Another 2.8% SWR Article Quoting Wade Pfau
Another 2.8% SWR Article Quoting Wade Pfau
I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Wish I had a subscription to WSJ but I'm too cheap...Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
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Re: Another 2.8% SWR Article Quoting Wade Pfau
I can't read it either, so will limit my comment to the headline - that's essentially returning nothing over the expected rate of inflation for 30 years. While anything can happen, that seems like a really, really extreme scenario.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
It is more about flexible withdrawal methods and their responsiveness to SRR risks. They suggest an RMD approach as one model for example (although, I am not a fan as I'd rather front load my retirement a bit.)
The do end with Mr. Pfau's scare quote of 2.8% SWR though.
key quote:
The do end with Mr. Pfau's scare quote of 2.8% SWR though.
key quote:
A better approach than a schedule of fixed withdrawals, some financial experts say, is one that bends with the markets: a system that produces lower payouts in bad markets and higher payouts in good markets. Making flexibility a virtue lessens the risk of nest-egg depletion if a market takes an extended big dip in the early years of an investor’s retirement. In such a case, a retiree using the 4% rule would be forced to sell a bigger chunk of a depleted portfolio to be able to withdraw the target amount, making it more difficult for the portfolio to recover even if the market rebounds.
Re: Another 2.8% SWR Article Quoting Wade Pfau
Here are a few paragraphs of interest:
"Investors don’t need a financial adviser to set up a flexible system. They can set up their own using the tables for required minimum distributions published by the Internal Revenue Service. RMDs, as opposed to rigid systems like the 4% rule, base distributions on a percentage of the current value of your assets. If your account drops by a quarter, your distribution amount also drops by a quarter. You have to live on less, but you’re putting yourself at less risk of running out of money down the road. The percentage also changes over time, based on the investor’s life expectancy, increasing the percentage slightly each year.
While RMDs officially apply to tax-deferred accounts, you can apply the same principle to calculate safe withdrawals from all your accounts. Simply take your balance and divide it by the number in the table for your age. Current RMDs start small, at around 3.91% for a 72-year-old, and rise each year in amounts determined by life expectancy. If your portfolio is $1 million, you could spend $39,100. For a 90-year-old, the RMD is 8.77%. (The IRS is getting ready to introduce a new RMD table for 2022 with slightly smaller withdrawal numbers.)
Because of the volatility, the RMD system works best for retirees who have most of their fixed expenses covered by Social Security, private pensions or other secure sources of income, says Steve Vernon, a consulting research fellow at the Stanford Center for Longevity."
"Investors don’t need a financial adviser to set up a flexible system. They can set up their own using the tables for required minimum distributions published by the Internal Revenue Service. RMDs, as opposed to rigid systems like the 4% rule, base distributions on a percentage of the current value of your assets. If your account drops by a quarter, your distribution amount also drops by a quarter. You have to live on less, but you’re putting yourself at less risk of running out of money down the road. The percentage also changes over time, based on the investor’s life expectancy, increasing the percentage slightly each year.
While RMDs officially apply to tax-deferred accounts, you can apply the same principle to calculate safe withdrawals from all your accounts. Simply take your balance and divide it by the number in the table for your age. Current RMDs start small, at around 3.91% for a 72-year-old, and rise each year in amounts determined by life expectancy. If your portfolio is $1 million, you could spend $39,100. For a 90-year-old, the RMD is 8.77%. (The IRS is getting ready to introduce a new RMD table for 2022 with slightly smaller withdrawal numbers.)
Because of the volatility, the RMD system works best for retirees who have most of their fixed expenses covered by Social Security, private pensions or other secure sources of income, says Steve Vernon, a consulting research fellow at the Stanford Center for Longevity."
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Why do "the experts" expect long-term inflation to stay the same or go up at the same time they expect a massive, protracted economic slowdown?Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
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Re: Another 2.8% SWR Article Quoting Wade Pfau
What's wrong with that? Stagflation has happened, you know. I'm not saying it's likely, but I don't take issues with them including it within the realm of possibility.whereskyle wrote: ↑Sun Apr 11, 2021 12:54 pmWhy do "the experts" expect long-term inflation to stay the same or go up at the same time they expect a massive, protracted economic slowdown?Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
Re: Another 2.8% SWR Article Quoting Wade Pfau
For one thing, I’m not seeing any such claim here.whereskyle wrote: ↑Sun Apr 11, 2021 12:54 pmWhy do "the experts" expect long-term inflation to stay the same or go up at the same time they expect a massive, protracted economic slowdown?Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
For another, a combination of rising inflation and slow economic growth is always a possibility
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Another 2.8% SWR Article Quoting Wade Pfau
This is just amusing to me at this point. Didn't Bill Bengen just say the new SWR is around 5% a few months ago?
Man oh man, this stuff changes on a whim! It's all just noise. Don't worry about it, no one knows what's gonna happen.
Man oh man, this stuff changes on a whim! It's all just noise. Don't worry about it, no one knows what's gonna happen.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Actually, Bengen and Pfau are looking at the same data and coming to different conclusions.
Bengen believes that inflation has largely been "beaten" so it is less of a risk to portfolios going forward, thus less concern about current low interest rates (which at a real rate level are bad but not the worst we've seen, the high inflation periods of the past had some really awful real rates.)
Pfau appears to be more concerned about inflation thus the pessimism when combined with already high asset valuations.
Who's right? I don't know, let's check back in 10-15 years.
Re: Another 2.8% SWR Article Quoting Wade Pfau
He said the same thing in 2010, 2011, 2012, well, you get the picture.Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Another 2.8% SWR Article Quoting Wade Pfau
We can check Pfau from 10 years ago... He was comically wrong.retiringwhen wrote: ↑Sun Apr 11, 2021 1:31 pmActually, Bengen and Pfau are looking at the same data and coming to different conclusions.
Bengen believes that inflation has largely been "beaten" so it is less of a risk to portfolios going forward, thus less concern about current low interest rates (which at a real rate level are bad but not the worst we've seen, the high inflation periods of the past had some really awful real rates.)
Pfau appears to be more concerned about inflation thus the pessimism when combined with already high asset valuations.
Who's right? I don't know, let's check back in 10-15 years.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Another 2.8% SWR Article Quoting Wade Pfau
He wasn’t, actually.HomerJ wrote: ↑Sun Apr 11, 2021 1:34 pmWe can check Pfau from 10 years ago... He was comically wrong.retiringwhen wrote: ↑Sun Apr 11, 2021 1:31 pmActually, Bengen and Pfau are looking at the same data and coming to different conclusions.
Bengen believes that inflation has largely been "beaten" so it is less of a risk to portfolios going forward, thus less concern about current low interest rates (which at a real rate level are bad but not the worst we've seen, the high inflation periods of the past had some really awful real rates.)
Pfau appears to be more concerned about inflation thus the pessimism when combined with already high asset valuations.
Who's right? I don't know, let's check back in 10-15 years.
The SWR is, by definition, something of a worst case outcome. It’s roughly akin to saying “there’s a 10% chance things could be this bad”. If things don’t turn out to actually BE that bad, it doesn’t prove the statement was wrong.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Prescribing SWR to others bakes in a lot of assumptions about others' risks and expected longevity.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
You mean like here? viewtopic.php?t=174030
His 2% SWR included 1% AUM and .67 ER. Effective SWR for DYI Boglehead would have been 3.6% without challenging any of Pfau's assumptions.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Hmmm... I'll concede your point... somewhat...vineviz wrote: ↑Sun Apr 11, 2021 1:40 pmHe wasn’t, actually.HomerJ wrote: ↑Sun Apr 11, 2021 1:34 pmWe can check Pfau from 10 years ago... He was comically wrong.retiringwhen wrote: ↑Sun Apr 11, 2021 1:31 pmActually, Bengen and Pfau are looking at the same data and coming to different conclusions.
Bengen believes that inflation has largely been "beaten" so it is less of a risk to portfolios going forward, thus less concern about current low interest rates (which at a real rate level are bad but not the worst we've seen, the high inflation periods of the past had some really awful real rates.)
Pfau appears to be more concerned about inflation thus the pessimism when combined with already high asset valuations.
Who's right? I don't know, let's check back in 10-15 years.
The SWR is, by definition, something of a worst case outcome. It’s roughly akin to saying “there’s a 10% chance things could be this bad”. If things don’t turn out to actually BE that bad, it doesn’t prove the statement was wrong.
It is indeed difficult to prove a model wrong that is probabilistic. Maybe the model is correct and we just lucky. That is certainly possible.
I'd be more inclined to give Pfau the benefit of a doubt if the actual results had been just a little bit off instead of way off.
He wrote a paper in 2010-2011 that stated, "Hey returns look to be lower for both bonds and stocks going forward than the historical average, and there's even a chance they could be so low than 4% will no longer work."
Now, if we had gotten low returns (but good enough for 4% to work) or average returns, maybe his model was still correct.
But we got high returns in stocks, and okay returns in bonds, and I'm guessing someone who retired in 2011 could have pulled 8% a year and still have more cash today than in 2011.
That's WAY off.
So yeah, it's very reasonable to question Pfau's models. It's reasonable to wonder if he's missing some variables. And that leads one to not blindly accept his models today either.
He no longer gets the benefit of the doubt, of "well let's see if he's right in 10-15 years". I've been around long enough to see economists make poor predictions again and again. The default position should be that economists don't know enough.
Because they're never proven wrong. Even if 4% works over the next 10-15 years, and the 4% retiree looks to be in good shape, one can still always say "Well, he just posited a small chance than 2.8% would be necessary". Just like you said about his 2011 predictions.
It's good to be an economist. It's not a hard science. No one can ever prove you wrong.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Then I wonder why we aren’t talking about models and variables instead of ad hominem arguments.
What’s the problem in the model or the missing variable which would make a 2.8% SWR impossible going forward?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Another 2.8% SWR Article Quoting Wade Pfau
I hope I can be the heir of someone using a 2.8% withdrawal rate.Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
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Re: Another 2.8% SWR Article Quoting Wade Pfau
I don't think he's missing any variables. More like he adds variables like fund fees and longer timeframes, and then applies Monte Carlo simulations to the existing data to try to figure out how much worse the next 30-40 years could be. Karsten's ERN blog gives <4% SWRs because he's trying to account for fees and longer timeframes, too. To an extent, I can appreciate that, but once things go to MC I have to take them with a grain of salt.
I'm not gonna pay to read the article in the OP, but if Pfau is saying that a portfolio with 75% bonds might need a 2.8% SWR to survive 40+ years, he wouldn't actually be saying anything new since ERN ran the numbers on the actual data!
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Re: Another 2.8% SWR Article Quoting Wade Pfau
The model used at ERN is much more problematic than the one used by Pfau and most other professionals.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Another 2.8% SWR Article Quoting Wade Pfau
That's interesting. If you don't mind me asking, what do you find problematic with ERN's method? (Is it laid out in a past thread?)
"Old value investors never die, they just get their fix from rebalancing." -- vineviz
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Re: Another 2.8% SWR Article Quoting Wade Pfau
I have a huge problem with the fluctuation in SWR percentages since the 4% number was first bruited about, and with the differences from authority to authority.
The problem that the SWR tries to solve is the variability of stock market returns.
SWR is not supposed to be based on prediction of stock market returns for the next thirty years. The idea is supposed to be that we can look at the entire historic range of past performance, over 94 years (CRSP) or 150 (Cowles Commission), and come up with a number that has an adequate safety margin against the whole range of what could occur. That number is supposed to be a stable number that lets us plan without requiring us to predict the next thirty years.
But the SWR numbers are variable themselves. They keep changing. Recognized experts look at the same data getting really different answers. And lately they have all been justifying their answers with appeals to forward-looking forecasts.
But the whole point of the SWR approach was to avoid the need for specific forecasts.
These numbers are supposed to be for planning, but they can't be used for planning, because they change over periods of time shorter than the period being planned for.
I think we would be just as well off using Taylor Larimore's method: Safe Withdrawal Rates? Complexity versus Simplicity. I see no reason to think that withdrawal systems are going to be any more reliable than personal financial intuition.
The problem that the SWR tries to solve is the variability of stock market returns.
SWR is not supposed to be based on prediction of stock market returns for the next thirty years. The idea is supposed to be that we can look at the entire historic range of past performance, over 94 years (CRSP) or 150 (Cowles Commission), and come up with a number that has an adequate safety margin against the whole range of what could occur. That number is supposed to be a stable number that lets us plan without requiring us to predict the next thirty years.
But the SWR numbers are variable themselves. They keep changing. Recognized experts look at the same data getting really different answers. And lately they have all been justifying their answers with appeals to forward-looking forecasts.
But the whole point of the SWR approach was to avoid the need for specific forecasts.
These numbers are supposed to be for planning, but they can't be used for planning, because they change over periods of time shorter than the period being planned for.
I think we would be just as well off using Taylor Larimore's method: Safe Withdrawal Rates? Complexity versus Simplicity. I see no reason to think that withdrawal systems are going to be any more reliable than personal financial intuition.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
+1. This is very important. Nearly all of the swr doomsayers "this time is different, so 2-2.8%" are slinging annuities/and or their assumptions are so chock full of fees to drag the wd rate down to the 2s.David Jay wrote: ↑Sun Apr 11, 2021 1:50 pmYou mean like here? viewtopic.php?t=174030
His 2% SWR included 1% AUM and .67 ER. Effective SWR for DYI Boglehead would have been 3.6% without challenging any of Pfau's assumptions.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Hear hearnisiprius wrote: ↑Sun Apr 11, 2021 3:49 pm I have a huge problem with the fluctuation in SWR percentages since the 4% number was first bruited about, and with the differences from authority to authority.
The problem that the SWR tries to solve is the variability of stock market returns.
SWR is not supposed to be based on prediction of stock market returns for the next thirty years. The idea is supposed to be that we can look at the entire historic range of past performance, over 94 years (CRSP) or 150 (Cowles Commission), and come up with a number that has an adequate safety margin against the whole range of what could occur. That number is supposed to be a stable number that lets us plan without requiring us to predict the next thirty years.
But the SWR numbers are variable themselves. They keep changing. Recognized experts look at the same data getting really different answers. And lately they have all been justifying their answers with appeals to forward-looking forecasts.
But the whole point of the SWR approach was to avoid the need for specific forecasts.
These numbers are supposed to be for planning, but they can't be used for planning, because they change over periods of time shorter than the period being planned for.
I think we would be just as well off using Taylor Larimore's method: Safe Withdrawal Rates? Complexity versus Simplicity. I see no reason to think that withdrawal systems are going to be any more reliable than personal financial intuition.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Re: Another 2.8% SWR Article Quoting Wade Pfau
Well if they don’t do that then they can’t secretly shill for the insurance industry.59Gibson wrote: ↑Sun Apr 11, 2021 4:44 pm+1. This is very important. Nearly all of the swr doomsayers "this time is different, so 2-2.8%" are slinging annuities/and or their assumptions are so chock full of fees to drag the wd rate down to the 2s.David Jay wrote: ↑Sun Apr 11, 2021 1:50 pmYou mean like here? viewtopic.php?t=174030
His 2% SWR included 1% AUM and .67 ER. Effective SWR for DYI Boglehead would have been 3.6% without challenging any of Pfau's assumptions.
Re: Another 2.8% SWR Article Quoting Wade Pfau
White Coat Investor wrote: ↑I hope I can be the heir of someone using a 2.8% withdrawal rate.Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Wade Pfau has made a career out of writing articles espousing absurdly low withdrawal rates. Seriously, it's the thing he's known for.
It's like he's encouraging his clients to have larger than necessary portfolios because he makes more money that way.
It's like he's encouraging his clients to have larger than necessary portfolios because he makes more money that way.
Re: Another 2.8% SWR Article Quoting Wade Pfau
Fellow plebians: for virtually all mainstream news websites if you type archive dot fo slash; in front of the web address you can read for free.BernardShakey wrote: ↑Sun Apr 11, 2021 12:23 pmWish I had a subscription to WSJ but I'm too cheap...Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
https://archive.fo/bBkLa
You're welcome; although this article likely does nothing but waste your time.
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Re: Another 2.8% SWR Article Quoting Wade Pfau
We’ve proved this wrong over and over again, vineviz....
https://portfoliocharts.com/2016/12/09/ ... etirement/
I don’t concede your points above. Pfau has said this safe withdrawal rate would be less than 3% for the last 10 years, and he has been wrong. He wasn’t talking about probabilities, he was talking about portfolio survival. And it turns out, he was wrong. He’s very likely wrong this time as well.
Last edited by geerhardusvos on Sun Apr 11, 2021 6:39 pm, edited 1 time in total.
VTSAX and chill
Re: Another 2.8% SWR Article Quoting Wade Pfau
Priceless!White Coat Investor wrote: ↑Sun Apr 11, 2021 2:14 pmI hope I can be the heir of someone using a 2.8% withdrawal rate.Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
Dave
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Re: Another 2.8% SWR Article Quoting Wade Pfau
Bingo.White Coat Investor wrote: ↑Sun Apr 11, 2021 2:14 pmI hope I can be the heir of someone using a 2.8% withdrawal rate.Leesbro63 wrote: ↑Sun Apr 11, 2021 9:50 am I hesitate to start yet another "4% won't work" SWR thread, but I saw this WSJ article and think anything quoting Wade Pfau will be of interest to Bogleheads:
https://www.wsj.com/articles/retirement ... 1617929631
"Wade Pfau, a professor at the American College of Financial Services, has run tests that support Mr. Bengen’s earlier research. But Prof. Pfau says someone retiring today and taking fixed inflation-adjusted withdrawals from a portfolio shouldn’t use the 4% rule; he calculates the safe number is just 2.8%, mostly because bond rates have tumbled."
VTSAX and chill
Re: Another 2.8% SWR Article Quoting Wade Pfau
You’re mistaken, I’m afraid.
Expecting real bond yields of -1% to provide the same SWR as real bond yields of +2% is a common error, but an error nonetheless.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Another 2.8% SWR Article Quoting Wade Pfau
You don’t have any data to back up what you’re claiming. A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data. What data do you have?
VTSAX and chill
Re: Another 2.8% SWR Article Quoting Wade Pfau
A 4% WR worked most of the time in the past. It might work in the future, but it is LESS likely to work in the future than it was in the past.geerhardusvos wrote: ↑Sun Apr 11, 2021 7:52 pm A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Another 2.8% SWR Article Quoting Wade Pfau
You don’t know that. You have no idea what the probability of various WRs success in the coming years. Just like Pfau doesn’t. Can you provide data to support your claim?vineviz wrote: ↑Sun Apr 11, 2021 8:15 pmA 4% WR worked most of the time in the past. It might work in the future, but it is LESS likely to work in the future than it was in the past.geerhardusvos wrote: ↑Sun Apr 11, 2021 7:52 pm A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data.
VTSAX and chill
Re: Another 2.8% SWR Article Quoting Wade Pfau
I have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.geerhardusvos wrote: ↑Sun Apr 11, 2021 8:21 pmYou don’t know that. You have no idea what the probability of various WRs success in the coming years. Just like Pfau doesn’t. Can you provide data to support your claim?vineviz wrote: ↑Sun Apr 11, 2021 8:15 pmA 4% WR worked most of the time in the past. It might work in the future, but it is LESS likely to work in the future than it was in the past.geerhardusvos wrote: ↑Sun Apr 11, 2021 7:52 pm A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Another 2.8% SWR Article Quoting Wade Pfau
I have no quarrel with people being conservative and I cringe at the early retirement movement where young people overuse historical metrics like the 4% "rule" and want to retire super early. In my own case, I couldn't convince DW that we could retire until I showed her that if we lived in a zero real return world, we would still be fine.
But I don't get using counterfactuals or worse, Monte Carlo simulations derived from counterfactuals, where we change one variable and expect other things to remain the same. Markets aren't a separate thing, they are folks' reactions to events. For instance, to produce the terrible investing environment of late 60's-1970's required the Vietnam war, oil supply shocks with more than an order of magnitude price increase, the Beatles breaking up, Boomers borrowing for their first houses, the tax code not indexed for inflation encouraging lawmakers to give us more inflation, Whip Inflation Now pins, and other tragedies.
In any investing environment, a big part of the portfolio isn't making money, it's just which part that varies. Just because our brains can put the word "bonds" to part of the portfolio as a likely poor performer, it doesn't follow that overall performance will be terrible - for all we know, low interest rates are a great boon and will spur technological leaps and we'll finally get our flying cars.
But I don't get using counterfactuals or worse, Monte Carlo simulations derived from counterfactuals, where we change one variable and expect other things to remain the same. Markets aren't a separate thing, they are folks' reactions to events. For instance, to produce the terrible investing environment of late 60's-1970's required the Vietnam war, oil supply shocks with more than an order of magnitude price increase, the Beatles breaking up, Boomers borrowing for their first houses, the tax code not indexed for inflation encouraging lawmakers to give us more inflation, Whip Inflation Now pins, and other tragedies.
In any investing environment, a big part of the portfolio isn't making money, it's just which part that varies. Just because our brains can put the word "bonds" to part of the portfolio as a likely poor performer, it doesn't follow that overall performance will be terrible - for all we know, low interest rates are a great boon and will spur technological leaps and we'll finally get our flying cars.
- geerhardusvos
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Re: Another 2.8% SWR Article Quoting Wade Pfau
LOL... nice data...vineviz wrote: ↑Sun Apr 11, 2021 8:25 pmI have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.geerhardusvos wrote: ↑Sun Apr 11, 2021 8:21 pmYou don’t know that. You have no idea what the probability of various WRs success in the coming years. Just like Pfau doesn’t. Can you provide data to support your claim?vineviz wrote: ↑Sun Apr 11, 2021 8:15 pmA 4% WR worked most of the time in the past. It might work in the future, but it is LESS likely to work in the future than it was in the past.geerhardusvos wrote: ↑Sun Apr 11, 2021 7:52 pm A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data.
Is that why he’s been so good at predicting them previously?
VTSAX and chill
Re: Another 2.8% SWR Article Quoting Wade Pfau
Hasn't the real yield on bonds been negative before?
"Old value investors never die, they just get their fix from rebalancing." -- vineviz
Re: Another 2.8% SWR Article Quoting Wade Pfau
The SWR discussion is tiring considering that the SWR framework is not a great withdrawal framework in my opinion.
But, assuming a continuation of trend without an understanding of the fundamentals is a weak argument.
But, assuming a continuation of trend without an understanding of the fundamentals is a weak argument.
Re: Another 2.8% SWR Article Quoting Wade Pfau
No, you don't. That's the big mistake you make. You don't know what you don't know. It's HARDER than rocket science. Rocket science is easy.vineviz wrote: ↑Sun Apr 11, 2021 8:25 pmI have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.geerhardusvos wrote: ↑Sun Apr 11, 2021 8:21 pmYou don’t know that. You have no idea what the probability of various WRs success in the coming years. Just like Pfau doesn’t. Can you provide data to support your claim?vineviz wrote: ↑Sun Apr 11, 2021 8:15 pmA 4% WR worked most of the time in the past. It might work in the future, but it is LESS likely to work in the future than it was in the past.geerhardusvos wrote: ↑Sun Apr 11, 2021 7:52 pm A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data.
Imagine trying to put a rocket on the moon if the gravitational constant changed every day based on consumer sentiment. Or if Congress could pass a law halfway through building a rocket (or worse, the day you launch it) that changed the pressure of liquid oxygen.
Economics is not hard science. You don't even know if returns on the low end follow a normal distribution. There is so much economists don't know because there's not enough data points, there's a thousand different variables, and even human EMOTIONS are involved.
I bet Cliff Asness thought he had a pretty good idea too, and he said -4% to 8% back in 2012. So far, we've gotten like 14%-15% a year.
I think he has a PhD too, or at least a team of PhDs advising him. Yet look how far off he was. Did he have a pretty good idea about the distribution of possible returns? It's so simple, right? You don't know. No one does.
In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess...
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
- geerhardusvos
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Re: Another 2.8% SWR Article Quoting Wade Pfau
If only VineViz, 000, JBTX, and others listened to HomerJ, this forum would have a lot less noise.HomerJ wrote: ↑Sun Apr 11, 2021 11:32 pmNo, you don't. That's the big mistake you make. You don't know what you don't know. It's HARDER than rocket science. Rocket science is easy.vineviz wrote: ↑Sun Apr 11, 2021 8:25 pmI have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.geerhardusvos wrote: ↑Sun Apr 11, 2021 8:21 pmYou don’t know that. You have no idea what the probability of various WRs success in the coming years. Just like Pfau doesn’t. Can you provide data to support your claim?vineviz wrote: ↑Sun Apr 11, 2021 8:15 pmA 4% WR worked most of the time in the past. It might work in the future, but it is LESS likely to work in the future than it was in the past.geerhardusvos wrote: ↑Sun Apr 11, 2021 7:52 pm A 4% WR has worked for 30 year retirements 99% of the time with a 75/25 portfolio. That’s 150 years of data.
Imagine trying to put a rocket on the moon if the gravitational constant changed every day based on consumer sentiment. Or if Congress could pass a law halfway through building a rocket (or worse, the day you launch it) that changed the pressure of liquid oxygen.
Economics is not hard science. You don't even know if returns on the low end follow a normal distribution. There is so much economists don't know because there's not enough data points, there's a thousand different variables, and even human EMOTIONS are involved.
I bet Cliff Asness thought he had a pretty good idea too, and he said -4% to 8% back in 2012. So far, we've gotten like 14%-15% a year.
I think he has a PhD too, or at least a team of PhDs advising him. Yet look how far off he was. Did he have a pretty good idea about the distribution of possible returns? It's so simple, right? You don't know. No one does.
In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess...
VTSAX and chill
Re: Another 2.8% SWR Article Quoting Wade Pfau
So, would you say you do or do not know whether the 4% WR is safe?
Last edited by 000 on Mon Apr 12, 2021 12:26 am, edited 1 time in total.
Re: Another 2.8% SWR Article Quoting Wade Pfau
For a 30 year period as the SWR methodology used, 1/30 would be 3.33% and only needing enough growth to keep up with inflation.
If your expectation is -.5% real, why bother with the risk in stocks ?
If your expectation is -.5% real, why bother with the risk in stocks ?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
- quantAndHold
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Re: Another 2.8% SWR Article Quoting Wade Pfau
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is administered and given by the Nobel Foundation just like all the other Nobel Prizes. It just wasn’t part of Alfred Nobel’s original will.000 wrote: ↑Mon Apr 12, 2021 12:04 amSo, would you say you do or do not know whether the 4% WR is safe?
There is no Nobel Prize in Economics.HomerJ wrote: ↑Sun Apr 11, 2021 11:32 pmIn his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess...
Re: Another 2.8% SWR Article Quoting Wade Pfau
deleted
Last edited by 000 on Mon Apr 12, 2021 1:50 am, edited 1 time in total.
- quantAndHold
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Re: Another 2.8% SWR Article Quoting Wade Pfau
I’d be dead, and thus have no feelings in this matter or any other.000 wrote: ↑Mon Apr 12, 2021 12:15 amHow would you feel about your name being co-opted after your death to create an off-brand version of the awards you created?quantAndHold wrote: ↑Mon Apr 12, 2021 12:11 am The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is administered and given by the Nobel Foundation just like all the other Nobel Prizes. It just wasn’t part of Alfred Nobel’s original will.
Anyway, back to Wade Pfau...
Re: Another 2.8% SWR Article Quoting Wade Pfau
Back to Wade Pfau....
For those who say Pfau and others don't know enough to claim that "4% WR is [probably] not safe", how can they know enough to claim that "4% WR is safe"?
How can those who profess ignorance about future returns simultaneously profess enough knowledge to be satisfied with the safety of a particular withdrawal rate over those same future returns?
Re: Another 2.8% SWR Article Quoting Wade Pfau
Smarty experts can often mean “Know It All.”
Don’t let anyone else ruin your portfolio. It’s your portfolio. Ruin it yourself!!!