The Day the 4% Rule Died

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marcopolo
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Re: The Day the 4% Rule Died

Post by marcopolo »

Marseille07 wrote: Sun Jun 19, 2022 12:49 am
marcopolo wrote: Sun Jun 19, 2022 12:40 am Again recency bias. We have had a few quarters of high inflation. I guess it could go on for a decade or more. Oh, and 1964 did not fail for 4%.
I don't follow the point you're trying to make. We can't know the answer today; you're free to believe that the rule continues working 30 years later. I think the rule is done, but I can't prove or disprove that. It is just my opinion.
Of course everyone is entitled to their opinion.
I was just pointing out that predicting the end of the world everytime there is a small hiccup is a bit overblown.

To the 2020 retiree, so far, this is indeed a small hiccup.
Declaring their retirement "dead" at this point is overblown.
In my opinion, of course.

I am a 2018 retiree, not even a little perturbed by this, so far.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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HomerJ
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Re: The Day the 4% Rule Died

Post by HomerJ »

Marseille07 wrote: Sun Jun 19, 2022 12:49 am
marcopolo wrote: Sun Jun 19, 2022 12:40 am Again recency bias. We have had a few quarters of high inflation. I guess it could go on for a decade or more. Oh, and 1964 did not fail for 4%.
I don't follow the point you're trying to make. We can't know the answer today; you're free to believe that the rule continues working 30 years later. I think the rule is done, but I can't prove or disprove that. It is just my opinion.
The point I believe he is trying to make that it's really silly to say "the rule is done" when, so far, it's not done.

I mean, really? 6 month downturn, high inflation for less than a year, and it's all over?
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Chip
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Re: The Day the 4% Rule Died

Post by Chip »

marcopolo wrote: Thu Jun 16, 2022 8:16 pm I agree, no one follows it closely, nor would that be a very realistic spending scenario. It is useful as a rough guardrail. That is how we look at it.
I actually compute several different ways of bounding spending, amortization, fixed-dollar, constant dollar, etc. and use them as a very rough guide to give us a feel for a cap on what we can spend. Even that is not a hard cap, as spending can be quite lumpy. So far, we have never come close to our rough guardrails. If the market keeps dropping like this, we may bump up against them someday.
I could be wrong, but it appears to me that most/all of those with rigid mechanistic rules about retirement spending aren't actually retired and using those rules. I predict they will not adhere to such methods once they are actually retired and living off their portfolios as they are too much of a straitjacket. Like you, I have used SWR as a rough guardrail that I don't want to average above over a multi-year period. In 20 years of retirement we exceeded it 3 times. BFD. Portfolio growth since 2010 has made exceeding it now a pretty remote possibility.
Da5id
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Re: The Day the 4% Rule Died

Post by Da5id »

HomerJ wrote: Sun Jun 19, 2022 3:00 am
Marseille07 wrote: Sun Jun 19, 2022 12:49 am
marcopolo wrote: Sun Jun 19, 2022 12:40 am Again recency bias. We have had a few quarters of high inflation. I guess it could go on for a decade or more. Oh, and 1964 did not fail for 4%.
I don't follow the point you're trying to make. We can't know the answer today; you're free to believe that the rule continues working 30 years later. I think the rule is done, but I can't prove or disprove that. It is just my opinion.
The point I believe he is trying to make that it's really silly to say "the rule is done" when, so far, it's not done.

I mean, really? 6 month downturn, high inflation for less than a year, and it's all over?
Yeah. It is a historically based heuristic. At the end of some future 30 year period it may be revised downwards, sure. But declaring that in advance based on some made up data seems rather premature. It isn't like the 4% is grounded in some theories that have been contradicted by current conditions, it is just what worked.

Would I be *shocked* if people retiring Jan 1 of this year failed by the 4% rule? No. Certainly retiring into bad initial sequence of returns is a scenario where one might believe there to be more risk of 4% failing. But I'd certainly not think there is adequate information to predict that outcome.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

marcopolo wrote: Sun Jun 19, 2022 1:25 am Of course everyone is entitled to their opinion.
I was just pointing out that predicting the end of the world everytime there is a small hiccup is a bit overblown.

To the 2020 retiree, so far, this is indeed a small hiccup.
Declaring their retirement "dead" at this point is overblown.
In my opinion, of course.

I am a 2018 retiree, not even a little perturbed by this, so far.
Because inflation causes lasting damage to the 4% rule. COLA is what killed the rule, not a big crash.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

HomerJ wrote: Sun Jun 19, 2022 3:00 am The point I believe he is trying to make that it's really silly to say "the rule is done" when, so far, it's not done.

I mean, really? 6 month downturn, high inflation for less than a year, and it's all over?
Nobody said it's all over in 2022. What I said is I think it will be over in 20~25 years (running out of money before 30 years = fail).

When 1966 ended up being a failed year, declaring the rule dead in June 1966 would have been a right call. We just couldn't confirm until 30 years later or whenever money ran out.
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

Marseille07 wrote: Sun Jun 19, 2022 7:27 am
HomerJ wrote: Sun Jun 19, 2022 3:00 am The point I believe he is trying to make that it's really silly to say "the rule is done" when, so far, it's not done.

I mean, really? 6 month downturn, high inflation for less than a year, and it's all over?
Nobody said it's all over in 2022. What I said is I think it will be over in 20~25 years (running out of money before 30 years = fail).

When 1966 ended up being a failed year, declaring the rule dead in June 1966 would have been a right call. We just couldn't confirm until 30 years later or whenever money ran out.
When we have a new worst case we’ll have a new worst case and a new SWR value.

Not sure what you should do differently until you have the data…you’re either actually data driven or simply data “influenced” and it’s hard to quantify the effectiveness of the latter.

It is correct that inflation drives SWR…even though most SWR values are US centric if you can do global weighted index for stocks and bonds (or us treasuries if you can or prefer) in the country you are living then the only difference between home country outcomes and US outcomes is local inflation rates…
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

nigel_ht wrote: Sun Jun 19, 2022 8:52 am Not sure what you should do differently until you have the data…you’re either actually data driven or simply data “influenced” and it’s hard to quantify the effectiveness of the latter.

It is correct that inflation drives SWR…even though most SWR values are US centric if you can do global weighted index for stocks and bonds (or us treasuries if you can or prefer) in the country you are living then the only difference between home country outcomes and US outcomes is local inflation rates…
Well, you already know my plan. I remain equities heavy, I don't hold bonds, I'm not using SWR (constant-dollar) to begin with. I didn't make changes because of 2022, but my plan happened to be immune to market conditions against the 4% rule.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Sun Jun 19, 2022 7:27 am
HomerJ wrote: Sun Jun 19, 2022 3:00 am The point I believe he is trying to make that it's really silly to say "the rule is done" when, so far, it's not done.

I mean, really? 6 month downturn, high inflation for less than a year, and it's all over?
Nobody said it's all over in 2022. What I said is I think it will be over in 20~25 years (running out of money before 30 years = fail).

When 1966 ended up being a failed year, declaring the rule dead in June 1966 would have been a right call. We just couldn't confirm until 30 years later or whenever money ran out.
Sure but using this same logic how many more times would you have made this call?
With 8.8% inflation and stocks off 15% did it fail? Nope
With 11% inflation and stocks off 27% did it fail? Nope
Inflation at 8.5%, 10 years at 2% and stocks off 18% did it fail? Nope
With inflation up at 10.3% and stocks off 30% did it fail? Nope.

And I am sure there are more that I don't have the numbers for because nobody remembers 6 month 15% market corrections unless they turn into something bigger. Maybe your call is right. Maybe it isn't. If you are ok being wrong 80% of the time so that you are right 20%, then you can act. Or you can wait til we get more data. It doesn't make much of a difference if you cut to 3.5% today or if you wait til your portfolio is off 30%. That 5k/year you save just isn't much compared to the 300k in portfolio losses..
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Sun Jun 19, 2022 11:41 am Sure but using this same logic how many more times would you have made this call?
With 8.8% inflation and stocks off 15% did it fail? Nope
With 11% inflation and stocks off 27% did it fail? Nope
Inflation at 8.5%, 10 years at 2% and stocks off 18% did it fail? Nope
With inflation up at 10.3% and stocks off 30% did it fail? Nope.

And I am sure there are more that I don't have the numbers for because nobody remembers 6 month 15% market corrections unless they turn into something bigger. Maybe your call is right. Maybe it isn't. If you are ok being wrong 80% of the time so that you are right 20%, then you can act. Or you can wait til we get more data. It doesn't make much of a difference if you cut to 3.5% today or if you wait til your portfolio is off 30%. That 5k/year you save just isn't much compared to the 300k in portfolio losses..
I don't use the same logic, so the answer is 0 more times.

I don't understand the knee-jerk reaction for expressing their opinion on the 4% rule. If you think the 4% rule is well and alive, go ahead and use it, nothing wrong with that.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

Marseille07 wrote: Sun Jun 19, 2022 11:48 am
randomguy wrote: Sun Jun 19, 2022 11:41 am Sure but using this same logic how many more times would you have made this call?
With 8.8% inflation and stocks off 15% did it fail? Nope
With 11% inflation and stocks off 27% did it fail? Nope
Inflation at 8.5%, 10 years at 2% and stocks off 18% did it fail? Nope
With inflation up at 10.3% and stocks off 30% did it fail? Nope.

And I am sure there are more that I don't have the numbers for because nobody remembers 6 month 15% market corrections unless they turn into something bigger. Maybe your call is right. Maybe it isn't. If you are ok being wrong 80% of the time so that you are right 20%, then you can act. Or you can wait til we get more data. It doesn't make much of a difference if you cut to 3.5% today or if you wait til your portfolio is off 30%. That 5k/year you save just isn't much compared to the 300k in portfolio losses..
I don't use the same logic, so the answer is 0 more times.

I don't understand the knee-jerk reaction for expressing their opinion on the 4% rule. If you think the 4% rule is well and alive, go ahead and use it, nothing wrong with that.
The point is that we all have these type of gut feelings that sound logical and feel right. They are rarely right any more than pure chance. Maybe this time is different. Odds are it isn't.

And here is the thing. If you are right, you should have a SWR well above 4%. There are plenty of ways to invest to take advantage of your predication of long extended inflation and falling stock prices. Do you believe in your prediction enough to do any of them? Probably not. Goes back to the historical examples where we have had these conditions before and most of the time they turn out ok. You have a bad 12 months not 12 years....
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

randomguy wrote: Sun Jun 19, 2022 12:19 pm The point is that we all have these type of gut feelings that sound logical and feel right. They are rarely right any more than pure chance. Maybe this time is different. Odds are it isn't.

And here is the thing. If you are right, you should have a SWR well above 4%. There are plenty of ways to invest to take advantage of your predication of long extended inflation and falling stock prices. Do you believe in your prediction enough to do any of them? Probably not. Goes back to the historical examples where we have had these conditions before and most of the time they turn out ok. You have a bad 12 months not 12 years....
I'm just expressing my opinion and already stated upthread that I'm indifferent of the outcome because my AA & WR do not care about 60/40@4% SWR failing or not.
FactualFran
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Re: The Day the 4% Rule Died

Post by FactualFran »

Marseille07 wrote: Sun Jun 19, 2022 12:35 am Inflation. It wasn't 1929 or 2008 that killed 60/40, it was 1966 and a couple of years before / after.
Here are the initial withdrawal rates for 1966, and a couple of years before / after, that supported 30 years of annual inflation-adjusted withdrawals from a 60/40 stock/bond portfolio of Large-Cap Stocks and Intermediate-Term Government bonds that Bengen used when determining that 50/50 and 75/25 portfolios supported inflation-adjusted withdrawals for at least 30 years when the initial withdrawal rate was 4%.

1964 4.5%
1965 4.2%
1966 4.1%
1967 4.6%
1968 4.3%
Leesbro63
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Re: The Day the 4% Rule Died

Post by Leesbro63 »

FactualFran wrote: Sun Jun 19, 2022 2:26 pm
Marseille07 wrote: Sun Jun 19, 2022 12:35 am Inflation. It wasn't 1929 or 2008 that killed 60/40, it was 1966 and a couple of years before / after.
Here are the initial withdrawal rates for 1966, and a couple of years before / after, that supported 30 years of annual inflation-adjusted withdrawals from a 60/40 stock/bond portfolio of Large-Cap Stocks and Intermediate-Term Government bonds that Bengen used when determining that 50/50 and 75/25 portfolios supported inflation-adjusted withdrawals for at least 30 years when the initial withdrawal rate was 4%.

1964 4.5%
1965 4.2%
1966 4.1%
1967 4.6%
1968 4.3%
I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.
marcopolo
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Re: The Day the 4% Rule Died

Post by marcopolo »

Leesbro63 wrote: Sun Jun 19, 2022 3:19 pm
FactualFran wrote: Sun Jun 19, 2022 2:26 pm
Marseille07 wrote: Sun Jun 19, 2022 12:35 am Inflation. It wasn't 1929 or 2008 that killed 60/40, it was 1966 and a couple of years before / after.
Here are the initial withdrawal rates for 1966, and a couple of years before / after, that supported 30 years of annual inflation-adjusted withdrawals from a 60/40 stock/bond portfolio of Large-Cap Stocks and Intermediate-Term Government bonds that Bengen used when determining that 50/50 and 75/25 portfolios supported inflation-adjusted withdrawals for at least 30 years when the initial withdrawal rate was 4%.

1964 4.5%
1965 4.2%
1966 4.1%
1967 4.6%
1968 4.3%
I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.
The analysis looks at outcomes based on specific rules.
You can change the rules if you like to get different answers.

Of course, in that case the obvious answer is that 80 year old would have cut back on their expenses long before they got to 1981. Or, just as likely, they would have been dead already.
Once in a while you get shown the light, in the strangest of places if you look at it right.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

Leesbro63 wrote: Sun Jun 19, 2022 3:19 pm
I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.
Sure but now that we have added another failure case, what scheme works?

1% SWR is off 35%
3% CPI is off 54%
0% SWR is off 30%

Which scheme are you using that is going to make you feel remotely happy in 1981? Pretty much any amount of spending will crush your portfolio.

Imagine you define failure with these terms:

2.0% real min to pay the bills
50% of initial portfolio value to let you sleep at night
never run out of money.

Literally nothing worked even with those pretty conservative goals...
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Re: The Day the 4% Rule Died

Post by iamblessed »

McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
2pedals
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Re: The Day the 4% Rule Died

Post by 2pedals »

Bookmarking this thread. I think it might be fun reading it in about 10 to 30 years.
randomguy
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Re: The Day the 4% Rule Died

Post by randomguy »

iamblessed wrote: Sun Jun 19, 2022 4:52 pm
McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
marcopolo
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Re: The Day the 4% Rule Died

Post by marcopolo »

randomguy wrote: Sun Jun 19, 2022 5:40 pm
iamblessed wrote: Sun Jun 19, 2022 4:52 pm
McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
But, if i recall correctly, he does not practice what he preaches, and panic sold in 2008 and did not get back in for a long time, if ever.
Once in a while you get shown the light, in the strangest of places if you look at it right.
59Gibson
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Re: The Day the 4% Rule Died

Post by 59Gibson »

Leesbro63 wrote: Sun Jun 19, 2022 3:19 pm
FactualFran wrote: Sun Jun 19, 2022 2:26 pm
Marseille07 wrote: Sun Jun 19, 2022 12:35 am Inflation. It wasn't 1929 or 2008 that killed 60/40, it was 1966 and a couple of years before / after.
Here are the initial withdrawal rates for 1966, and a couple of years before / after, that supported 30 years of annual inflation-adjusted withdrawals from a 60/40 stock/bond portfolio of Large-Cap Stocks and Intermediate-Term Government bonds that Bengen used when determining that 50/50 and 75/25 portfolios supported inflation-adjusted withdrawals for at least 30 years when the initial withdrawal rate was 4%.

1964 4.5%
1965 4.2%
1966 4.1%
1967 4.6%
1968 4.3%
I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.

Yes it would have been a hard slog for that 80 yr old. It may have been wise to scrape together some money for SPIA, I'm sure the payout would have been huge in 1981 for an 80 yr old. Assuming SPIAs were a thing and avail. But They would have missed out on the 1980s bull run of everything! at least w/ that cash.
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Re: The Day the 4% Rule Died

Post by HootingSloth »

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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HomerJ
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Re: The Day the 4% Rule Died

Post by HomerJ »

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.
Well some people think that one year of inflation is a certain sign of 4% failing going forward.

I, for one, will have fun with Marseille in 30 years when it turns out we could have pulled 6%...

I will buy him a beer at Bogleheads conference 2052. :)
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2pedals
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Re: The Day the 4% Rule Died

Post by 2pedals »

HomerJ wrote: Sun Jun 19, 2022 7:18 pm
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.
Well some people think that one year of inflation is a certain sign of 4% failing going forward.

I, for one, will have fun with Marseille in 30 years when it turns out we could have pulled 6%...

I will buy him a beer at Bogleheads conference 2052. :)
Of course, my post was in jest. The thing about SWR is it's all theory. It doesn't really apply to a retired individual like me since I will not use an SWR to help me withdraw money in retirement. I don't think we will know if the 4% rule is dead until it's all over and done. Many different things could cause the 4% rule to fail. Do I think it will happen in my lifetime?....the odds are it will not.
Marseille07
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Re: The Day the 4% Rule Died

Post by Marseille07 »

HomerJ wrote: Sun Jun 19, 2022 7:18 pm Well some people think that one year of inflation is a certain sign of 4% failing going forward.

I, for one, will have fun with Marseille in 30 years when it turns out we could have pulled 6%...

I will buy him a beer at Bogleheads conference 2052. :)
It's not just one year though. 2021 already logged 7%, 2022 would log 8.3% (est) and most certainly 2023 and possibly 2024 also.

Let's say someone walked in Jan 2021 w/ 40K. Their withdrawals would be:
Jan 2022: 42.8K (7%)
Jan 2023, 46.4K (est 8.3%)
Jan 2024; 48.7K (est 5%)
Jan 2025 51.1K (est 5%)

If it unfolds like this, COLA is quite substantial in my book. Basically they'd be withdrawing 5.1%+ unless equities return so much & lower the effective WR.
Last edited by Marseille07 on Sun Jun 19, 2022 8:35 pm, edited 1 time in total.
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Candor
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Re: The Day the 4% Rule Died

Post by Candor »

marcopolo wrote: Sun Jun 19, 2022 5:54 pm
randomguy wrote: Sun Jun 19, 2022 5:40 pm
iamblessed wrote: Sun Jun 19, 2022 4:52 pm
McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
But, if i recall correctly, he does not practice what he preaches, and panic sold in 2008 and did not get back in for a long time, if ever.
I read an article not long ago that he recently went to mostly cash - 20/10/70 equities/bonds/cash if I remember correctly.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
latesaver
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Re: The Day the 4% Rule Died

Post by latesaver »

willthrill81 wrote: Mon Jun 13, 2022 5:02 pm All that has been done is to show that it's not impossible for the '4% rule' to fail. That's not news to BHs.

However, absolutely zero credence whatsoever should be applied to such make-believe data.

We don't have to use fictitious data to see that the '4% rule' can fail. Investors in many developed nations who only invested in their own home country would have seen the '4% rule' fail at some point in the last 50 years. But investors in nearly all developed nations who diversified their stock holdings globally would have generally seen the '4% rule' succeed, and only rarely would the 30 year SWR have been below about 3.5%.
It's commentary like this that makes those of us that continue to work, already at a withdrawal rate of 2-2.5%, to take comfort that we can flex our spending up in almost any market environment.
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Re: The Day the 4% Rule Died

Post by randomguy »

marcopolo wrote: Sun Jun 19, 2022 5:54 pm
randomguy wrote: Sun Jun 19, 2022 5:40 pm
iamblessed wrote: Sun Jun 19, 2022 4:52 pm
McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
But, if i recall correctly, he does not practice what he preaches, and panic sold in 2008 and did not get back in for a long time, if ever.
Bengen doesn't preach following the 4 or 4.5% rule. He wrote a paper saying that was the min that you could take out over 30 years from backtesting. He has always preached a much more nuanced approach tor retirement than blinding following some rule.

I am unaware of him moving to cash 2008 and a quick google doesn't show it up but that doesn't mean it didn't happen. About 6 months ago, there was talk of him going to 30/70. I don't recall any discussion of what he is spending. For a 75 year old that is in the realm of reasonable for AA. I would prefer 40/60 or 50/50 but personal preferences really starts to show up at minor difference like that. At certain level it is like worrying that Bogle was market timing in 99 or Taylor Larimore wasn't saying the course in 2009. I agree that both of those ideas are really good in general but I also accept that maybe there are specifics of why you should do something different.
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Re: The Day the 4% Rule Died

Post by randomguy »

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.
The answer is almost always negative returns from stocks and bonds for a decade+ early in retirement.
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Re: The Day the 4% Rule Died

Post by marcopolo »

randomguy wrote: Sun Jun 19, 2022 8:21 pm
marcopolo wrote: Sun Jun 19, 2022 5:54 pm
randomguy wrote: Sun Jun 19, 2022 5:40 pm
iamblessed wrote: Sun Jun 19, 2022 4:52 pm
McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
But, if i recall correctly, he does not practice what he preaches, and panic sold in 2008 and did not get back in for a long time, if ever.
Bengen doesn't preach following the 4 or 4.5% rule. He wrote a paper saying that was the min that you could take out over 30 years from backtesting. He has always preached a much more nuanced approach tor retirement than blinding following some rule.

I am unaware of him moving to cash 2008 and a quick google doesn't show it up but that doesn't mean it didn't happen. About 6 months ago, there was talk of him going to 30/70. I don't recall any discussion of what he is spending. For a 75 year old that is in the realm of reasonable for AA. I would prefer 40/60 or 50/50 but personal preferences really starts to show up at minor difference like that. At certain level it is like worrying that Bogle was market timing in 99 or Taylor Larimore wasn't saying the course in 2009. I agree that both of those ideas are really good in general but I also accept that maybe there are specifics of why you should do something different.
https://www.kitces.com/blog/bill-bengen ... arch-book/

About halfway down the interview (search for 2008) there are several Q&A where he discusses what he did with his clients in 2008.

He go the out after about 30% loss. So, did avoid some losses in 2009.
But, he waited until 2010 to start getting them back in, and evidently never did so back to their original equity allocation.

A sample quote for the interview:
Michael: So when, ultimately, were you getting clients back in?

Bill: 2010 I was starting to move back in but I never put them into a full allocation, which was a mistake. That was just a bad mistake on my part. I just didn't have the process in place, didn't know what to do. I had a good idea of how to get out of the market. But I didn't have the other half of the process, which is essential, getting back in.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: The Day the 4% Rule Died

Post by McQ »

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.
..
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.
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Re: The Day the 4% Rule Died

Post by McQ »

I note this Bloomberg.com piece as relevant to the thread: https://www.bloomberg.com/news/articles ... -than-2008

It highlights how badly balanced funds are doing here in 2022 (Bengen and the Trinity study focused on balanced funds). Says the 60/40 mix is even surprising its critics (which are legion) to the downside.

Bogleheads will have noted Wellington down 18.45% as of Friday, Wellesley down 11.68%, Balanced Index down 18.86%, Retirement Income fund down 12.88%.

PS: Bloomberg has a pretty tight paywall: only 1-3 free reads per month per browser/device combination. Apologies for the tease if you have used your allotment and cannot access (I don't have a subscription).
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.
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Re: The Day the 4% Rule Died

Post by Marseille07 »

McQ wrote: Sun Jun 19, 2022 10:39 pm I note this Bloomberg.com piece as relevant to the thread: https://www.bloomberg.com/news/articles ... -than-2008

It highlights how badly balanced funds are doing here in 2022 (Bengen and the Trinity study focused on balanced funds). Says the 60/40 mix is even surprising its critics (which are legion) to the downside.

Bogleheads will have noted Wellington down 18.45% as of Friday, Wellesley down 11.68%, Balanced Index down 18.86%, Retirement Income fund down 12.88%.

PS: Bloomberg has a pretty tight paywall: only 1-3 free reads per month per browser/device combination. Apologies for the tease if you have used your allotment and cannot access (I don't have a subscription).
Excellent article.

I think we need to recognize that bonds aren't safe, and "Fixed Income" should only include ITTs / LTTs; meanwhile cash is a separate asset class, and definitely not trash during a rising rates regime.
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Re: The Day the 4% Rule Died

Post by randomguy »

McQ wrote: Sun Jun 19, 2022 10:24 pm

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.
In your spreadsheet you have negative CAGRs for both stocks and bonds for 10 years. I have you at a -3.3% CAGR for those first 10 years. Feel free to correct my math. And of course you have basically the worst crash in US history which gives you a horrible SOR. I am sure you can come up with some scheme where you have a positive CAGR over the first 10 years by really front loading losses. Make your draw down over 5 years instead of 2 and things get worse.

A 2022 retiree isn't betting a big bull market surge. They are betting these economic conditions don't turn into the worst 2 year period every and the economic recovery doesn't last a decade. It is only after they that decade shows up that you are betting on that bull market....

If you look at your example why did you fail?
a) Very Poor sequence of returns. Front loading the losses like you did really hurts
b) Very poor stock market returns over the whole time period. You have 20 years where the stocks return 7.3%. We have had a half a dozen of those since 1920 so they are possible but it is a bottom quartile result. But how many of those 20 year periods follow one of the worst 10 year periods for stocks in US history? It normally doesn't work that way.

There is always the chance this is the worst time ever. But we still need a lot of stuff to go wrong for this to be true.
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Re: The Day the 4% Rule Died

Post by nigel_ht »

Leesbro63 wrote: Sun Jun 19, 2022 3:19 pm
FactualFran wrote: Sun Jun 19, 2022 2:26 pm
Marseille07 wrote: Sun Jun 19, 2022 12:35 am Inflation. It wasn't 1929 or 2008 that killed 60/40, it was 1966 and a couple of years before / after.
Here are the initial withdrawal rates for 1966, and a couple of years before / after, that supported 30 years of annual inflation-adjusted withdrawals from a 60/40 stock/bond portfolio of Large-Cap Stocks and Intermediate-Term Government bonds that Bengen used when determining that 50/50 and 75/25 portfolios supported inflation-adjusted withdrawals for at least 30 years when the initial withdrawal rate was 4%.

1964 4.5%
1965 4.2%
1966 4.1%
1967 4.6%
1968 4.3%
I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.
You can't redefine failure to being stressed by SORR because at that point any reasonable withdrawal strategy will leave you stressed.

1-2% withdrawal rate isn't "reasonable" in as much as you can do anything and succeed as you have so much margin that the two most likely failure cases are you misjudged your expenses or the fall of western civilization...
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Re: The Day the 4% Rule Died

Post by nigel_ht »

Candor wrote: Sun Jun 19, 2022 8:03 pm
marcopolo wrote: Sun Jun 19, 2022 5:54 pm
randomguy wrote: Sun Jun 19, 2022 5:40 pm
iamblessed wrote: Sun Jun 19, 2022 4:52 pm
McQ wrote: Sat Jun 18, 2022 6:05 pm This morning Brett Arends posted an interview with William Bengen on Marketwatch, titled "Why retiring this year could be a worst case scenario": https://www.marketwatch.com/story/why-r ... =home-page

It's quite apropos this thread.
I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
But, if i recall correctly, he does not practice what he preaches, and panic sold in 2008 and did not get back in for a long time, if ever.
I read an article not long ago that he recently went to mostly cash - 20/10/70 equities/bonds/cash if I remember correctly.
Well that would be lucky and smart. In that order...
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Re: The Day the 4% Rule Died

Post by firebirdparts »

Marseille07 wrote: Sat Jun 18, 2022 10:30 pm Bengen is all over the map but his message is valid. Imo 4%@60/40 won't work between 2020~2050, i.e. the rule is indeed dead for this particular combination. Of course, we can't know that in 2022, but 2022 so far is basically 1966 on steroids.
Well, I would say good on you that you recognize the significance of 1966. That puts you in a rare group, really. But I would certainly not be very enthusiastic about maybe 100 threads over the next decade where we discuss the imaginary results. It's just not that interesting after the first time. The appeals to authority are even less interesting, considering that we're passive investors. We don't actually respect these people for what they stand for.

Now, if you wanted to, you could divert the thread about whether or not we respect these people or what they stand for. But I really don't care. What I care about is simply the idea that these "failures" in the future are imaginary. The 4% rule, if you want to call it that, is not really compatible with imaginary analysis. There are simply too many uncorrelated and random events captured in the original work. it is what it is and I'm happy to leave it there. It's close enough for government work.
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Re: The Day the 4% Rule Died

Post by nigel_ht »

McQ wrote: Sun Jun 19, 2022 10:24 pm 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?
The primary failure cases are WWI, WWII, going communist and Nikkei crash.

Reading your paper(s), which seems to be the objective of your thread, it seems you like to find corner cases and design ways where it can fail. Like "in this test the US investor holds the world index, rather than holding World ex-USA and US indexes in some weighting" in 1910. It's hard enough just to hold the equivalent of the US index in 1910 but this mythical investor has to go out of his way to invest into Weimar Germany and away from the US stock market for the roaring 20s.

Even then you state: "The results are very bad, the worst seen thus far. The 30/70 allocation runs out at age 92; the 60/40 allocation makes it only to 100."

As you say:

"In short: the global results for a 1910 retirement, which encompass events never seen in US history since 1812, including large-scale invasions, effective national bankruptcy, and defeat in a major war, are worse than anything Bengen found, and worse than any of the idealized scenarios investigated initially."

Yeah, let's not do another world war. I suspect in WWIII my portfolio value will be the least of my worries...and even then IT LASTED 28 YEARS.
Per Bengen, that has always been a winning bet in the US since 1926; overseas, not so much.
Well, when we lose a world war wake me up. For the 1910 British Empire analysis what would have been useful is to see what the historical SWR rate for the empire would have been and plotted that and not 4% based on Bengen.

The major takeaway, which we already knew:

"Diversification of the risk asset, in the form of splitting the stock portion into domestic and international halves, was successful in every case. For the moderate allocation it was often very successful, extending income by four to eleven years. Across every market and allocation except one, diversification of the risk asset was able to extend income to age 100 or beyond. The exception was the conservative allocation in Italy (Table 4)."

Mkay. It would be nice to know if 20% ex-US is enough but for sure if it looks like the US is losing Hegemon status I'll go at least 50/50.

Even then its local inflation that will kill you. I suppose I will have to hope that international geoarbritage will still be working then.

And, barring civil war, the US is large enough that domestic geoarbritage generally works.
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Re: The Day the 4% Rule Died

Post by Marseille07 »

firebirdparts wrote: Mon Jun 20, 2022 9:54 am Well, I would say good on you that you recognize the significance of 1966. That puts you in a rare group, really. But I would certainly not be very enthusiastic about maybe 100 threads over the next decade where we discuss the imaginary results. It's just not that interesting after the first time. The appeals to authority are even less interesting, considering that we're passive investors. We don't actually respect these people for what they stand for.

Now, if you wanted to, you could divert the thread about whether or not we respect these people or what they stand for. But I really don't care. What I care about is simply the idea that these "failures" in the future are imaginary. The 4% rule, if you want to call it that, is not really compatible with imaginary analysis. There are simply too many uncorrelated and random events captured in the original work. it is what it is and I'm happy to leave it there. It's close enough for government work.
We're just discussing for the sake of discussing. I actually don't care either, since I don't plan on using SWR.

The question isn't whether 4% fails or not; it is whether 60/40, HFEA or other risk-parity portfolios would work well going forward. 4% rule failing is just a manifestation of failure, if it ends up failing.
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Re: The Day the 4% Rule Died

Post by Candor »

nigel_ht wrote: Mon Jun 20, 2022 8:58 am
Candor wrote: Sun Jun 19, 2022 8:03 pm
marcopolo wrote: Sun Jun 19, 2022 5:54 pm
randomguy wrote: Sun Jun 19, 2022 5:40 pm
iamblessed wrote: Sun Jun 19, 2022 4:52 pm

I wonder when he rose it to 4.7%?
A while back he discovered small cap and value tilts:) See https://www.marketwatch.com/story/the-i ... 1603380557 where he gets up to 4.5% and is recommending 5%....
But, if i recall correctly, he does not practice what he preaches, and panic sold in 2008 and did not get back in for a long time, if ever.
I read an article not long ago that he recently went to mostly cash - 20/10/70 equities/bonds/cash if I remember correctly.
Well that would be lucky and smart. In that order...
It's a little early to be declaring victory just yet but if I went to 70% cash a couple of months ago I guess I would be feeling pretty good about it right now.
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Re: The Day the 4% Rule Died

Post by FactualFran »

Leesbro63 wrote: Sun Jun 19, 2022 3:19 pm I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.
For what investments did one of those years fail? There were no failing starting years with the investments that are the same ones Bengen used when determining that 50/50 and 75/25 stock/bond portfolios supported more than 30 years of inflation-adjusted withdrawals for all starting years when the initial withdrawal rate was 4%.

There was not a slow grind down in value with 1966 as the starting year. When when using an initial withdrawal rate of 4% with a 60/40 portfolio. Year-to-year changes in the balance varied widely: +6.9% for 1967 and -28.8% for 1974. The balance after 15 years of inflation-adjusted withdrawals would have been 36% of the initial balance adjusted for inflation, and the portfolio would have supported 19 more years of inflation-adjusted withdrawals.

Having a balance after 15 years equal to the initial balance adjusted for inflation was no guarantee of 30 years of withdrawals. With the 60/40 portfolio, a starting year of 1985, and an initial withdrawal rate that resulted in the balance after 15 years of inflation-adjusted withdrawal being equal to the initial balance adjusted for inflation, the portfolio would have supported only 8 more years of withdrawals.

Those would cannot tolerate volatility and uncertainty should not invest in stocks or bonds, with U.S. Savings Bonds being a possible exception.
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Re: The Day the 4% Rule Died

Post by Leesbro63 »

FactualFran wrote: Mon Jun 20, 2022 3:18 pm Having a balance after 15 years equal to the initial balance adjusted for inflation was no guarantee of 30 years of withdrawals. With the 60/40 portfolio, a starting year of 1985, and an initial withdrawal rate that resulted in the balance after 15 years of inflation-adjusted withdrawal being equal to the initial balance adjusted for inflation, the portfolio would have supported only 8 more years of withdrawals.

So retirements starting in 1985 would have seen the 4% "rule" fail in year 23? I've never heard this before, anywhere. Or are you saying something different, regarding keeping the portfolio value the same in real, inflation adjusted, terms, by withdrawing less than 4%?
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Re: The Day the 4% Rule Died

Post by randomguy »

Leesbro63 wrote: Mon Jun 20, 2022 4:14 pm
FactualFran wrote: Mon Jun 20, 2022 3:18 pm Having a balance after 15 years equal to the initial balance adjusted for inflation was no guarantee of 30 years of withdrawals. With the 60/40 portfolio, a starting year of 1985, and an initial withdrawal rate that resulted in the balance after 15 years of inflation-adjusted withdrawal being equal to the initial balance adjusted for inflation, the portfolio would have supported only 8 more years of withdrawals.

So retirements starting in 1985 would have seen the 4% "rule" fail in year 23? I've never heard this before, anywhere. Or are you saying something different, regarding keeping the portfolio value the same in real, inflation adjusted, terms, by withdrawing less than 4%?
No it would have seen the 11% rule (about how much you would have needed to spend to only have your starting portfolio value in 2000) fail ....
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Re: The Day the 4% Rule Died

Post by willthrill81 »

latesaver wrote: Sun Jun 19, 2022 8:07 pm
willthrill81 wrote: Mon Jun 13, 2022 5:02 pm All that has been done is to show that it's not impossible for the '4% rule' to fail. That's not news to BHs.

However, absolutely zero credence whatsoever should be applied to such make-believe data.

We don't have to use fictitious data to see that the '4% rule' can fail. Investors in many developed nations who only invested in their own home country would have seen the '4% rule' fail at some point in the last 50 years. But investors in nearly all developed nations who diversified their stock holdings globally would have generally seen the '4% rule' succeed, and only rarely would the 30 year SWR have been below about 3.5%.
It's commentary like this that makes those of us that continue to work, already at a withdrawal rate of 2-2.5%, to take comfort that we can flex our spending up in almost any market environment.
Heck, a 3% WR has been so conservative that over most periods, investors with global stock allocations in developed nations could have taken the greater of 3% of their current portfolio balance OR last year's withdrawal plus inflation and only rarely have seen their portfolio decline at all in inflation-adjusted value over the long-term (i.e., 20+ years).
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Re: The Day the 4% Rule Died

Post by willthrill81 »

nigel_ht wrote: Mon Jun 20, 2022 8:55 am
Leesbro63 wrote: Sun Jun 19, 2022 3:19 pm
FactualFran wrote: Sun Jun 19, 2022 2:26 pm
Marseille07 wrote: Sun Jun 19, 2022 12:35 am Inflation. It wasn't 1929 or 2008 that killed 60/40, it was 1966 and a couple of years before / after.
Here are the initial withdrawal rates for 1966, and a couple of years before / after, that supported 30 years of annual inflation-adjusted withdrawals from a 60/40 stock/bond portfolio of Large-Cap Stocks and Intermediate-Term Government bonds that Bengen used when determining that 50/50 and 75/25 portfolios supported inflation-adjusted withdrawals for at least 30 years when the initial withdrawal rate was 4%.

1964 4.5%
1965 4.2%
1966 4.1%
1967 4.6%
1968 4.3%
I think I saw one of those years failed, somewhere. But it doesn't matter. Overall 4% failed. Or 3.8% failed. Because failure isn't just running out of money as you die in the 30th year after retirement. Failure is the stress of being a healthy 80 year old in 1981, having survived the first 15 years (1966-1981) of retirement with a slow grind down of the real value of your portfolio as your costs keep going up with inflation. The fact that from age 80 to 95 things got better isn't something you'll know at 80. It's a failure to have that much portfolio destroyed half way through the 30 year planning period.
You can't redefine failure to being stressed by SORR because at that point any reasonable withdrawal strategy will leave you stressed.

1-2% withdrawal rate isn't "reasonable" in as much as you can do anything and succeed as you have so much margin that the two most likely failure cases are you misjudged your expenses or the fall of western civilization...
Precisely. A 60/40 AA in the year 2000 with no withdrawals at all would not have recovered its inflation-adjusted starting balance until 2009. Add measly 2% withdrawals in a SWR fashion, and the recovery wouldn't have occurred until 2013.

The bottom line is that investors with significant allocations to stocks OR marketable bonds (other than something like a TIPS ladder) should be well prepared for their portfolio to lose real value over a decade or longer at any point in time, especially including retirement.

Further, a 2% withdrawal rate requires double the capital that 4% does, which historically would have generally required extending one's accumulation period by 8-15 years. That's not so bad if you're at 25x when you're 30 and have a very high saving rate, but if you're 60, it's absolutely, abominably, horrendously, terrible to pursue such an approach. Heck, 20% of American men aged 65 don't even survive to age 74 (according to the SSA).
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Re: The Day the 4% Rule Died

Post by nigel_ht »

willthrill81 wrote: Mon Jun 20, 2022 5:17 pm Heck, 20% of American men aged 65 don't even survive to age 74 (according to the SSA).
If you are in that 20% cohort you are absolutely not going to be stressing about your portfolio at age 80...
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Re: The Day the 4% Rule Died

Post by Marseille07 »

nigel_ht wrote: Mon Jun 20, 2022 5:58 pm
willthrill81 wrote: Mon Jun 20, 2022 5:17 pm Heck, 20% of American men aged 65 don't even survive to age 74 (according to the SSA).
If you are in that 20% cohort you are absolutely not going to be stressing about your portfolio at age 80...
How do you know if you are ahead of time?
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Re: The Day the 4% Rule Died

Post by willthrill81 »

Marseille07 wrote: Mon Jun 20, 2022 5:59 pm
nigel_ht wrote: Mon Jun 20, 2022 5:58 pm
willthrill81 wrote: Mon Jun 20, 2022 5:17 pm Heck, 20% of American men aged 65 don't even survive to age 74 (according to the SSA).
If you are in that 20% cohort you are absolutely not going to be stressing about your portfolio at age 80...
How do you know if you are ahead of time?
You obviously don't, but the point is that striving to go from a 4% WR to a 2% WR in your 60s is a terrible choice. The odds are overwhelming that you'll run out of life long before you'll even think about running out of money.
The Sensible Steward
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: The Day the 4% Rule Died

Post by Marseille07 »

willthrill81 wrote: Mon Jun 20, 2022 6:02 pm You obviously don't, but the point is that striving to go from a 4% WR to a 2% WR in your 60s is a terrible choice. The odds are overwhelming that you'll run out of life long before you'll even think about running out of money.
I missed the context of 4% vs 2% in someone's 60s. If they're running low, they might have no choice but to cut back. Otherwise, they should march on at 4%.
2pedals
Posts: 1988
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Re: The Day the 4% Rule Died

Post by 2pedals »

willthrill81 wrote: Mon Jun 20, 2022 6:02 pm
Marseille07 wrote: Mon Jun 20, 2022 5:59 pm
nigel_ht wrote: Mon Jun 20, 2022 5:58 pm
willthrill81 wrote: Mon Jun 20, 2022 5:17 pm Heck, 20% of American men aged 65 don't even survive to age 74 (according to the SSA).
If you are in that 20% cohort you are absolutely not going to be stressing about your portfolio at age 80...
How do you know if you are ahead of time?
You obviously don't, but the point is that striving to go from a 4% WR to a 2% WR in your 60s is a terrible choice. The odds are overwhelming that you'll run out of life long before you'll even think about running out of money.
What am I running out of? :confused :shock:
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