Traditional SWR - flawed at the core

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Traditional SWR - flawed at the core

Post by 9-5 Suited »

There are two well-known behavioral errors - the sunk cost fallacy and the endowment effect - that both share a common message. It's dangerous to allow information that has already passed to inform decisions about the present and future.

The traditional approach to Safe Withdrawal Rates - pegging withdrawals to the initial portfolio value and then adjusting only for inflation - is obviously wrought with this issue. Take a simple example that exposes the problem:

Investor 1: Retired 5 years ago at 55 with $2M 60/40 portfolio and 4% withdrawal. With bad sequencing, his portfolio is down to $1.5M. Assume 0% inflation for simplicity (ha, I know) and he is happily withdrawing $80,000 per year ($2M x 4%) and considers that appropriate.

Investor 2: Retires today at 60 with $1.5M 60/40 portfolio and 4% withdrawal. He is happily withdrawing $60,000 per year ($1.5M x 4%) and considers that appropriate.

So both investors are 60 years old, retired, 60/40 AA, with $1.5M portfolio and yet would have very different "safe withdrawal" amounts.

So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
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Re: Traditional SWR - flawed at the core

Post by jebmke »

SWR is not a guarantee, it is a guidepost. While I'm sure there are some people who use a constant (inflation adjusted withdrawal) I have never met anyone who actually does - and I know a lot of retirees.

I'm not sure I could do it. There are some years when my natural spending is below average - and I can't picture how I would go about rushing out to spend up to the constant amount just to satisfy the SWR method.
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Re: Traditional SWR - flawed at the core

Post by EddyB »

In the 4% SWR paradigm, your first investor is only counting on another 25 years of withdrawals, while your second is counting on 30. While you might raise concerns, no “contradiction” is revealed here.
Last edited by EddyB on Fri Jan 21, 2022 10:54 am, edited 1 time in total.
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Re: Traditional SWR - flawed at the core

Post by Marseille07 »

EddyB wrote: Fri Jan 21, 2022 9:59 am In the 4% SWR paradigm, your first investor is only counting on another 25 years of withdrawals, while your second is counting on 30. While you might raise concerns, there’s no “contradiction” is revealed here.
This poster is correct. The runway for Investor 1 is 5 years shorter therefore there is nothing contradicting as far as the validity of Traditional SWR.

Start-date sensitivity can and do happen.
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Re: Traditional SWR - flawed at the core

Post by Candor »

Deleted. Brain lapse.
Last edited by Candor on Fri Jan 21, 2022 10:20 am, edited 1 time in total.
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Re: Traditional SWR - flawed at the core

Post by 1hotjava »

Unfortunately the "4%" is thrown around as an absolute without background on where it is derived from. The thing I try to note on other fourms when lay people ask questions of retirement is that the 4% is predicated on a person retiring at 65 and having a 30year horizon. The "Trinity" study where this comes from doesn't address anything beyond 30yrs so at day one after 30yrs you could be out of money.

For people retiring earlier than 65, there is a reduced SWR. Karsten Jeske over at earlyretirementnow.com has done a lot of analysis on this and he has a 40 part series of articles on this and other factors that can affect SWR. Good reading.

https://earlyretirementnow.com/safe-wit ... te-series/
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Re: Traditional SWR - flawed at the core

Post by 9-5 Suited »

Marseille07 wrote: Fri Jan 21, 2022 10:06 am
EddyB wrote: Fri Jan 21, 2022 9:59 am In the 4% SWR paradigm, your first investor is only counting on another 25 years of withdrawals, while your second is counting on 30. While you might raise concerns, there’s no “contradiction” is revealed here.
This poster is correct. The runway for Investor 1 is 5 years shorter therefore there is nothing contradicting as far as the validity of Traditional SWR.

Start-date sensitivity can and do happen.
Neither of them have crystal balls of that level of accuracy that I’m aware of. 30 or 35 years of retirement wouldn’t yield that much difference in the starting SWR recommendation to render the $80k vs. $60k values non-contradictory. Unless you’d really be claiming that a 35 year retirement should use a full percentage point lower starting point, which I’ve never seen advocated or proven.

The bottom line to me is that what your portfolio used to be worth at some point in the past shouldn’t have a bearing on your current decisions. And the more advanced or variable approaches take account of this.

I do agree with jebmke that the entire exercise is more of a guidepost, but yet many people seem to treat it like it is an actual withdrawal method. It’s hard to imagine it even being the optimal one though.
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Re: Traditional SWR - flawed at the core

Post by marcopolo »

9-5 Suited wrote: Fri Jan 21, 2022 9:47 am There are two well-known behavioral errors - the sunk cost fallacy and the endowment effect - that both share a common message. It's dangerous to allow information that has already passed to inform decisions about the present and future.

The traditional approach to Safe Withdrawal Rates - pegging withdrawals to the initial portfolio value and then adjusting only for inflation - is obviously wrought with this issue. Take a simple example that exposes the problem:

Investor 1: Retired 5 years ago at 55 with $2M 60/40 portfolio and 4% withdrawal. With bad sequencing, his portfolio is down to $1.5M. Assume 0% inflation for simplicity (ha, I know) and he is happily withdrawing $80,000 per year ($2M x 4%) and considers that appropriate.

Investor 2: Retires today at 60 with $1.5M 60/40 portfolio and 4% withdrawal. He is happily withdrawing $60,000 per year ($1.5M x 4%) and considers that appropriate.

So both investors are 60 years old, retired, 60/40 AA, with $1.5M portfolio and yet would have very different "safe withdrawal" amounts.

So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
While I don't use SWR approach, nor know anyone that does, your example has been discussed many times. and there is no contradiction.

SWR is not a deterministic outcome, it is probabilistic.
Investor 1 has hit a poor sequence of returns after retiring. Investor 2 got that poor sequence prior to retiring. All that means is that investor 1 has a higher probability of failure.
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Re: Traditional SWR - flawed at the core

Post by jebmke »

Candor wrote: Fri Jan 21, 2022 10:13 am Let's just call it a SWRT from now on. SWR of :thumbsup.
Like Lane Assist on modern cars. Doesn't mean you can't creep into the breakdown lane; just means you should look to see if there isn't an obstacle ahead -- and probably don't want to stay there long.
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Re: Traditional SWR - flawed at the core

Post by Candor »

jebmke wrote: Fri Jan 21, 2022 10:19 am
Candor wrote: Fri Jan 21, 2022 10:13 am Let's just call it a SWRT from now on. SWR of :thumbsup.
Like Lane Assist on modern cars. Doesn't mean you can't creep into the breakdown lane; just means you should look to see if there isn't an obstacle ahead -- and probably don't want to stay there long.
Ha, you quoted me before I had a chance to delete it. I guess I was conflating the SWRate with 4% Rule (of thumb). But the point stands, it is not a hard and fast rule and is meant to be a guideline.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
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Re: Traditional SWR - flawed at the core

Post by Marseille07 »

9-5 Suited wrote: Fri Jan 21, 2022 10:18 am Neither of them have crystal balls of that level of accuracy that I’m aware of. 30 or 35 years of retirement wouldn’t yield that much difference in the starting SWR recommendation to render the $80k vs. $60k values non-contradictory. Unless you’d really be claiming that a 35 year retirement should use a full percentage point lower starting point, which I’ve never seen advocated or proven.

The bottom line to me is that what your portfolio used to be worth at some point in the past shouldn’t have a bearing on your current decisions. And the more advanced or variable approaches take account of this.

I do agree with jebmke that the entire exercise is more of a guidepost, but yet many people seem to treat it like it is an actual withdrawal method. It’s hard to imagine it even being the optimal one though.
This has nothing to do with accuracy. The Trinity SWR study is based on the success rate over 30 years.

So for Investor 1, the game is whether 80K/year lasts from 55 to 85 yo. For Investor 2, their money needs to last from 60 to 90 withdrawing 60K/year.

Their numbers happening to be the same 5 years in for Investor 1 doesn't change anything.
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Re: Traditional SWR - flawed at the core

Post by 9-5 Suited »

marcopolo wrote: Fri Jan 21, 2022 10:18 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am There are two well-known behavioral errors - the sunk cost fallacy and the endowment effect - that both share a common message. It's dangerous to allow information that has already passed to inform decisions about the present and future.

The traditional approach to Safe Withdrawal Rates - pegging withdrawals to the initial portfolio value and then adjusting only for inflation - is obviously wrought with this issue. Take a simple example that exposes the problem:

Investor 1: Retired 5 years ago at 55 with $2M 60/40 portfolio and 4% withdrawal. With bad sequencing, his portfolio is down to $1.5M. Assume 0% inflation for simplicity (ha, I know) and he is happily withdrawing $80,000 per year ($2M x 4%) and considers that appropriate.

Investor 2: Retires today at 60 with $1.5M 60/40 portfolio and 4% withdrawal. He is happily withdrawing $60,000 per year ($1.5M x 4%) and considers that appropriate.

So both investors are 60 years old, retired, 60/40 AA, with $1.5M portfolio and yet would have very different "safe withdrawal" amounts.

So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
While I don't use SWR approach, nor know anyone that does, your example has been discussed many times. and there is no contradiction.

SWR is not a deterministic outcome, it is probabilistic.
Investor 1 has hit a poor sequence of returns after retiring. Investor 2 got that poor sequence prior to retiring. All that means is that investor 1 has a higher probability of failure.
What would be contradictory is advocating these two individual continue forward with such dramatically different withdrawal values starting today based on how they arrived at their current portfolio value. That's what the 'peg to initial portfolio value' approach does.
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Re: Traditional SWR - flawed at the core

Post by djm2001 »

The inconsistency between Investors 1 and 2 is sometimes called "path dependence" and sometimes called "the starting point paradox".

Here are a couple of in-depth threads on the subject that propose different resolutions to the inconsistency:
AA = global stocks & bonds @ market weight (~60/40); EF = i-bonds; WR = -PMT(1%, 100-age, 1, 0, 1)
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Re: Traditional SWR - flawed at the core

Post by Marseille07 »

9-5 Suited wrote: Fri Jan 21, 2022 10:26 am What would be contradictory is advocating these two individual continue forward with such dramatically different withdrawal values starting today based on how they arrived at their current portfolio value. That's what the 'peg to initial portfolio value' approach does.
Everyone is aware that it does. That doesn't mean it is "flawed at the core," but you're free to use a different method. I don't plan to use SWR either.
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Re: Traditional SWR - flawed at the core

Post by 9-5 Suited »

Marseille07 wrote: Fri Jan 21, 2022 10:25 am
9-5 Suited wrote: Fri Jan 21, 2022 10:18 am Neither of them have crystal balls of that level of accuracy that I’m aware of. 30 or 35 years of retirement wouldn’t yield that much difference in the starting SWR recommendation to render the $80k vs. $60k values non-contradictory. Unless you’d really be claiming that a 35 year retirement should use a full percentage point lower starting point, which I’ve never seen advocated or proven.

The bottom line to me is that what your portfolio used to be worth at some point in the past shouldn’t have a bearing on your current decisions. And the more advanced or variable approaches take account of this.

I do agree with jebmke that the entire exercise is more of a guidepost, but yet many people seem to treat it like it is an actual withdrawal method. It’s hard to imagine it even being the optimal one though.
This has nothing to do with accuracy. The Trinity SWR study is based on the success rate over 30 years.

So for Investor 1, the game is whether 80K/year lasts from 55 to 85 yo. For Investor 2, their money needs to last from 60 to 90 withdrawing 60K/year.

Their numbers happening to be the same 5 years in for Investor 1 doesn't change anything.
Except it's not hard to extend the logic to numbers of years beyond 30, as many other simulations have done. And going from 30 to 35 would yield a much smaller difference in the SWR than a 25% lower starting amount. Or if you like, make the example 1 year apart for 30 and 31 years.

I completely agree with your point that the Trinity Study is about 30 year retirements, and even accept a bit of the flaw in the example (though I don't see the flaw as much more than a quibble per the points above), but seems like the point can easily remain: there's no advantage in using a past portfolio value as the rationale for your current withdrawal in practical reality.
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Re: Traditional SWR - flawed at the core

Post by Marseille07 »

9-5 Suited wrote: Fri Jan 21, 2022 10:32 am I completely agree with your point that the Trinity Study is about 30 year retirements, and even accept a bit of the flaw in the example (though I don't see the flaw as much more than a quibble per the points above), but seems like the point can easily remain: there's no advantage in using a past portfolio value as the rationale for your current withdrawal in practical reality.
There's advantage, that is you're not likely to run out of money while having a spending floor (the X% + CPI adjustment).

If you withdraw a % of your remaining portfolio, you don't have the spending floor guarantee.
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Re: Traditional SWR - flawed at the core

Post by jh »

.....
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Re: Traditional SWR - flawed at the core

Post by Tamalak »

I'm gonna use a flexible withdrawal. I'll withdraw a portion of my portfolio (based on rolling PE.. right now 3.7%) based on its current value, not original value when I "retired".

If the market does badly, I won't ignore it.. I'll belt tighten or find a job.

If the market makes me rich, I won't ignore that either 8-)
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Re: Traditional SWR - flawed at the core

Post by 9-5 Suited »

djm2001 wrote: Fri Jan 21, 2022 10:28 am The inconsistency between Investors 1 and 2 is sometimes called "path dependence" and sometimes called "the starting point paradox".

Here are a couple of in-depth threads on the subject that propose different resolutions to the inconsistency:
Thanks - appreciate the links!
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Re: Traditional SWR - flawed at the core

Post by willthrill81 »

The SWR concept is only intended to be a rough guidepost as to approximately how much stable income can be withdrawn from a portfolio of stocks and bonds. It is definitely NOT a viable strategy. Deciding on day 1 of retirement how much you will withdraw from your portfolio annually in inflation-adjusted dollars for the next 30 years without even glancing at your portfolio along the way would be insane, and nobody does that anyway.

That said, the SWR for a given portfolio over a given period of time is a good metric for the combined effect of average portfolio returns and sequence of returns risk.
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Re: Traditional SWR - flawed at the core

Post by tibbitts »

9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
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Re: Traditional SWR - flawed at the core

Post by willthrill81 »

tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
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Re: Traditional SWR - flawed at the core

Post by djm2001 »

jh wrote: Fri Jan 21, 2022 10:36 am Many people make the mistake of assuming that an "income investor" must deviate from market cap weighting. This is not the case. One can be an income investor and adhere strictly to the standard three-fund index strategy of total US equity, total ex-US equity, and total US bonds.

IMHO an income investor is simply someone that chooses to only withdraw the dividends and interest that their portfolio produces, i.e. not selling of shares. In other words this strategy is based on moving the decision of how much money can be safely withdrawn from the hands of the investor and into the hands of the management for all of the companies that are owned. By doing this the withdrawals are now based on current information, on a company by company basis, as opposed to the SWR method which IMHO is extremely arbitrary.
Thank you for this thought-provoking perspective. I had always dismissed dividend payouts as arbitrary (i.e., completely unrelated to my own goals), but your post made me realize that I need to more carefully consider how closely the incentives of management are aligned with the incentives of the investor (as far as the dividend payout decision goes). This reminds me somewhat of the "payoff perspective" that John Cochrane described, and I might have to go back and try to understand the parts of that paper that escaped me the last time. :confused
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Re: Traditional SWR - flawed at the core

Post by 9-5 Suited »

willthrill81 wrote: Fri Jan 21, 2022 10:42 am The SWR concept is only intended to be a rough guidepost as to approximately how much stable income can be withdrawn from a portfolio of stocks and bonds. It is definitely NOT a viable strategy. Deciding on day 1 of retirement how much you will withdraw from your portfolio annually in inflation-adjusted dollars for the next 30 years without even glancing at your portfolio along the way would be insane, and nobody does that anyway.

That said, the SWR for a given portfolio over a given period of time is a good metric for the combined effect of average portfolio returns and sequence of returns risk.
Completely agree with everything here. Perhaps it's just because the shorthand of a withdrawal rate is much simpler that it is so popularly discussed, especially since as far as generic guideposts go it is reasonably OK. I really enjoyed your ABW thread, by the way. That changed my thinking on my own strategy.
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Re: Traditional SWR - flawed at the core

Post by nisiprius »

1) Your observation is valid and common. It is what it is. The whole point of the SWR numbers is to give you a number immediately at retirement, and statistics are what they are.

2) The earliest SWR studies, notably the "Trinity" study, were perfectly clear. It would be much better if it were called the 4% "rule of thumb." The "Trinity" study said this:
The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.
It's a planning number, not an accurate number.

The Trinity study seems to be implying subjective seat-of-the-pants adjustments. I think that's reasonable.

3) As you might expect people have gone nuts since then with false precision.

Part of this is because the 4% number, "discovered" in the late 1990s, was and is shockingly low and lower than people had previously believed. It's fair to say that before Bengen and the Trinity authors, people just used an amortization model and vaguely supposed that an historical average return of X% meant a safe withdrawal rate of X% in perpetuity, so get out the TI financial calculator and figure out how much more you can withdraw if you only need it to last thirty years.

For example, Peter Lynch said in 1995 that it was safe to withdraw 7% per year from an all-stocks portfolio--he suggested focussing on "dividend aristocrats" but that an S&P 500 index fund would do.

Part of the fuss is because of competition. If one advisor says "4%" and another says "this strategy will get you a safe 4.5%" which are you going to pick?

The actual numbers are surprisingly firm and tweaks and complications don't make them budge much. An issue is that alternatives to the original dumb SWR--take portfolio size at retirement, multiply by X%, and withdraw that amount every year with COLA--all introduce some degree of risk, in the form of fluctuating income. It's very hard to judge the tradeoff. Will you be happier with the amount of income represented by 4%-of-original-portfolio-COLAed forever, or with 4.3% ± 5%?

Part of the fuss is because the number 4% (or 3.8% or 3.5%) is so shockingly low. Everybody wants to believe that because stocks have a much higher expected return than bonds, a higher-stocks portfolio will lead to a much higher safe withdrawal rate. Everybody recoils at the results of the SWR studies. But according to these stuides, stocks act more like "free lottery tickets with a really good chance of a worthwhile jackpot." Adding stocks in these studies doesn't change the safe withdrawal rate, the curves are almost flat from around 20% stocks to around 80% stocks, sagging at both extremes. It does make a huge difference in the average terminal wealth, but not the bad-case situation.

It's a rule of thumb. It's irresponsible to plan your retirement on Peter Lynch's claim of a 7% safe withdrawal rate. 3-4% is reasonable. Nobody is likely to fail to adjust at all in a downturn. We spend our whole working lives adjusting spending to fluctuating income by the seat of our pants, it's not at all clear that retirees are going to do any better following Guyton-Klinger or whatever, then by saying "eh, 4%, annual review, and seat-of-the-pants."
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Re: Traditional SWR - flawed at the core

Post by randomguy »

9-5 Suited wrote: Fri Jan 21, 2022 9:47 am (2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
Would you rather have consistant numbers or the right ones? :) The right numbers is that investor 2 can take out about 80k because after the markets drop ~30%, the SWR isn't 4%. It is closer to 6%. People realized that about a minute after the study was done and their have been plenty of papers in the decade since about how valuations change SWR.
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Re: Traditional SWR - flawed at the core

Post by MathWizard »

willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
Don't both ABW and VPW require the returns or pe10 and bond yield from during retirement? How do you get these before you retire?

I have a hard enough time explaining that delaying SS may be a good idea to people in good health who plan to take it at 62. Getting them to realize that you have to supply your own health care, that Medicare is not free, and that they will likely have to pay taxes is hard enough

Anything more complicated than using 4% real as a planning tool would have their eyes gloss over.

This puts them at the mercy of a financial planner/salesman who will take over the portfolio at a mere 1.1% AUM Plus any underlying expense ratios. Yes, I say through a free employer sponsored financial planning meeting, and when he could not get me to bite, was selling my wife on his managing the portfolio at these prices when I am gone. While I was sitting there .

That is why a simple plan is far superior to a complicated plan that forces surviving spouses to give away over 1% of the portfolio a year

Our plan will basically be on autopilot, and other than monitoring, my wife and I will have to do nothing but enjoy our lives. Money will appear in checking each month. My son will take over and monitor when we can no longer and it will be simple for him.
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Re: Traditional SWR - flawed at the core

Post by marcopolo »

jh wrote: Fri Jan 21, 2022 10:36 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am There are two well-known behavioral errors - the sunk cost fallacy and the endowment effect - that both share a common message. It's dangerous to allow information that has already passed to inform decisions about the present and future.

The traditional approach to Safe Withdrawal Rates - pegging withdrawals to the initial portfolio value and then adjusting only for inflation - is obviously wrought with this issue. Take a simple example that exposes the problem:

Investor 1: Retired 5 years ago at 55 with $2M 60/40 portfolio and 4% withdrawal. With bad sequencing, his portfolio is down to $1.5M. Assume 0% inflation for simplicity (ha, I know) and he is happily withdrawing $80,000 per year ($2M x 4%) and considers that appropriate.

Investor 2: Retires today at 60 with $1.5M 60/40 portfolio and 4% withdrawal. He is happily withdrawing $60,000 per year ($1.5M x 4%) and considers that appropriate.

So both investors are 60 years old, retired, 60/40 AA, with $1.5M portfolio and yet would have very different "safe withdrawal" amounts.

So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
I agree with your premise completely.

This is why I am an "income investor". I invest specifically to create cash flow, primarily from stock dividends since fixed income rates have been decimated the last decade or so.

The benefit of dividends is that the dividend payout is set by each individual company and is based on current information. In general companies are not going to set a dividend payout policy that is not sustainable because it could cost them their employment. So, while the dividend income may be smaller than the amount that could come from the SWR method, it is a safer withdrawal strategy because it is based on current data and it is being determined on a company by company basis by people that can be held accountable for their decision. Furthermore as an added bonus dividends encourage financial discipline from management.

Many people make the mistake of assuming that an "income investor" must deviate from market cap weighting. This is not the case. One can be an income investor and adhere strictly to the standard three-fund index strategy of total US equity, total ex-US equity, and total US bonds.

IMHO an income investor is simply someone that chooses to only withdraw the dividends and interest that their portfolio produces, i.e. not selling of shares. In other words this strategy is based on moving the decision of how much money can be safely withdrawn from the hands of the investor and into the hands of the management for all of the companies that are owned. By doing this the withdrawals are now based on current information, on a company by company basis, as opposed to the SWR method which IMHO is extremely arbitrary.

For example, why would someone believe that they can base their withdrawals on the historical total returns for stock markets which will not match what exists in the current day? The historical data will include companies that no longer even exist anymore. The historical data will include economic and geopolitical conditions which do not match the current day. IMHO the SWR total return withdrawal strategy is based on information which is not relevant to the current conditions. IMHO it is completely arbitrary.
A couple of points

1) It depends on your definition of "safer". Having to work an extra decade or more during your most healthy retirement years may not be so "safe" in some people minds.

2) Many companies incentivize management to do stock buy backs rather than using that excess cash to fund dividends (stock options/RSUs, where management pay is tied to stock price). So, even though management uses up the excess cash, it is done in a way that is not well aligned with the "income investor's" interests.
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Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

jebmke wrote: Fri Jan 21, 2022 9:56 am SWR is not a guarantee, it is a guidepost. While I'm sure there are some people who use a constant (inflation adjusted withdrawal) I have never met anyone who actually does - and I know a lot of retirees.

I'm not sure I could do it. There are some years when my natural spending is below average - and I can't picture how I would go about rushing out to spend up to the constant amount just to satisfy the SWR method.
If people are not actually following the SWR, then they are adjusting their withdrawals in response to portfolio outcome. The question then becomes: how best to adjust?

SWR based on starting withdrawal amounts are no help at all in adjusting. SWR recalculated periodically is much better, but is still pretty problematic as shown here: The problem with SWR.

If you're going to adjust, why not model the adjustments directly? ABW is an extremely flexible tool that can model adjustments and tells you what happens as you adjust. Simulations can show how retirement would play out as you adjust, so you can choose an adjustment strategy that fits your preferences.

The ABW route is just slightly more effort than the standard SWR analysis, but provides a much clearer picture of retirement. It's fully consistent with formal optimization as well. See: The withdrawal strategy derived in Merton (1969) is ABW.
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Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

EddyB wrote: Fri Jan 21, 2022 9:59 am In the 4% SWR paradigm, your first investor is only counting on another 25 years of withdrawals, while your second is counting on 30. While you might raise concerns, no “contradiction” is revealed here.
The contradiction is that both investors are now in identical circumstances. Both are 60 years old with $1.5 million and the same life expectancy. But SWR is telling one to take out $2 million and the other to take out $1.5 million.
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Re: Traditional SWR - flawed at the core

Post by EddyB »

9-5 Suited wrote: Fri Jan 21, 2022 10:18 am
Marseille07 wrote: Fri Jan 21, 2022 10:06 am
EddyB wrote: Fri Jan 21, 2022 9:59 am In the 4% SWR paradigm, your first investor is only counting on another 25 years of withdrawals, while your second is counting on 30. While you might raise concerns, there’s no “contradiction” is revealed here.
This poster is correct. The runway for Investor 1 is 5 years shorter therefore there is nothing contradicting as far as the validity of Traditional SWR.

Start-date sensitivity can and do happen.
Neither of them have crystal balls of that level of accuracy that I’m aware of. 30 or 35 years of retirement wouldn’t yield that much difference in the starting SWR recommendation to render the $80k vs. $60k values non-contradictory. Unless you’d really be claiming that a 35 year retirement should use a full percentage point lower starting point, which I’ve never seen advocated or proven.

The bottom line to me is that what your portfolio used to be worth at some point in the past shouldn’t have a bearing on your current decisions. And the more advanced or variable approaches take account of this.

I do agree with jebmke that the entire exercise is more of a guidepost, but yet many people seem to treat it like it is an actual withdrawal method. It’s hard to imagine it even being the optimal one though.
I also think it's better seen as more of (indeed, only) a guidepost, but I think you're trying to make the "4% rule" say something it doesn't say. It's merely a historic description of what has been. Either the scenario you've described did occur within the periods studied (and it worked out for retiree #1!) or it didn't, which is just another way of saying "hey, there could be an even worse sequence in the future!" I don't think anyone claims that's impossible. But people look at the 2000 retirees, and how beaten up they must have felt in 2008, and ask themselves what kind of extra burdens (of saving more, or accepting in advance a more volatile income) are worth it. Especially knowing that had the 2000 retiree worked even another 5 years, they might not have felt so much better about things (obviously that depends on savings, too, but I don't think they got much comfort from the market).
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Re: Traditional SWR - flawed at the core

Post by jebmke »

Ben Mathew wrote: Fri Jan 21, 2022 11:18 am If people are not actually following the SWR, then they are adjusting their withdrawals in response to portfolio outcome. The question then becomes: how best to adjust?
Most of the people I know are using the Taylor Larimore method (common sense judgement). Some are dividend only spenders.

Sometimes judgement just means you have to know yourself and how disciplined you think you are. I retired in December in 2007. Yet, our spending in 2009-10 was some of the highest years we have had. It was a good time to get home improvements done since prices were good and contractors hungry. It was also a good time to travel since prices were good and the crowds were low.
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Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
For people planning to adjust spending, ABW provides a more realistic picture of retirement outcomes than SWR. So ABW should provide better information on when it's feasible to retire.
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Re: Traditional SWR - flawed at the core

Post by willthrill81 »

MathWizard wrote: Fri Jan 21, 2022 11:11 am
willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
Don't both ABW and VPW require the returns or pe10 and bond yield from during retirement? How do you get these before you retire?
Dynamic return assumptions can be incorporated into ABW, and I believe this to be a great potential feature of the method, but this is not required. You can input whatever forward returns you want to compute how much can be withdrawn today. VPW, which is just a specific application of ABW, uses static return assumptions based on historical returns for various AAs.
MathWizard wrote: Fri Jan 21, 2022 11:11 am Anything more complicated than using 4% real as a planning tool would have their eyes gloss over.
I completely understand. Something like ABW or even VPW is probably too complicated for many. There's no way that my parents, who are quite intelligent, would be interested in doing that. They, like many others, are just spending their RMDs, which is a very conservative approach.
MathWizard wrote: Fri Jan 21, 2022 11:11 am This puts them at the mercy of a financial planner/salesman who will take over the portfolio at a mere 1.1% AUM Plus any underlying expense ratios. Yes, I say through a free employer sponsored financial planning meeting, and when he could not get me to bite, was selling my wife on his managing the portfolio at these prices when I am gone. While I was sitting there .
That is a risk, and that's why many of us frequently discuss the very significant implications of paying AUM fees on one's retirement. It will typically reduce the retiree's portfolio income by around 25%, which sounds far worse than 'only 1% of my portfolio each year).
MathWizard wrote: Fri Jan 21, 2022 11:11 am That is why a simple plan is far superior to a complicated plan that forces surviving spouses to give away over 1% of the portfolio a year
While I understand your point, this is a false dichotomy. There are literally infinite withdrawal methods that retirees can use, and some of them are very simple. The RMD method is certainly one of them since virtually all brokerages will calculate it for you.

I've left detailed instructions for my DW in the event of my untimely passing, and it basically comes down to 'you can withdraw 4-5% of the portfolio's balance every year, depending on how well the portfolio is doing'. And if that's too complicated for her, I've advised her to go to a CPA for whom she pays a flat or hourly fee and to not use an AUM advisor under any circumstances.
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Re: Traditional SWR - flawed at the core

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.....
Last edited by jh on Wed Apr 27, 2022 11:04 pm, edited 1 time in total.
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Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

jebmke wrote: Fri Jan 21, 2022 11:29 am
Ben Mathew wrote: Fri Jan 21, 2022 11:18 am If people are not actually following the SWR, then they are adjusting their withdrawals in response to portfolio outcome. The question then becomes: how best to adjust?
Most of the people I know are using the Taylor Larimore method (common sense judgement). Some are dividend only spenders.
I think this can work when the portfolio is large enough relative to spending needs that there isn't much risk of running out regardless of what you do. You spend what you want and leave the rest to heirs or charity. Adjust as feels appropriate.

When the gap between the portfolio are spending needs is smaller and there is a non-trivial risk of running out of money, I think more formal calculations and assessment of probabilities will improve decision-making. I also think it's less stressful.
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Re: Traditional SWR - flawed at the core

Post by Marseille07 »

Ben Mathew wrote: Fri Jan 21, 2022 11:23 am
EddyB wrote: Fri Jan 21, 2022 9:59 am In the 4% SWR paradigm, your first investor is only counting on another 25 years of withdrawals, while your second is counting on 30. While you might raise concerns, no “contradiction” is revealed here.
The contradiction is that both investors are now in identical circumstances. Both are 60 years old with $1.5 million and the same life expectancy. But SWR is telling one to take out $2 million and the other to take out $1.5 million.
There is no contradiction.

Investor 1 decided to walk at the age of 55, Investor 2 retired at age 60.

With respect to SWR, Investor 1 has 25 years to go. Investor 2 has 30 years to go. The circumstances are not identical.
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Re: Traditional SWR - flawed at the core

Post by willthrill81 »

jebmke wrote: Fri Jan 21, 2022 11:29 am Most of the people I know are using the Taylor Larimore method (common sense judgement).
The TL method is basically 'withdraw whatever seems prudent to you'. At best, it's only a nominal 'plan', and it's one that leaves the door wide open for all sorts of behavioral errors.

We would never advise an investor to determine their AA in this way, so I'm befuddled why many believe the TL method to be viable, much less good.

Remember that the 30 year SWR for Taylor, who retired in the early 1980s, was almost 10%. That was almost impossible to mess up. What worked for him is probably not what will work well for someone else. Compare his experience with someone who retired between 1965-1972, or even someone who retired around the year 2000. Even though the '4% rule' held up throughout those periods (or at least is very much on track to do so for year 2000 retirees), those who were dependent on their portfolio during those times had a very rough go of it, and determining how much could be withdrawn was hardly a 'common sense judgment'.

Retirees whose portfolios are there to more or less just cover their discretionary spending can use the TL method because there's so little downside risk.
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Re: Traditional SWR - flawed at the core

Post by jebmke »

Ben Mathew wrote: Fri Jan 21, 2022 11:37 am
jebmke wrote: Fri Jan 21, 2022 11:29 am
Ben Mathew wrote: Fri Jan 21, 2022 11:18 am If people are not actually following the SWR, then they are adjusting their withdrawals in response to portfolio outcome. The question then becomes: how best to adjust?
Most of the people I know are using the Taylor Larimore method (common sense judgement). Some are dividend only spenders.
I think this can work when the portfolio is large enough relative to spending needs that there isn't much risk of running out regardless of what you do. You spend what you want and leave the rest to heirs or charity. Adjust as feels appropriate.

When the gap between the portfolio are spending needs is smaller and there is a non-trivial risk of running out of money, I think more formal calculations and assessment of probabilities will improve decision-making. I also think it's less stressful.
That's true; although a key factor that has to be included is how much spending discretion there is. The lower the discretionary percent probably means that you should not get to close to the guardrail at all if possible -- so that potentially changes what your go/no-go criterion is unless you are being forced into retirement for some reason outside your control.
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Re: Traditional SWR - flawed at the core

Post by jebmke »

willthrill81 wrote: Fri Jan 21, 2022 11:41 am
jebmke wrote: Fri Jan 21, 2022 11:29 am Most of the people I know are using the Taylor Larimore method (common sense judgement).
The TL method is basically 'withdraw whatever seems prudent to you'. At best, it's only a nominal 'plan', and it's one that leaves the door wide open for all sorts of behavioral errors.

We would never advise an investor to determine their AA in this way, so I'm befuddled why many believe the TL method to be viable, much less good.

Remember that the 30 year SWR for Taylor, who retired in the early 1980s, was almost 10%. That was almost impossible to mess up. What worked for him is probably not what will work well for someone else. Compare his experience with someone who retired between 1965-1972, or even someone who retired around the year 2000. Even though the '4% rule' held up throughout those periods (or at least is very much on track to do so for year 2000 retirees), those who were dependent on their portfolio during those times had a very rough go of it, and determining how much could be withdrawn was hardly a 'common sense judgment'.

Retirees whose portfolios are there to more or less just cover their discretionary spending can use the TL method because there's so little downside risk.
I wasn't (necessarily) defending the method for most people -- only stating that that is what most people I know use.
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Re: Traditional SWR - flawed at the core

Post by willthrill81 »

jebmke wrote: Fri Jan 21, 2022 11:43 am
willthrill81 wrote: Fri Jan 21, 2022 11:41 am
jebmke wrote: Fri Jan 21, 2022 11:29 am Most of the people I know are using the Taylor Larimore method (common sense judgement).
The TL method is basically 'withdraw whatever seems prudent to you'. At best, it's only a nominal 'plan', and it's one that leaves the door wide open for all sorts of behavioral errors.

We would never advise an investor to determine their AA in this way, so I'm befuddled why many believe the TL method to be viable, much less good.

Remember that the 30 year SWR for Taylor, who retired in the early 1980s, was almost 10%. That was almost impossible to mess up. What worked for him is probably not what will work well for someone else. Compare his experience with someone who retired between 1965-1972, or even someone who retired around the year 2000. Even though the '4% rule' held up throughout those periods (or at least is very much on track to do so for year 2000 retirees), those who were dependent on their portfolio during those times had a very rough go of it, and determining how much could be withdrawn was hardly a 'common sense judgment'.

Retirees whose portfolios are there to more or less just cover their discretionary spending can use the TL method because there's so little downside risk.
I wasn't (necessarily) defending the method for most people -- only stating that that is what most people I know use.
Understood. Hopefully, readers will understand that 'common sense' isn't so common in all this. Peter Lynch and others thought that 7% withdrawals were common sense before Bengen showed that the real number has been just over half that.
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Re: Traditional SWR - flawed at the core

Post by dcabler »

[/quote]

I've left detailed instructions for my DW in the event of my untimely passing, and it basically comes down to 'you can withdraw 4-5% of the portfolio's balance every year, depending on how well the portfolio is doing'. And if that's too complicated for her, I've advised her to go to a CPA for whom she pays a flat or hourly fee and to not use an AUM advisor under any circumstances.
[/quote]

Similar to what I've done as well. Just a % of portfolio. I also put together a "Plan B" which is VPW-like but just pre-calculates the percentage to withdraw each year, assuming fixed returns. And like you, "no AUM advisor under any circumstance".

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Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

MathWizard wrote: Fri Jan 21, 2022 11:11 am
willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
Don't both ABW and VPW require the returns or pe10 and bond yield from during retirement? How do you get these before you retire?
Updating expected returns periodically is better, but even if you fix expected returns, ABW will continue to adjust to portfolio values and will produce flexible withdrawals. This would still be significantly better than fixed withdrawals. As willthrill81 mentioned, VPW does not update expected returns.
MathWizard wrote: Fri Jan 21, 2022 11:11 am Anything more complicated than using 4% real as a planning tool would have their eyes gloss over.
I think the 4% SWR approach leaves the unsophisticated investor in much bigger trouble. You can easily use ABW to print out withdrawal rates by age, as VPW and RMD tables do. Here is an ABW withdrawal rate table from this post:

Image

Easy for anyone to follow. Even if the assumptions are wrong, the withdrawals adjust to portfolio values and keeps people out of serious trouble.
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Re: Traditional SWR - flawed at the core

Post by tibbitts »

willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
When I used an ABW calculator pre-retirement, the result was a SWR, so I don't understand how ABW is different (except maybe in how you arrive at the SWR.)
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Re: Traditional SWR - flawed at the core

Post by FactualFran »

9-5 Suited wrote: Fri Jan 21, 2022 9:47 am There are two well-known behavioral errors - the sunk cost fallacy and the endowment effect - that both share a common message. It's dangerous to allow information that has already passed to inform decisions about the present and future.

The traditional approach to Safe Withdrawal Rates - pegging withdrawals to the initial portfolio value and then adjusting only for inflation - is obviously wrought with this issue. Take a simple example that exposes the problem:

Investor 1: Retired 5 years ago at 55 with $2M 60/40 portfolio and 4% withdrawal. With bad sequencing, his portfolio is down to $1.5M. Assume 0% inflation for simplicity (ha, I know) and he is happily withdrawing $80,000 per year ($2M x 4%) and considers that appropriate.

Investor 2: Retires today at 60 with $1.5M 60/40 portfolio and 4% withdrawal. He is happily withdrawing $60,000 per year ($1.5M x 4%) and considers that appropriate.
The example illustrates the opposite of the error of allowing information that has already passed to inform decisions about the present or future. In the example, Investor 2 does not use the preceding bad sequence of returns to inform the decision of what to use as the initial withdrawal rate.

This seems like a chance for someone to do a study of what to use as the initial withdrawal rate based on preceding returns.
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Re: Traditional SWR - flawed at the core

Post by willthrill81 »

tibbitts wrote: Fri Jan 21, 2022 12:24 pm
willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
When I used an ABW calculator pre-retirement, the result was a SWR, so I don't understand how ABW is different (except maybe in how you arrive at the SWR.)
The specific withdrawal rate in a given year may have been something like 4%, but the method of determining the rates is dramatically different, and they can (and almost certainly will) diverge significantly over time.
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Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

tibbitts wrote: Fri Jan 21, 2022 12:24 pm
willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
When I used an ABW calculator pre-retirement, the result was a SWR, so I don't understand how ABW is different (except maybe in how you arrive at the SWR.)
The number you arrived at when you ran ABW pre-retirement is not the SWR, but what you can withdraw in the first year of retirement. If your portfolio does well, you can withdraw more. If it does badly, you'll withdraw less. Since you are adjusting, you'll never run out of money. So calculating the probability of running out of money isn't useful. Instead, it would be more useful to know the chances of spending becoming less or more. This is shown in the following graph from the ABW simulator:

Image

An investor can retire when this retirement spending distribution is acceptable.
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Re: Traditional SWR - flawed at the core

Post by 9-5 Suited »

FactualFran wrote: Fri Jan 21, 2022 12:39 pm
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am There are two well-known behavioral errors - the sunk cost fallacy and the endowment effect - that both share a common message. It's dangerous to allow information that has already passed to inform decisions about the present and future.

The traditional approach to Safe Withdrawal Rates - pegging withdrawals to the initial portfolio value and then adjusting only for inflation - is obviously wrought with this issue. Take a simple example that exposes the problem:

Investor 1: Retired 5 years ago at 55 with $2M 60/40 portfolio and 4% withdrawal. With bad sequencing, his portfolio is down to $1.5M. Assume 0% inflation for simplicity (ha, I know) and he is happily withdrawing $80,000 per year ($2M x 4%) and considers that appropriate.

Investor 2: Retires today at 60 with $1.5M 60/40 portfolio and 4% withdrawal. He is happily withdrawing $60,000 per year ($1.5M x 4%) and considers that appropriate.
The example illustrates the opposite of the error of allowing information that has already passed to inform decisions about the present or future. In the example, Investor 2 does not use the preceding bad sequence of returns to inform the decision of what to use as the initial withdrawal rate.

This seems like a chance for someone to do a study of what to use as the initial withdrawal rate based on preceding returns.
Interesting way to view it - depends on whether you view it from Investor 1 or Investor 2's perspective. I saw it as Investor 1 not reacting appropriately to new information, but your view is equally valid. And accordingly, I bet the resulting answer to how much to withdraw is somewhere in the middle if using a withdrawal method that depends on valuations.
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Re: Traditional SWR - flawed at the core

Post by tibbitts »

willthrill81 wrote: Fri Jan 21, 2022 12:54 pm
tibbitts wrote: Fri Jan 21, 2022 12:24 pm
willthrill81 wrote: Fri Jan 21, 2022 10:49 am
tibbitts wrote: Fri Jan 21, 2022 10:45 am
9-5 Suited wrote: Fri Jan 21, 2022 9:47 am So two questions:
(1) does anyone actually advocate a traditional SWR approach like this?
(2) if so, how do you rationalize this when variable withdrawal strategies exist (VPW, ABW, fixed %) that would eliminate this obviously contradictory example above?
There is another use that some people use SWR for: determining whether/when they can retire. In the absence of SWR, how do you propose someone determine whether/when retirement is possible/practical?
That could be done with relative ease using the ABW method.
When I used an ABW calculator pre-retirement, the result was a SWR, so I don't understand how ABW is different (except maybe in how you arrive at the SWR.)
The specific withdrawal rate in a given year may have been something like 4%, but the method of determining the rates is dramatically different, and they can (and almost certainly will) diverge significantly over time.
But there is no "over time", because we're not considering any later revisions when doing a projection pre-retirement. ABW is just using amortization tables and return assumptions (derived by each person based on who-knows-what) instead of historical data that was used in the studies the "classic" 4% SWR was based on.
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Ben Mathew
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Joined: Tue Mar 13, 2018 11:41 am
Location: Seattle

Re: Traditional SWR - flawed at the core

Post by Ben Mathew »

A 4% withdrawal rate is not unreasonable for a 30 year retirement today. But the SWR methodology arrives at this reasonable WR only because it makes two errors that cancel each other out--an extremely conservative methodology applied to extremely high historical returns. Without this combination, the withdrawal rates produced by the SWR would be far more unpalatable.

If you believe that the high valutions / low yields prevailing today mean a lower future return distribution, applying the SWR methodology would result in extremely conservative WR much below 4%. The SWR methodology is inherently extremely conservative. It has to be conservative because it has to produce a low (5%) chance of failure even if you don't adjust spending during retirement. That's tough, and calls for very low spending.
Total Portfolio Allocation and Withdrawal (TPAW)
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