those with a financial interest in a certain perspective. What better place to have open discussion than this board? Give everyone a chance to express their views and then allow everyone to make their own decisions for themselves without ridicule. I would suggest that if certain topics are not to one's liking, simply don't read them. One can even take a vacation from the board if all of their decisions have been made.
+1,000

I've been the beneficiary of some very good advice here, since my joining up last summer. I asked some very naïve questions, and expressed some very silly opinions, which were very gently corrected by some vastly more knowledgeable members.

Warning: I'm probably not finished with naïve questions and silly opinions.
74% VTHRX/8% DODWX/12% TIAA Traditional/6% SWVXX
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 2% withdrawal rate

Post by dbr »

It should always be the bottom line that a person understands how things work and then that person decides what to do to meet his own goals, desires, and tastes. It is really a question of accepting personal responsibility for oneself.

It can sometime be difficult to avoid telling someone what someone else thinks they should do, but part of the responsibility for that comes from whether or not the asker wants to be told what to do or wants to learn how things work.

I think a positive thing about this forum is that it is the latter more than the former most of the time. There is also nothing wrong with how things work being less than obvious and not always easy to figure out, many voices being more helpful than one.

And, none of us is perfect.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: 2% withdrawal rate

Post by HomerJ »

Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
Why?

Can you post why or do I have to listen to a podcast?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: 2% withdrawal rate

Post by HomerJ »

zaboomafoozarg wrote: Sun Dec 04, 2022 10:23 pm
zaboomafoozarg wrote: Tue Jun 04, 2019 9:03 pmI've always wanted to retire early but am going to force myself to work until 55. At that point I expect to have a 1.25% SWR.
It's interesting to look back at the past. Since posting this I've decided to keep working until I get to a 1% SWR, hopefully by age 60.

I am almost certain that it will be more than I need, but I want to be extra careful. The future looks terrible.
Why does the future look terrible?

You are planning to save 100 years of expenses, to last 30 years?

If the future is that terrible, you will be dead or a slave to the AI robot uprising.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
GaryA505
Posts: 2907
Joined: Wed Feb 08, 2017 1:59 pm
Location: New Mexico

Re: 2% withdrawal rate

Post by GaryA505 »

HomerJ wrote: Tue Dec 06, 2022 5:53 pm
zaboomafoozarg wrote: Sun Dec 04, 2022 10:23 pm
zaboomafoozarg wrote: Tue Jun 04, 2019 9:03 pmI've always wanted to retire early but am going to force myself to work until 55. At that point I expect to have a 1.25% SWR.
It's interesting to look back at the past. Since posting this I've decided to keep working until I get to a 1% SWR, hopefully by age 60.

I am almost certain that it will be more than I need, but I want to be extra careful. The future looks terrible.
Why does the future look terrible?

You are planning to save 100 years of expenses, to last 30 years?

If the future is that terrible, you will be dead or a slave to the AI robot uprising.
Or the zombies have taken over Skynet.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: 2% withdrawal rate

Post by HomerJ »

Leesbro63 wrote: Mon Dec 05, 2022 9:54 am But I do suggest listening to the podcast. Despite all of those calamities that you mentioned, Ben Felix makes a good case that things were much worse elsewhere and that that "worseness" is the default mode.
Does he include the World War I and World War II years for foreign countries?

If so, like Wade Pfau's numbers, it's all crap. In my opinion, of course.

If he includes only the 1950s to 2022, then I might take the time to listen.

Including Europe and Japan through the first half of the century swings the pendulum too far in the other direction.

Yes, if your country gets bombed into rubble, and your government overthrown, your retirement plans relaxing on the beach will probably not work (or even be on your mind).

We all know all bets are off in that scenario.

Just look at the rebuilding years in Europe.. We can say the U.S. was lucky, and got a boost from not being bombed, so I'm okay with discounting that a little.

But we have 70+ years of data now on global countries that didn't get that boost, but ALSO didn't get the huge negative of being bombed and invaded.

Maybe 4% is too high, based only on the U.S., but if 2% is calculated by averaging in Japan retirees of 1942, and German retirees of 1916, it's junk economics.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

HomerJ wrote: Tue Dec 06, 2022 6:04 pm
Leesbro63 wrote: Mon Dec 05, 2022 9:54 am But I do suggest listening to the podcast. Despite all of those calamities that you mentioned, Ben Felix makes a good case that things were much worse elsewhere and that that "worseness" is the default mode.
Does he include the World War I and World War II years for foreign countries?

If so, like Wade Pfau's numbers, it's all crap. In my opinion, of course.

If he includes only the 1950s to 2022, then I might take the time to listen.

Including Europe and Japan through the first half of the century swings the pendulum too far in the other direction.

Yes, if your country gets bombed into rubble, and your government overthrown, your retirement plans relaxing on the beach will probably not work (or even be on your mind).

We all know all bets are off in that scenario.

Just look at the rebuilding years in Europe.. We can say the U.S. was lucky, and got a boost from not being bombed, so I'm okay with discounting that a little.

But we have 70+ years of data now on global countries that didn't get that boost, but ALSO didn't get the huge negative of being bombed and invaded.

Maybe 4% is too high, based only on the U.S., but if 2% is calculated by averaging in Japan retirees of 1942, and German retirees of 1916, it's junk economics.
He went beyond the obvious "bombed out" countries. The answer to your prior question: Yes, you'll have to listen to the podcast to really understand his point. I honestly don't think I can explain it like it was presented there.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: 2% withdrawal rate

Post by HomerJ »

zaboomafoozarg wrote: Sun Dec 04, 2022 10:23 pm
zaboomafoozarg wrote: Tue Jun 04, 2019 9:03 pmI've always wanted to retire early but am going to force myself to work until 55. At that point I expect to have a 1.25% SWR.
It's interesting to look back at the past. Since posting this I've decided to keep working until I get to a 1% SWR, hopefully by age 60.

I am almost certain that it will be more than I need, but I want to be extra careful. The future looks terrible.
Also, how old are you now?

If the future includes negative returns then how is working 5 more years going to get you 1% instead of 1.25%?

If you're expecting bad times, it may happen BEFORE you retire, and you may work 5 more years and be at 2% instead of 1% if a huge market crash happens.

(Also, you can lock in 2% TIPS right now, so if you are close to 55 or 60 with 50x expenses, maybe you should lock in some 2% TIPS instead of working 5 years more...)

I had a good friend die at 61 and another at 64... Heck, rich people like Kirstie Alley die at 71... There are no guarantees in life... Go ahead and work until you have 100 years of expenses, and risk dying at your desk or 1 year after you retire. No skin off my nose (what a weird phrase, eh?)

:)
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
kd2008
Posts: 1274
Joined: Sun Feb 15, 2009 5:19 pm

Re: 2% withdrawal rate

Post by kd2008 »

Thinking that a lower withdrawal rate will somehow protect you more or better is a clear indication of lack of understanding of how risk shows up and decimates best laid plans.

Anyways, carry on with the discussion. I am sure 0% withdrawal rate may be bulletproof :D
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: 2% withdrawal rate

Post by vineviz »

kd2008 wrote: Tue Dec 06, 2022 8:41 pm Thinking that a lower withdrawal rate will somehow protect you more or better is a clear indication of lack of understanding of how risk shows up and decimates best laid plans.
On the contrary, an ultra-low withdrawal rate does ACTUALLY work to greatly reduce most common investing risks (e.g.sequence of returns risk, longevity risk, default risk, etc.).

It's often the most expensive (and crude) way to reduce those risks, but it does work.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

vineviz wrote: Tue Dec 06, 2022 8:50 pm
kd2008 wrote: Tue Dec 06, 2022 8:41 pm Thinking that a lower withdrawal rate will somehow protect you more or better is a clear indication of lack of understanding of how risk shows up and decimates best laid plans.
On the contrary, an ultra-low withdrawal rate does ACTUALLY work to greatly reduce most common investing risks (e.g.sequence of returns risk, longevity risk, default risk, etc.).

It's often the most expensive (and crude) way to reduce those risks, but it does work.
It depends on your definition of "work". If you work 5 extra years to cover a 1% chance of something terrible happening (black swan event), I don't consider that "working". YMMV. There are trade offs both ways. There's no free lunch. It is work longer for less risk or retire earlier with more risk (or variations of that like spending less).
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: 2% withdrawal rate

Post by marcopolo »

vineviz wrote: Tue Dec 06, 2022 8:50 pm
kd2008 wrote: Tue Dec 06, 2022 8:41 pm Thinking that a lower withdrawal rate will somehow protect you more or better is a clear indication of lack of understanding of how risk shows up and decimates best laid plans.
On the contrary, an ultra-low withdrawal rate does ACTUALLY work to greatly reduce most common investing risks (e.g.sequence of returns risk, longevity risk, default risk, etc.).

It's often the most expensive (and crude) way to reduce those risks, but it does work.
Presumably one invests for goals, and not just for the sake of investing.
A small chance of having to cut back your spending is not the only risk.
Trying to achieve ever lower WR adds to the risk of running out of time long before running out of money.

I suspect all the fearmongering on this forum contributes to things like someone who "always wanted to retire early" to "force myself to work until 55. At that point I expect to have a 1.25% SWR" and then to "keep working until I get to a 1% SWR, hopefully by age 60"
Once in a while you get shown the light, in the strangest of places if you look at it right.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

HomerJ wrote: Tue Dec 06, 2022 5:49 pm
Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
Why?

Can you post why or do I have to listen to a podcast?
HomerJ, I sincerely would be interested in your opinion of the podcast. I’m not trolling you. I share your skepticism about needing very low SWRs, but I can’t ignore intelligent people presenting what appears to be legitimate data showing that. Please listen and opine here. I actually WANT you to show how Ben Felix might be wrong.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 2% withdrawal rate

Post by dbr »

Leesbro63 wrote: Wed Dec 07, 2022 7:35 am
HomerJ wrote: Tue Dec 06, 2022 5:49 pm
Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
Why?

Can you post why or do I have to listen to a podcast?
HomerJ, I sincerely would be interested in your opinion of the podcast. I’m not trolling you. I share your skepticism about needing very low SWRs, but I can’t ignore intelligent people presenting what appears to be legitimate data showing that. Please listen and opine here. I actually WANT you to show how Ben Felix might be wrong.
I will not comment either. I don't listen to podcasts. I would imagine there will be people who do who can reply to you.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

dbr wrote: Wed Dec 07, 2022 7:38 am
Leesbro63 wrote: Wed Dec 07, 2022 7:35 am
HomerJ wrote: Tue Dec 06, 2022 5:49 pm
Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
Why?

Can you post why or do I have to listen to a podcast?
HomerJ, I sincerely would be interested in your opinion of the podcast. I’m not trolling you. I share your skepticism about needing very low SWRs, but I can’t ignore intelligent people presenting what appears to be legitimate data showing that. Please listen and opine here. I actually WANT you to show how Ben Felix might be wrong.
I will not comment either. I don't listen to podcasts. I would imagine there will be people who do who can reply to you.
I’m lost. How did you get into my request to HomerJ?
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 2% withdrawal rate

Post by dbr »

Leesbro63 wrote: Wed Dec 07, 2022 7:40 am
dbr wrote: Wed Dec 07, 2022 7:38 am
Leesbro63 wrote: Wed Dec 07, 2022 7:35 am
HomerJ wrote: Tue Dec 06, 2022 5:49 pm
Leesbro63 wrote: Mon Dec 05, 2022 8:31 am Ok, so I listened to the Ben Felix podcast, suggested above, that show that 2% is the new 4%. Here is the link: https://rationalreminder.ca/podcast/229

I'm having a hard time reconciling this with Bengen. Both make good arguments, it requires one to accumulate twice as much to be safe using the one set of data versus the other. Yeah, I know, this will probably devolved into another SWR thread where there is no answer. But really, the Ben Felix podcast seems to be the strongest I've heard why the number is really 2%.
Why?

Can you post why or do I have to listen to a podcast?
HomerJ, I sincerely would be interested in your opinion of the podcast. I’m not trolling you. I share your skepticism about needing very low SWRs, but I can’t ignore intelligent people presenting what appears to be legitimate data showing that. Please listen and opine here. I actually WANT you to show how Ben Felix might be wrong.
I will not comment either. I don't listen to podcasts. I would imagine there will be people who do who can reply to you.
I’m lost. How did you get into my request to HomerJ?
By reading your post. There is a mechanism to have a private conversation, which is to send a PM. Otherwise we are all talking at a cocktail party and people jump into conversations all the time. I also saw the reference to the Ben Felix discussion and thought it might be interesting, but podcasts I won't go to. You could summarize the basis for his conclusion and see what people think of that.
Leesbro63
Posts: 10639
Joined: Mon Nov 08, 2010 3:36 pm

Re: 2% withdrawal rate

Post by Leesbro63 »

dbr wrote: Wed Dec 07, 2022 7:41 am
Leesbro63 wrote: Wed Dec 07, 2022 7:40 am
dbr wrote: Wed Dec 07, 2022 7:38 am
Leesbro63 wrote: Wed Dec 07, 2022 7:35 am
HomerJ wrote: Tue Dec 06, 2022 5:49 pm

Why?

Can you post why or do I have to listen to a podcast?
HomerJ, I sincerely would be interested in your opinion of the podcast. I’m not trolling you. I share your skepticism about needing very low SWRs, but I can’t ignore intelligent people presenting what appears to be legitimate data showing that. Please listen and opine here. I actually WANT you to show how Ben Felix might be wrong.
I will not comment either. I don't listen to podcasts. I would imagine there will be people who do who can reply to you.
I’m lost. How did you get into my request to HomerJ?
By reading your post.
Ok then! HomerJ asked if he had to listen to the podcast to get the info on why Ben Felix thinks “the number” is closer to 2% than 4%. I honestly don’t think I can accurately summarize the answer. But I share his skepticism and just hope he’ll listen and either tear apart Ben Felix’s thesis (my hope!) or confirm that he’s right. But if you don’t do podcasts, maybe if HomerJ does, you’ll have something to add about his analysis.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

How can people be convinced Ben Felix is right but not be able to summarize it or explain it? :shock:

How does what Ben Felix say negate all the other research on SWRs?

I don't know who Ben Felix is and don't particularly want to listen to an hour+ podcast without more information.
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: 2% withdrawal rate

Post by Normchad »

I’m also very skeptical. This is yet another example of somebody trying to say the future will be much worse than the past. And another example of somebody claiming to know the future, which is unknowable. As smart as Ben Felix might be, he can’t see 30-50 years down the road any better than I can.

Although I won’t use a SWR strategy in retirement, I find it ridiculous to think “the new SWR” is lower than the historical *perpetual*withdrawal rate.

If the future truly is that bad, a future in which real equity returns are negative for very long stretches of time. Then so be it. I’ll just die broke and miserable. But if that is the future, there isn’t anything I can do to assure a better outcome for myself anyway.

I don’t want to squander the next 10 years of my life (the healthiest I will have left) working unnecessarily just to have more money to spend in my last, sickest, most miserable years at the end.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: 2% withdrawal rate

Post by michaeljc70 »

Normchad wrote: Wed Dec 07, 2022 8:15 am I’m also very skeptical. This is yet another example of sine body trying to say the future will be much worse than the past. And another example of somebody claiming to know the future, which is unknowable. As smart as Ben Felix might be, he can’t see 30-50 years down the road any better than I can.

Although I won’t use a SWR strategy in retirement, I find it ridiculous to think “the new SWR” is lower than the historical perpetual withdrawal rate.

If the future truly is that bad, a future in which real equity returns are negative for very long stretches of time. Then so be it. I’ll just die broke and miserable. But if that is the future, there isn’t anything I can do to assure a better outcome for myself anyway.

I don’t want to squander the next 10 years of my life (the healthiest I will have left) working unnecessarily just to have more money to spend in my last. sickest, most miserable years at the end.
Exactly. I agree and am willing to roll with the punches if necessary.
Post Reply