HootingSloth wrote: ↑Sun Jun 19, 2022 7:08 pm
2pedals wrote: ↑Sun Jun 19, 2022 5:09 pm
Bookmarking this thread. I think it might be fun reading it in about 10 to 30 years.
I thought the purpose of this thread was to talk about what kind of circumstances would cause the 4% rule to fail. I don't see how this thread is particularly relevant to whatever ends up happening in the next 10 to 30 years or vice versa.
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randomguy wrote: ↑Sun Jun 19, 2022 8:23 pm
The answer is almost always negative returns from stocks and bonds for a decade+ early in retirement.
Thank you, Hooting Sloth. It was indeed my intent to be analytic. I have no crystal ball. But 2022 is off to an unusual start, and provides a suitable launch pad for asking, When will the 4% rule fail? What is the combination of circumstances required? As willthrill81 pointed out, it has failed outside the US before (detailed case studies here:
https://papers.ssrn.com/sol3/papers.cfm ... id=4001986). But why? How did the course of these markets differ from the US?
Contrary to randomguy, failure does not presume negative returns from stocks and bonds for a decade +. That is not how I set up the spreadsheet. In particular, a crash is not required. Bengen's rule had no trouble surmounting 1929: there was deflation not inflation, and bonds served as ballast.
Rather, the challenge case (as in the mid-1960s, when the Bengen rule scraped by, and the Trinity study not quite) has the following properties:
1. a surge of inflation, so that what was a $40,000 withdrawal is quickly pushed to a $50,000+ withdrawal, against a depleted portfolio to boot, worth only 50-60% of its starting value.
2. To bring about that portfolio shrinkage, a significant fall in stocks, of the "ordinary bear" magnitude: 37 - 50%
3. Combined with a failure of bonds to provide ballast, i.e., bonds declining too. In 2022, For instance, long Treasuries down 22.56% as of Friday (VGLT), the S&P ETF down 22.40% (VOO).
But these three conditions aren't enough. To seal the deal, you need stocks to stay in the doldrums for a decade or more. Not to continue declining, contra randomguy; rather, failing to enter a rip-roaring new bull market in a timely fashion. The mid-1960s were a tester for Bengen because it took 15-16 years before that new bull. That 1982 bull was long delayed, more than in my thought experiment, but proved to be one for the record books.
All will be fine for 2022 retirees, as long as a new bull surge in stocks begins by 2028 or so. Please see the two spreadsheets in my second post, one showing failure, one showing success, dependent on whether there was not / was that bull surge.
viewtopic.php?p=6727336#p6727336
No one knows what will happen over the next 10 to 30 years. But these first six months of 2022 have aligned the stars to make it clear that the 4% rule is at risk: it will fail, on current 2022 trends, unless the great rip-roaring bull market of 2028-2036 gets under way by about then.
A 2022 retiree blindly withdrawing 4% inflation-adjusted, and gunning for 30 years, is betting on that bull surge.
Per Bengen, that has always been a winning bet in the US since 1926; overseas, not so much.
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.