Another 2.8% SWR Article Quoting Wade Pfau

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Leesbro63
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Another 2.8% SWR Article Quoting Wade Pfau

Post by Leesbro63 »

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

Post by BernardShakey »

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."
Wish I had a subscription to WSJ but I'm too cheap...
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Exchme »

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

Post by retiringwhen »

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:
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Cruise »

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."
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by whereskyle »

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."
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?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Marseille07 »

whereskyle wrote: Sun Apr 11, 2021 12:54 pm
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."
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?
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by vineviz »

whereskyle wrote: Sun Apr 11, 2021 12:54 pm
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."
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?
For one thing, I’m not seeing any such claim here.

For another, a combination of rising inflation and slow economic growth is always a possibility
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Que1999 »

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by retiringwhen »

Que1999 wrote: Sun Apr 11, 2021 1:03 pm 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.
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by HomerJ »

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."
He said the same thing in 2010, 2011, 2012, well, you get the picture.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by HomerJ »

retiringwhen wrote: Sun Apr 11, 2021 1:31 pm
Que1999 wrote: Sun Apr 11, 2021 1:03 pm 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.
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.
We can check Pfau from 10 years ago... He was comically wrong.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by vineviz »

HomerJ wrote: Sun Apr 11, 2021 1:34 pm
retiringwhen wrote: Sun Apr 11, 2021 1:31 pm
Que1999 wrote: Sun Apr 11, 2021 1:03 pm 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.
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.
We can check Pfau from 10 years ago... He was comically wrong.
He wasn’t, actually.

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Clever_Username »

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

Post by David Jay »

HomerJ wrote: Sun Apr 11, 2021 1:34 pmWe can check Pfau from 10 years ago... He was comically wrong.
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

Post by HomerJ »

vineviz wrote: Sun Apr 11, 2021 1:40 pm
HomerJ wrote: Sun Apr 11, 2021 1:34 pm
retiringwhen wrote: Sun Apr 11, 2021 1:31 pm
Que1999 wrote: Sun Apr 11, 2021 1:03 pm 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.
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.
We can check Pfau from 10 years ago... He was comically wrong.
He wasn’t, actually.

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.
Hmmm... I'll concede your point... somewhat...

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

Post by vineviz »

HomerJ wrote: Sun Apr 11, 2021 1:58 pm
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.
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?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by White Coat Investor »

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."
I hope I can be the heir of someone using a 2.8% withdrawal rate.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Scott S »

HomerJ wrote: Sun Apr 11, 2021 1:58 pmSo yeah, it's very reasonable to question Pfau's models. It's reasonable to wonder if he's missing some variables.
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

Post by vineviz »

Scott S wrote: Sun Apr 11, 2021 2:28 pm 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!
The model used at ERN is much more problematic than the one used by Pfau and most other professionals.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Scott S »

vineviz wrote: Sun Apr 11, 2021 2:37 pm
Scott S wrote: Sun Apr 11, 2021 2:28 pm 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!
The model used at ERN is much more problematic than the one used by Pfau and most other professionals.
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?)
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by nisiprius »

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by 59Gibson »

David Jay wrote: Sun Apr 11, 2021 1:50 pm
HomerJ wrote: Sun Apr 11, 2021 1:34 pmWe can check Pfau from 10 years ago... He was comically wrong.
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.
+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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by bradshaw1965 »

vineviz wrote: Sun Apr 11, 2021 1:40 pm
He wasn’t, actually.
If he wasn't wrong, the concept is not useful.I am just leaning towards SWR being not a useful concept except for cutting off naive unrealistic expectations on the high side.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by whereskyle »

nisiprius 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.
Hear hear
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Rex66 »

59Gibson wrote: Sun Apr 11, 2021 4:44 pm
David Jay wrote: Sun Apr 11, 2021 1:50 pm
HomerJ wrote: Sun Apr 11, 2021 1:34 pmWe can check Pfau from 10 years ago... He was comically wrong.
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.
+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.
Well if they don’t do that then they can’t secretly shill for the insurance industry.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by bog007 »

:sharebeer
White Coat Investor wrote:
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."
I hope I can be the heir of someone using a 2.8% withdrawal rate.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by quantAndHold »

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Pikel »

BernardShakey wrote: Sun Apr 11, 2021 12:23 pm
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."
Wish I had a subscription to WSJ but I'm too cheap...
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.

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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by geerhardusvos »

vineviz wrote: Sun Apr 11, 2021 2:37 pm
Scott S wrote: Sun Apr 11, 2021 2:28 pm 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!
The model used at ERN is much more problematic than the one used by Pfau and most other professionals.
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Dave55 »

White Coat Investor wrote: Sun Apr 11, 2021 2:14 pm
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."
I hope I can be the heir of someone using a 2.8% withdrawal rate.
Priceless!

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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by geerhardusvos »

White Coat Investor wrote: Sun Apr 11, 2021 2:14 pm
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."
I hope I can be the heir of someone using a 2.8% withdrawal rate.
Bingo.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by vineviz »

geerhardusvos wrote: Sun Apr 11, 2021 6:37 pm
vineviz wrote: Sun Apr 11, 2021 2:37 pm
The model used at ERN is much more problematic than the one used by Pfau and most other professionals.
We’ve proved this wrong over and over again, vineviz....
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by geerhardusvos »

vineviz wrote: Sun Apr 11, 2021 7:24 pm
geerhardusvos wrote: Sun Apr 11, 2021 6:37 pm
vineviz wrote: Sun Apr 11, 2021 2:37 pm
The model used at ERN is much more problematic than the one used by Pfau and most other professionals.
We’ve proved this wrong over and over again, vineviz....
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.
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?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by vineviz »

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.
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by geerhardusvos »

vineviz wrote: Sun Apr 11, 2021 8:15 pm
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.
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.
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?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by vineviz »

geerhardusvos wrote: Sun Apr 11, 2021 8:21 pm
vineviz wrote: Sun Apr 11, 2021 8:15 pm
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.
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.
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?
I have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Exchme »

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by geerhardusvos »

vineviz wrote: Sun Apr 11, 2021 8:25 pm
geerhardusvos wrote: Sun Apr 11, 2021 8:21 pm
vineviz wrote: Sun Apr 11, 2021 8:15 pm
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.
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.
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?
I have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.
LOL... nice data...

Is that why he’s been so good at predicting them previously?

:oops:
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by Scott S »

Hasn't the real yield on bonds been negative before?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by 000 »

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by HomerJ »

vineviz wrote: Sun Apr 11, 2021 8:25 pm
geerhardusvos wrote: Sun Apr 11, 2021 8:21 pm
vineviz wrote: Sun Apr 11, 2021 8:15 pm
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.
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.
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?
I have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.
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.

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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by geerhardusvos »

HomerJ wrote: Sun Apr 11, 2021 11:32 pm
vineviz wrote: Sun Apr 11, 2021 8:25 pm
geerhardusvos wrote: Sun Apr 11, 2021 8:21 pm
vineviz wrote: Sun Apr 11, 2021 8:15 pm
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.
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.
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?
I have a pretty good idea about the distribution of possible withdrawal rates, and so does Pfau. It's not rocket science.
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.

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...
If only VineViz, 000, JBTX, and others listened to HomerJ, this forum would have a lot less noise.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by 000 »

HomerJ wrote: Sun Apr 11, 2021 11:32 pm You don't know. No one does.
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by JoMoney »

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 ?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by quantAndHold »

000 wrote: Mon Apr 12, 2021 12:04 am
HomerJ wrote: Sun Apr 11, 2021 11:32 pm You don't know. No one does.
So, would you say you do or do not know whether the 4% WR is safe?
HomerJ wrote: Sun Apr 11, 2021 11:32 pm
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...
There is no Nobel Prize in Economics. :oops:
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.
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Re: Another 2.8% SWR Article Quoting Wade Pfau

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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by quantAndHold »

000 wrote: Mon Apr 12, 2021 12:15 am
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.
How would you feel about your name being co-opted after your death to create an off-brand version of the awards you created?
I’d be dead, and thus have no feelings in this matter or any other.

Anyway, back to Wade Pfau...
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by 000 »

quantAndHold wrote: Mon Apr 12, 2021 12:22 am Anyway, back to 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?
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Re: Another 2.8% SWR Article Quoting Wade Pfau

Post by bog007 »

Smarty experts can often mean “Know It All.”
Don’t let anyone else ruin your portfolio. It’s your portfolio. Ruin it yourself!!!
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