Author Topic: Stop worrying about the 4% rule  (Read 240882 times)

sol

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Re: Stop worrying about the 4% rule
« Reply #1150 on: October 27, 2017, 01:32:47 PM »
The point is, that your income from your stash goes up when the stash grows.  Even if you just stick with 4% withdrawals.  It seems like some people don't get this.

The Trinity Study-esque 4% Rule most of us use as a basis for FIRE planning does not increase your annual WR based on an increase in 'stash value. Each year the nominal WR amount = 4% of the starting portfolio value + inflation irregardless of 'stash value.

Agreed, withdrawal rate stays the same at 4%.  I'm just pointing out that the actual dollars you withdraw every year goes up, assuming your stash goes up. 

I just see a lot of people posting with this idea that "I can withdraw $40k per year when I retire and can only withdraw $40k per year, every year, until I die.  And that's simply not true.  As the stash grows, the total dollars you can withdraw every year goes up too.

RC was pointing out that under the guidelines of the trinity study you withdraw 4% in your first year and then increase that amount by inflation every year thereafter, even when your stash doesn't grow.  Market drops 40% in a year?  Trinity says increase your withdrawals by last year's inflation amount and carry on. 

The size of your stash today has nothing to do with today's withdrawal rate, under the Trinity assumptions.  All that matters is the size of your stash on the day you retired. 

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1151 on: October 27, 2017, 01:39:19 PM »
Ah, I did not realize that.  Thanks for correcting me, seriously.

Isn't inflation like 2%?  So shouldn't they call it the 6% withdrawal rate?  Of course I know inflation varies, so maybe call it the 4% plus inflation rule? 
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Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1152 on: October 27, 2017, 01:42:02 PM »
Ah, I did not realize that.  Thanks for correcting me, seriously.

Isn't inflation like 2%?  So shouldn't they call it the 6% withdrawal rate?  Of course I know inflation varies, so maybe call it the 4% plus inflation rule?

If you started with $1M taking out $40K and inflation was 2% the next year you could take out $40K +$800 [2% of $40K] = $40.8K.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1153 on: October 27, 2017, 01:47:55 PM »
Ah, I did not realize that.  Thanks for correcting me, seriously.

Isn't inflation like 2%?  So shouldn't they call it the 6% withdrawal rate?  Of course I know inflation varies, so maybe call it the 4% plus inflation rule?

its just understood that is what it is.  the 4% rule means you can withdraw 4% of your beginning stache adjusted for inflation every year.  The trinity study said it wouldnt fail over any 30 year period.  so in reality its much much safer b/c it was designed for worst case. 
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tyort1

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Re: Stop worrying about the 4% rule
« Reply #1154 on: October 27, 2017, 01:51:27 PM »
Ah, I did not realize that.  Thanks for correcting me, seriously.

Isn't inflation like 2%?  So shouldn't they call it the 6% withdrawal rate?  Of course I know inflation varies, so maybe call it the 4% plus inflation rule?

If you started with $1M taking out $40K and inflation was 2% the next year you could take out $40K +$800 [2% of $40K] = $40.8K.

Ah, I did not realize that.  Thanks for correcting me, seriously.

Isn't inflation like 2%?  So shouldn't they call it the 6% withdrawal rate?  Of course I know inflation varies, so maybe call it the 4% plus inflation rule?

its just understood that is what it is.  the 4% rule means you can withdraw 4% of your beginning stache adjusted for inflation every year.  The trinity study said it wouldnt fail over any 30 year period.  so in reality its much much safer b/c it was designed for worst case. 

Yes, I see that now.  Holy shit, the 4% rule is even MORE conservative/safe than I originally thought it was.  Which is, I guess, the whole point of this thread :D
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sol

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Re: Stop worrying about the 4% rule
« Reply #1155 on: October 27, 2017, 02:03:48 PM »
The trinity study said it wouldnt fail over any 30 year period.  so in reality its much much safer b/c it was designed for worst case.

Well that's not quite true either.  Depending on the asset allocation you use, there have been some years where an initial 4% SWR adjusted up for inflation was depleted before 30 years.  All of those scenarios include very low market returns, and a few of them also include crazy high inflation adjustments.  If you retire with a million dollars and withdraw $40k in your first year, then the next year the market tanks 20% and inflation is up 10%, then withdrawing the proscribed $44k out of your remaining $760k has effectively turned what used to be a 4% rate into a 5.8% rate, and some of those scenarios didn't recover in time to survive 30 years.  Most did, though.

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1156 on: October 27, 2017, 02:17:39 PM »
The trinity study said it wouldnt fail over any 30 year period.  so in reality its much much safer b/c it was designed for worst case.

Well that's not quite true either.  Depending on the asset allocation you use, there have been some years where an initial 4% SWR adjusted up for inflation was depleted before 30 years.  All of those scenarios include very low market returns, and a few of them also include crazy high inflation adjustments.  If you retire with a million dollars and withdraw $40k in your first year, then the next year the market tanks 20% and inflation is up 10%, then withdrawing the proscribed $44k out of your remaining $760k has effectively turned what used to be a 4% rate into a 5.8% rate, and some of those scenarios didn't recover in time to survive 30 years.  Most did, though.

As a real person, if there was a drop of 20% and a big jump in inflation, why in the world would I stupidly spend $44k during that year?  I'd cut down on my spending.  Wouldn't anyone?
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brooklynguy

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Re: Stop worrying about the 4% rule
« Reply #1157 on: October 27, 2017, 02:24:48 PM »
Holy shit, the 4% rule is even MORE conservative/safe than I originally thought it was.

This isn't exactly true either, assuming that what you originally thought the rule was was what the SWR literature usually refers to as a "fixed percentage rule"--i.e., withdrawal of a constant percentage (4%) of your remaining portfolio balance every year, with no floors or ceilings.  By definition, this withdrawal plan will never deplete your portfolio (because it's only withdrawing a percentage of the available portfolio every year), so it can be thought of as more conservative (but of course it could result in lowering your withdrawals to levels that are insufficient to support your desired spending).

As a real person, if there was a drop of 20% and a big jump in inflation, why in the world would I stupidly spend $44k during that year?  I'd cut down on my spending.  Wouldn't anyone?

That is indeed one of the myriad reasons to stop worrying about the 4% rule.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1158 on: October 27, 2017, 03:49:52 PM »
Yes, I see that now.  Holy shit, the 4% rule is even MORE conservative/safe than I originally thought it was.  Which is, I guess, the whole point of this thread :D

Yup. Most of us have some safety margin built into our FIRE budgets as well. My annual spend is $40K + taxes, but $10K of that is not essential and could be deferred if my portfolio was doing terribly. I could also make $10K in a year without breaking a sweat. So that very conservative 4%WR rule got even safer.

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1159 on: October 27, 2017, 03:56:46 PM »
Yes, I see that now.  Holy shit, the 4% rule is even MORE conservative/safe than I originally thought it was.  Which is, I guess, the whole point of this thread :D

Yup. Most of us have some safety margin built into our FIRE budgets as well. My annual spend is $40K + taxes, but $10K of that is not essential and could be deferred if my portfolio was doing terribly. I could also make $10K in a year without breaking a sweat. So that very conservative 4%WR rule got even safer.

Yep the ability to make a little extra cash instead of cutting spending is often overlooked as well
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CanuckExpat

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Re: Stop worrying about the 4% rule
« Reply #1160 on: October 31, 2017, 11:03:56 AM »
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Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1161 on: October 31, 2017, 12:02:07 PM »
Thread is live: Hi, I'm Wade Pfau Ask me Anything
Thanks CanuckExpat.  Everyone who has followed this thread, or 4% rule ideology in general, should be aware the Pfau tends to be more conservative in his assumptions than most.  As a result, he is often cited by those in this community who think the 4% rule is too optimistic.  Here's is a quote from Pfau in this Q&A and I think it's important. He was responding to a question about international diversification in equities. 
Quote
I'm a big fan of global diversification. Even if it doesn't increase the returns, if it helps to reduce volatility then this is a way to increase the safe withdrawal rate (SWR). It's hard to say the specific improvement because it requires assumptions about returns, volatilities, and correlations between all the asset classes. But as an example, for a case I looked at in my book, broader diversification increased the SWR estimate from 3.34% to 3.61%. WW1 & WW2 created some really bad SAFEMAX outcomes around the world, but even without that there are plenty of cases of withdrawal rates internationally falling well below 4%.

This is a prime example of how experts in any singular field are hyper focused on the area of their expertise.  They are unable to look at the practicalities of situations outside of their hyper focused specialty.

Here is my problem with this sentiment from Pfau.  If I was living in Berlin in 1944, or London in 1940, or Paris in 1941; do you really think I would give two shits about my SWR?  or would I be busy hiding from bombs/Nazis (the real ones, not the political party I disagree with)?  To include data from these areas, during these periods, and come to a conclusion SWR could be worse given bad circumstances is ridiculous, IMO. 

I'm a pessimist by this forums standards.  I think North America has a chance of suffering the same fate as old Europe.  Even as a pessimist, I'd give it maybe a 10% chance of something like a Europe during WWII happening in my lifetime.  However, to assume I would care about my SWR during such a crisis is ridiculous.  I'd be in survival mode, along with the rest of the population.

Saving to a 3 or 2% WR is not going provide me with any additional safety in such circumstances (in the above example, extra shares of VTI won't help me hide from bombs).  I would argue that any intelligent, adaptive investor should lump 4% rule failure risk in with SHTF circumstances and call it a day.  IOW, it may happen, but doubling assets will have little effect in mitigating such a crisis in true S-curve fashion.  One is far better off being generally flexible in life and sticking with a 4%WR.

« Last Edit: October 31, 2017, 12:11:04 PM by Classical_Liberal »

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1162 on: October 31, 2017, 12:07:53 PM »
Everyone who has followed this thread, or 4% rule ideology in general, should be aware the Pfau tends to be more conservative in his assumptions than most. 




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Re: Stop worrying about the 4% rule
« Reply #1163 on: October 31, 2017, 12:15:45 PM »
Yes, I see that now.  Holy shit, the 4% rule is even MORE conservative/safe than I originally thought it was.  Which is, I guess, the whole point of this thread :D

Yup. Most of us have some safety margin built into our FIRE budgets as well. My annual spend is $40K + taxes, but $10K of that is not essential and could be deferred if my portfolio was doing terribly. I could also make $10K in a year without breaking a sweat. So that very conservative 4%WR rule got even safer.

It's true. Frugality really is the most important aspect to early retirement, in my opinion. If you had a greater need for money it would be harder to fulfill.
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Classical_Liberal

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Re: Stop worrying about the 4% rule
« Reply #1164 on: October 31, 2017, 12:21:50 PM »
@Retire-Canada
I read that as well and feel it actually supports my logic.  Using data sets that include things (like wholesale destruction of infrastructure due to years of war with massive civilian casualties) that haven't happened in the North America, during the period we have investment data for, is a bad idea.  Mainly because if such events occur here, we won't care about SWR, rather we will be focused on survival. 

Edit:  Put another way.  Life expectancy in the US around 1900 was under 50.  However, if you made it to the ripe old age of 1, suddenly it increased to mid 60's.  Obviously, there is something happen here to skew the data.  In this case high infant mortality rates.  In the case of SWR, in Pfau's apparent view, world wars fought on home soil, revolutions, hyper inflation, etc.   If you take out the extreme circumstances (situations in which SWR is meaningless anyway), 4% WR looks better.
« Last Edit: October 31, 2017, 12:30:24 PM by Classical_Liberal »

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1165 on: October 31, 2017, 12:26:12 PM »
@Retire-Canada
I read that as well and feel it actually supports my logic.  Using data sets that include things (like wholesale destruction of infrastructure due to years of war with massive civilian casualties) that haven't happened in the US, during the period we have investment data for, is a bad idea.  Mainly because if such events occur here, we won't care about SWR, rather we will be focused on survival.

Sure. I'm not arguing with you. I think he's pessimistic. I'll be FIREing with a WR between 4% and 5% most likely so you can see where I stand on the issue.

tyort1

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Re: Stop worrying about the 4% rule
« Reply #1166 on: October 31, 2017, 12:26:44 PM »
Quote from: Wade Pfau
Thanks for organizing today, and two great questions! 1) I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns. Reasons include: our extremely low interest rates plus high stock valuations have not been tested in the US historical data; the 4% rule has not worked internationally -- only in the US and Canada but not in 18 other countries with data back to 1900; 30 years may not be long enough any more, especially for early retirees; it is hard for investors to earn the underlying index market returns net of fees

Here's another sort of sneaky thing that he does.  Look at the part I bolded above.  If you add in a 1% fee/cost, then yes the 4% WR gets knocked down to 3% pretty quick. 

A more interesting way to phrase the question - what's his view of safe withdrawal rate for people savvy enough to pay very low fees (ala Vanguard VTSAX)?
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Telecaster

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Re: Stop worrying about the 4% rule
« Reply #1167 on: October 31, 2017, 07:03:22 PM »
This is a prime example of how experts in any singular field are hyper focused on the area of their expertise.  They are unable to look at the practicalities of situations outside of their hyper focused specialty.

Here is my problem with this sentiment from Pfau.  If I was living in Berlin in 1944, or London in 1940, or Paris in 1941; do you really think I would give two shits about my SWR?  or would I be busy hiding from bombs/Nazis (the real ones, not the political party I disagree with)?  To include data from these areas, during these periods, and come to a conclusion SWR could be worse given bad circumstances is ridiculous, IMO. 

I'm a pessimist by this forums standards.  I think North America has a chance of suffering the same fate as old Europe.  Even as a pessimist, I'd give it maybe a 10% chance of something like a Europe during WWII happening in my lifetime.  However, to assume I would care about my SWR during such a crisis is ridiculous.  I'd be in survival mode, along with the rest of the population.

Saving to a 3 or 2% WR is not going provide me with any additional safety in such circumstances (in the above example, extra shares of VTI won't help me hide from bombs).  I would argue that any intelligent, adaptive investor should lump 4% rule failure risk in with SHTF circumstances and call it a day.  IOW, it may happen, but doubling assets will have little effect in mitigating such a crisis in true S-curve fashion.  One is far better off being generally flexible in life and sticking with a 4%WR.

Bravo.  At some point, things beyond market forces start to dominate.  Being hit by a bus. Revolution. Alien invasion.  Pfau is literally trying to plan for the Nazis taking over.  Yes, it could happen.  But if it does, that will be the least of our worries. 

DavidAnnArbor

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Re: Stop worrying about the 4% rule
« Reply #1168 on: October 31, 2017, 08:33:50 PM »
The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

dougules

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Re: Stop worrying about the 4% rule
« Reply #1169 on: November 01, 2017, 11:54:59 AM »
The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

3-5 million for a single guy?  You could have a swimming pool full of cash to swim in during your retirement. 

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Re: Stop worrying about the 4% rule
« Reply #1170 on: November 01, 2017, 12:42:11 PM »
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tyort1

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Re: Stop worrying about the 4% rule
« Reply #1171 on: November 01, 2017, 12:59:54 PM »
The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.
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dougules

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Re: Stop worrying about the 4% rule
« Reply #1172 on: November 01, 2017, 03:26:33 PM »
The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

If the average person in Nicaragua or India had $30k/year they would see it as luxurious, and that's even if you adjusted down for cost of living. 

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Re: Stop worrying about the 4% rule
« Reply #1173 on: November 01, 2017, 04:00:21 PM »
Quote
I'm a big fan of global diversification. Even if it doesn't increase the returns, if it helps to reduce volatility then this is a way to increase the safe withdrawal rate (SWR). It's hard to say the specific improvement because it requires assumptions about returns, volatilities, and correlations between all the asset classes. But as an example, for a case I looked at in my book, broader diversification increased the SWR estimate from 3.34% to 3.61%. WW1 & WW2 created some really bad SAFEMAX outcomes around the world, but even without that there are plenty of cases of withdrawal rates internationally falling well below 4%.

This is a prime example of how experts in any singular field are hyper focused on the area of their expertise.  They are unable to look at the practicalities of situations outside of their hyper focused specialty.

Here is my problem with this sentiment from Pfau.  If I was living in Berlin in 1944, or London in 1940, or Paris in 1941; do you really think I would give two shits about my SWR?  or would I be busy hiding from bombs/Nazis (the real ones, not the political party I disagree with)?  To include data from these areas, during these periods, and come to a conclusion SWR could be worse given bad circumstances is ridiculous, IMO. 

I'm a pessimist by this forums standards.  I think North America has a chance of suffering the same fate as old Europe.  Even as a pessimist, I'd give it maybe a 10% chance of something like a Europe during WWII happening in my lifetime.  However, to assume I would care about my SWR during such a crisis is ridiculous.  I'd be in survival mode, along with the rest of the population.

Saving to a 3 or 2% WR is not going provide me with any additional safety in such circumstances (in the above example, extra shares of VTI won't help me hide from bombs).  I would argue that any intelligent, adaptive investor should lump 4% rule failure risk in with SHTF circumstances and call it a day.  IOW, it may happen, but doubling assets will have little effect in mitigating such a crisis in true S-curve fashion.  One is far better off being generally flexible in life and sticking with a 4%WR.

I think you're mis-reading his answer.  The SAFEMAX in countries involved in the World Wars was somewhere in the neighborhood of .5% or lower.  He's saying that he's excluding those scenarios.  As such, I think this criticism is misplaced.
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Re: Stop worrying about the 4% rule
« Reply #1174 on: November 01, 2017, 06:53:17 PM »
Quote from: Wade Pfau
Thanks for organizing today, and two great questions! 1) I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns. Reasons include: our extremely low interest rates plus high stock valuations have not been tested in the US historical data; the 4% rule has not worked internationally -- only in the US and Canada but not in 18 other countries with data back to 1900; 30 years may not be long enough any more, especially for early retirees; it is hard for investors to earn the underlying index market returns net of fees

Here's another sort of sneaky thing that he does.  Look at the part I bolded above.  If you add in a 1% fee/cost, then yes the 4% WR gets knocked down to 3% pretty quick. 

A more interesting way to phrase the question - what's his view of safe withdrawal rate for people savvy enough to pay very low fees (ala Vanguard VTSAX)?

Right. Wade finds it hard for investors to earn the underlying market returns because he assumes they will only use professional advisors

The actuality is that it is dead simple for the individual investor to achieve extremely close to market returns, net of fees. Buy VTI. Done. If you want to diversify further, buy similar low-cost indexes for bonds, or international or whatever and rebalance every year or two. Done.

The other sneaky thing Wade has done is for historical simulations, assume everything will be 25% worse than ever in history. Great Depression? It's 25% worse. Black Monday? 25% worse. Best day ever in the markets? 25% worse. He first used this tactic on the paper published after I took him to task (via email) for the outrageous management fees he assumed everyone would pay.
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sol

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Re: Stop worrying about the 4% rule
« Reply #1175 on: November 01, 2017, 07:07:47 PM »
Quote from: Wade Pfau
Thanks for organizing today, and two great questions! 1) I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns. Reasons include: our extremely low interest rates plus high stock valuations have not been tested in the US historical data; the 4% rule has not worked internationally -- only in the US and Canada but not in 18 other countries with data back to 1900; 30 years may not be long enough any more, especially for early retirees; it is hard for investors to earn the underlying index market returns net of fees

Here's another sort of sneaky thing that he does.  Look at the part I bolded above.  If you add in a 1% fee/cost, then yes the 4% WR gets knocked down to 3% pretty quick. 

A more interesting way to phrase the question - what's his view of safe withdrawal rate for people savvy enough to pay very low fees (ala Vanguard VTSAX)?

Right. Wade finds it hard for investors to earn the underlying market returns because he assumes they will only use professional advisors

The actuality is that it is dead simple for the individual investor to achieve extremely close to market returns, net of fees. Buy VTI. Done. If you want to diversify further, buy similar low-cost indexes for bonds, or international or whatever and rebalance every year or two. Done.

The other sneaky thing Wade has done is for historical simulations, assume everything will be 25% worse than ever in history. Great Depression? It's 25% worse. Black Monday? 25% worse. Best day ever in the markets? 25% worse. He first used this tactic on the paper published after I took him to task (via email) for the outrageous management fees he assumed everyone would pay.

Sure, Wade's a raging pessimist.  By his own admission he didn't understand this topic very well when he first staked out the doomsayer position that has made his career.  I've long assumed that the collective wisdom of this forum knows twice as much about retirement planning as Wade Pfau does, and we're more responsive to individual questions too.

CanuckExpat

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Re: Stop worrying about the 4% rule
« Reply #1176 on: November 01, 2017, 08:09:22 PM »
Even with noted pessimism, I'll note something in his response (emphasis mine), as ever, flexibility is key.

"For someone with flexibility and capacity to reduce spending as necessary, 4% isn't too high."

"I am concerned about 4% being too high at the present for someone without much flexibility to reduce spending after market downturns...."

"The idea that you can spend consistently from an investment portfolio for 40-50 years is pretty tough to reconcile. The only thing I can really say is to be flexible, either with the idea of cutting expenses as necessary, or of earning more income as necessary, with how things evolve over the next 40-50 years."

"everything I've done points to the idea that flexibility is a lot more important than asset allocation tweaks"

And just a general good reply, to the question advice for young adults planning for retirement:

"-Focus on Financial independence. You may or may not want to retire when the time comes, but with financial independence you will have the freedom to do what you want.
-Make sure you have a plan for how you will spend your time. Wanting to be retired is more important then just not wanting to work. You've got to do something.
-Nothing beats the old: save early and often. The needed savings rate doubles for each 10 years you wait to get started."
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arebelspy

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Re: Stop worrying about the 4% rule
« Reply #1177 on: November 01, 2017, 08:20:34 PM »
I think he puts that in because there's no plausible pessimistic answer for flexibility. So you have to have that caveat.

Flexibility adds so much resiliency to FIRE, it's ridiculous.
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Re: Stop worrying about the 4% rule
« Reply #1178 on: November 01, 2017, 08:26:11 PM »
The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

Well, I'm sure their heirs will be really rich.    They evidently have retire rich as a goal, not retire young.  To each his own,  suppose. 

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Re: Stop worrying about the 4% rule
« Reply #1179 on: November 01, 2017, 09:18:41 PM »
No need to beat up on the guy.  He is clear about his assumptions.  For high income folks, where they can get to 2.5% with a few extra years, sure...be conservative.  If you are mentally spending flexible and likely to earn some extra bank from your fun side gigs anyway, and want to be young and independent, with flexibility, go for it at 5-6%.

Seems like a nice menu to chose from.  Some folks are vegan, other want steak.  Its all good once you are wise to the options and possible outcomes.
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Re: Stop worrying about the 4% rule
« Reply #1180 on: November 01, 2017, 10:31:36 PM »
The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

I don't think it's completely crazy of them to point out to someone his age that if you need $30k per year as a single person, you might want to take into account that the future could hold a partner + children and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

arebelspy

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Re: Stop worrying about the 4% rule
« Reply #1181 on: November 02, 2017, 07:02:35 AM »
The disconnect is that $30k per year for people over there is living "like a poor person" and "barely scraping by".  Over here on MMM it's viewed more as a pretty normal/happy life, especially if there's no mortgage/rent.  Which means most of the $30k is discretionary spending.

I don't think it's completely crazy of them to point out to someone his age that if you need $30k per year as a single person, you might want to take into account that the future could hold a partner + children and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.
And couldn't you go earn more money at that point?

It seems blatantly obvious to me that if you prepare for one level of spending, and you decide in the future to drastically up that level, you may not be able to support that new, higher level.

There's a bunch of future possibilities I could oversave for.

Maybe I'll want to become a pilot and buy a plane. Maybe I'll get divorced, split half my assets, then fall in love with a broke single mother with six kids.

Should I keep working until I can cover pretty much every contingency? (Let's call it, oh, 100MM or so.)

Or should I understand that I'm quitting now at a certain level and if things change, they change?

I wouldn't assume anyone who figures FIRE out is too dumb to realise expenses in the future might change. Likely they've considered that and are saving for it anyways.

See: Herbert Derp, the most frugal Mustachian, who spends ~5k/yr, but is saving to be able to spend 50k+.

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Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1182 on: November 02, 2017, 07:05:11 AM »
...and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

Helping them get PT jobs to contribute to their costs as teenagers sounds like a wonderful learning opportunity for them around work, budgeting and how to deal with changes in life. ;)

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1183 on: November 02, 2017, 07:06:46 AM »
Should I keep working until I can cover pretty much every contingency? (Let's call it, oh, 100MM or so.)

That ^^ is the problem with fear based planning. There are literally an infinite number of "What Ifs?" that can be used to justify a crazy high FIRE $$ Target and infinite OMYs.

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Re: Stop worrying about the 4% rule
« Reply #1184 on: November 02, 2017, 07:26:47 AM »
Should I keep working until I can cover pretty much every contingency? (Let's call it, oh, 100MM or so.)

That ^^ is the problem with fear based planning. There are literally an infinite number of "What Ifs?" that can be used to justify a crazy high FIRE $$ Target and infinite OMYs.

This is my personal biggest fear.  that i wont pull the plug.. the largest risk to FIRE we never talk about is continuing to work past when you really need to.
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Re: Stop worrying about the 4% rule
« Reply #1185 on: November 02, 2017, 08:30:57 AM »
This is my personal biggest fear.  that i wont pull the plug.. the largest risk to FIRE we never talk about is continuing to work past when you really need to.
Never talk about OMY?

https://www.google.com/search?q=site%3Aforum.mrmoneymustache.com+omy&oq=site%3Aforum.mrmoneymustache.com+omy&aqs=chrome..69i57j69i58.13423j0j4&sourceid=chrome&ie=UTF-8


cerat0n1a

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Re: Stop worrying about the 4% rule
« Reply #1186 on: November 02, 2017, 08:37:00 AM »
There's a bunch of future possibilities I could oversave for.

Maybe I'll get divorced, split half my assets

I think the statistics say that is a much higher probability event for the average westerner than failure of the 4% rule would be - and probably with worse financial implications.

...and those children turn into teenagers who'll have the same food & housing requirements as an adult at least for a couple of years.

Helping them get PT jobs to contribute to their costs as teenagers sounds like a wonderful learning opportunity for them around work, budgeting and how to deal with changes in life. ;)

Well, given the amount my youngest has made from bitcoin/either in the past couple of years, not sure I'm in any position to give financial advice right now. Still, if you know any 14 year olds that can cover the mortgage costs of having an extra bedroom in a HCOL?

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1187 on: November 02, 2017, 10:35:50 AM »
Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Transitioning to FIRE'd albeit somewhat cautiously...

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1188 on: November 02, 2017, 11:13:48 AM »
This is my personal biggest fear.  that i wont pull the plug.. the largest risk to FIRE we never talk about is continuing to work past when you really need to.
Never talk about OMY?

https://www.google.com/search?q=site%3Aforum.mrmoneymustache.com+omy&oq=site%3Aforum.mrmoneymustache.com+omy&aqs=chrome..69i57j69i58.13423j0j4&sourceid=chrome&ie=UTF-8

My point was we never talk about it from a risk to fire standpoint. People always talk about risk of failure due to running out of money but rarely do we discuss risk of failure to fire due to not retiring.
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Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1189 on: November 02, 2017, 04:20:55 PM »
Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Well considering DW and I are going to pay $15/month for HC at 52 and 56 respectively I'd say $30k is plenty to live on, with a paid off mortgage at least.

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1190 on: November 02, 2017, 05:03:28 PM »
Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Wouldn't the older Bogglehead have a much shorter retirement to fund and access to Government/Corporate benefits in short order since they are either at or close to a more typical retirement age?

Retire-Canada

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Re: Stop worrying about the 4% rule
« Reply #1191 on: November 02, 2017, 05:13:26 PM »
Well, given the amount my youngest has made from bitcoin/either in the past couple of years, not sure I'm in any position to give financial advice right now. Still, if you know any 14 year olds that can cover the mortgage costs of having an extra bedroom in a HCOL?

It sounds like your youngest kid might fit that bill. ;) A teenager can certainly contribute towards their portion of the family's expenses. If the parents choose to buy an expensive house in a HCOL area of course that contribution would be less significant, but presumably someone who is smart enough to FIRE at 30yrs old can work out what accommodation they can afford with their partner and make a reasonable choice.
« Last Edit: November 02, 2017, 05:15:20 PM by Retire-Canada »

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Re: Stop worrying about the 4% rule
« Reply #1192 on: November 02, 2017, 06:26:46 PM »
Well, given the amount my youngest has made from bitcoin/either in the past couple of years, not sure I'm in any position to give financial advice right now. Still, if you know any 14 year olds that can cover the mortgage costs of having an extra bedroom in a HCOL?

It sounds like your youngest kid might fit that bill. ;) A teenager can certainly contribute towards their portion of the family's expenses. If the parents choose to buy an expensive house in a HCOL area of course that contribution would be less significant, but presumably someone who is smart enough to FIRE at 30yrs old can work out what accommodation they can afford with their partner and make a reasonable choice.

I shared a bedroom with my older brother until he left home around age 20.  Why do parents nowadays think each kid has to have his/her own room?*

*Disclosure: my kid had his own room, but he was an only child.
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EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1193 on: November 02, 2017, 06:34:27 PM »
Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Well considering DW and I are going to pay $15/month for HC at 52 and 56 respectively I'd say $30k is plenty to live on, with a paid off mortgage at least.

You are certainly an exceptional case EFB!  You must not need HC (I'm guessing your deductible is pretty darn high and pretty much nothing is covered).  Just reading around the forum, quite a few folks are struggling to find anything under $500 - $1500/mo that is comparable to what they had in 2017 or need.  Also, you aren't covering kids that, at least in my case, are notorious for breaking a bone or having an emergency at some point or other.  We have been to the ER, physician, and emergency dental work a few times in the past decade.  Very glad for our coverage!   
Transitioning to FIRE'd albeit somewhat cautiously...

EscapeVelocity2020

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Re: Stop worrying about the 4% rule
« Reply #1194 on: November 02, 2017, 06:55:08 PM »
Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Wouldn't the older Bogglehead have a much shorter retirement to fund and access to Government/Corporate benefits in short order since they are either at or close to a more typical retirement age?

Yes, but most folks even here do not want to rely on drawing down their assets in order to generate income.  At $30k/yr, your 4% rule means you start with $750k.  It could've been a close call, even starting at 55, if you have a 2008-style sequence of returns...  of course, you made it to 65 by now and the current healthcare shenanigans are no big deal.  Still, your portfolio did dip to ~415k in that first year (before recovering to 470k) if you stayed in equities.  I know some retired folks that freaked out near the bottom and moved extra to bonds and cash, which got them to 65 but also missed out on some of the bull market.

I'm just pointing out that these are the kinds of things older folks are more likely to have experienced and are commenting from than a younger MMM crowd.  Not saying that they either group are more right or wrong.
Transitioning to FIRE'd albeit somewhat cautiously...

Exflyboy

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Re: Stop worrying about the 4% rule
« Reply #1195 on: November 02, 2017, 07:03:51 PM »
Personally, I find the biggest difference between MMM Forum and Bogleheads / Early-Retirement.org is that this is a younger forum.  If I were in my 50's and 60's with a few pre-existing conditions and having to pay health insurance premiums for a family until I'm 65, I'd probably think $30k/yr does not leave very much discretionary income either.

But being that MMM is a lot of healthy 35 - 45 y.o.s and that ACA subsidies and great market returns have been the norm for the recent past, $30k probably does seem like more than enough...

Well considering DW and I are going to pay $15/month for HC at 52 and 56 respectively I'd say $30k is plenty to live on, with a paid off mortgage at least.

You are certainly an exceptional case EFB!  You must not need HC (I'm guessing your deductible is pretty darn high and pretty much nothing is covered).  Just reading around the forum, quite a few folks are struggling to find anything under $500 - $1500/mo that is comparable to what they had in 2017 or need.  Also, you aren't covering kids that, at least in my case, are notorious for breaking a bone or having an emergency at some point or other.  We have been to the ER, physician, and emergency dental work a few times in the past decade.  Very glad for our coverage!

Yes I should have noted that was for a bronze plan with a $6,500 deductible (and max OOP) each (so it pays nothing up to $6500 then covers everything at 100% in theory)  So yes so far our HC needs have been pretty low even with DW's outrageously priced asthma inhalers.

So yes, pretty much a catastrophic plan, only the two of us and no dental coverage.

MrMoneySaver

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Re: Stop worrying about the 4% rule
« Reply #1196 on: November 02, 2017, 07:06:13 PM »
The attitude here on the MMM forums are so much more relaxed about the 4% rule as compared to the bogleheads forums.
There is a guy who posted there that he has over 1 million invested, and he's 35 and wants to retire and he only has 30,000 in expenses.
He's getting so much criticism there for not having enough money and how living on 30,000 as a single person is just scraping by.
The responses from posters there seem to suggest he needs 3-5 million and have a 2% safe withdrawal rate.
It's really very crazy and different there.

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=230893

Geez, I bet the Bogleheads are a barrel of monkeys at parties.

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1197 on: November 02, 2017, 08:32:24 PM »
Geez, I bet the Bogleheads are a barrel of monkeys at parties.

What parties? They have to work all the time to hit that 2%WR on $100K+/yr spend. ;)

Only $100k/year? You poor fellow! How do you keep up with the latest couples Benz purchases? Do you skip Monaco every other year?
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Re: Stop worrying about the 4% rule
« Reply #1198 on: November 02, 2017, 09:55:32 PM »
Dont want to be a jerk, but these anti BH comments sound like sour grapes over others with more income/wealth.  Plenty of high income/high savings people are very interesting chaps and many work smart hours vs. hard hours for an unneeded Mercedes, as implied.  I have not found Bogleheads posters to be boring or ungenerous with their knowledge.  Most are passionate about sharing their knowledge to help people retire to meet their goals, just like this forum.  Just different goals and risk tolerances.

For example, I am in a home wine making club.  Most are older, successful folks.  Many are BH profile types.  They worked hard, saved, and have used their money to buy land to plant vineyards they passionately maintain to make great wine.  These are fine people and certainly not boring, just because they worked until 60 and dont meet your high standards for low spending.  They get their hands dirty, prune their vines, study the soil and fight powdery mildew with great passion.

Let others do their thing...you guys do your thing.  It sounds insecure to go around making fun of other lifestyle choices.  Like high school anti gay humor.
« Last Edit: November 02, 2017, 10:02:31 PM by PizzaSteve »
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sol

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Re: Stop worrying about the 4% rule
« Reply #1199 on: November 02, 2017, 10:09:25 PM »
Like high school anti gay humor.

1.  No one is bashing the income or the savings rate, just the incredibly pessimistic assumptions about SWRs that seem to pervade the culture there.

2.  I have seem far FAR worse denigration of the MMM community on the bogleheads forum than I have ever seen posted here about them.