Author Topic: Stop worrying about the 4% rule  (Read 179053 times)

fuzzhead1506

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Stop worrying about the 4% rule
« Reply #950 on: July 28, 2017, 11:04:46 AM »
While I like CAPE because it's really the only measure shown to have any predictive value at all. 

That is actually false.  There are prolly a dozen or more that do a pretty predictive job, and it has been argued that CAPE is not even the best.  You could even also make up your own silly measure that has some predictive power over past results.  If you dare to go down the rabbit hole of looking further into this, I suggest you start here and read the BOTH of the author's articles!

http://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/
http://www.philosophicaleconomics.com/2013/12/valuation-and-returns-adventures-in-curve-fitting/

runewell,

I think that there is a large cohort of people that think if you so dare to time the market, you might be harming the value of the 4% rule. I think otherwise.

I think that you prolly could time the market a little.  And even if you failed to do well, I'd actually argue you could take as much as 6% or 7% and prolly be ok in pretty much any environment - but that could just be my optimism gun talking. 

The 4% rule works - get over it.  ;)

Edited: for clarifications
« Last Edit: July 28, 2017, 11:14:25 AM by fuzzhead1506 »

TomTX

  • Handlebar Stache
  • *****
  • Posts: 2495
  • Location: Texas
Re: Stop worrying about the 4% rule
« Reply #951 on: July 28, 2017, 02:50:28 PM »
I liked this article, it was very much along the lines of what I was thinking.  Safe withdrawal rates and portfolio longevity can be enhanced with a system of rules that recognizes that less equity exposure is ideal during higher P/E periods.  It is exactly the sort of mindset I was thinking about all along.  My portfolio was probably 85% US stocks until I lowered it to 75% just recently, and I could possibly get it down into the 60's eventually here.  If balancing your portfolio based on P/Es is wise during retirement, it's probably wise before retirement as well.

Thanks so much for posting it.

You have still failed to properly address how "Earnings" today are defined quite differently than "Earnings" 30 years ago, let alone 50 or 100 years ago, with the trend being generally more restrictive on how you report "Earnings" - thus adding an upward forcing of "P/E" over time.

A "higher P/E" is oversimplified to the point of being wrong. CAPE is even worse.

You've already been given links on the topic.
Credit card signup bonuses:

$150 bonus on $500 spend for Chase Freedom:
https://www.referyourchasecard.com/2/MU4TDQ1N3K

$50 bonus (no min spend, just use it once) plus double all cash back at the end of 1 year for Discover, including the initial $50:
https://refer.discover.com/s/37e3u

$500 bonus on $4,000 spend for Chase Sapphire Preferred:
https://www.referyourchasecard.com/6/Z8JIP66H7G

bob22

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: Stop worrying about the 4% rule
« Reply #952 on: July 28, 2017, 03:40:27 PM »
I agree that the 4% rule will probably work throughout retirement. But let's say I'm just really fiscally conservative, and had the ability to vary my discretionary spending 3-4% to maximize the chances that my investments will last (and that I'll have something to leave to my kids). I'd rather not just spend 3% all the time. But, do I spend 4% when the market is good and 3% when it isn't? Should I be contrarian and do the opposite? Or should I do something more complicated like try to anticipate using a market indicator or several?

MDM

  • Walrus Stache
  • *******
  • Posts: 6700
Re: Stop worrying about the 4% rule
« Reply #953 on: July 28, 2017, 03:44:54 PM »
I agree that the 4% rule will probably work throughout retirement. But let's say I'm just really fiscally conservative, and had the ability to vary my discretionary spending 3-4% to maximize the chances that my investments will last (and that I'll have something to leave to my kids). I'd rather not just spend 3% all the time. But, do I spend 4% when the market is good and 3% when it isn't? Should I be contrarian and do the opposite? Or should I do something more complicated like try to anticipate using a market indicator or several?
Perhaps consider Variable Percentage Withdrawal (VPW) - Bogleheads.org.

maizeman

  • Handlebar Stache
  • *****
  • Posts: 1154
  • Location: The World of Tomorrow
Re: Stop worrying about the 4% rule
« Reply #954 on: July 28, 2017, 03:47:34 PM »
I agree that the 4% rule will probably work throughout retirement. But let's say I'm just really fiscally conservative, and had the ability to vary my discretionary spending 3-4% to maximize the chances that my investments will last (and that I'll have something to leave to my kids). I'd rather not just spend 3% all the time. But, do I spend 4% when the market is good and 3% when it isn't? Should I be contrarian and do the opposite? Or should I do something more complicated like try to anticipate using a market indicator or several?

I did some simulations before that suggested if you spend 4% of your starting portfolio balance when your networth is above your starting point and 3.3% of your starting portfolio balance when your network is below your starting balance you wouldn't run out of money in any historical retirement window using retirement lengths from 20 years to 100 years.

https://forum.mrmoneymustache.com/investor-alley/the-4-rule-for-those-in-their-mid-20's-completely-unrealistic/msg1368531/#msg1368531
"It’s a selective retirement," Richard explained, "a retirement from boring s**t."

My source code & my journal

maizeman

  • Handlebar Stache
  • *****
  • Posts: 1154
  • Location: The World of Tomorrow
Re: Stop worrying about the 4% rule
« Reply #955 on: July 31, 2017, 07:58:53 AM »
networth is above your starting point and 3.3% of your starting portfolio balance when your network is below your starting balance you wouldn't run out of money in any historical retirement window using retirement lengths from 20 years to 100 years.

https://forum.mrmoneymustache.com/investor-alley/the-4-rule-for-those-in-their-mid-20's-completely-unrealistic/msg1368531/#msg1368531

Theoretically the amount of net worth you need every year is less than the year before, since your expected life expectancy is lower.  Even though it is hard to tell what your net worth goal line should look like, you could probably squeeze out a few more tenths of withdrawal if you had some such adjustment.  I don't know exactly what this would look like though.

Yup, that's the idea behind the death and bankruptcy graphs from further upthread.



If you read up on the variable percentage withdrawal method (link), they're also using actuarial data to increase your withdrawal rate by spending more and more of your portfolio each year the expected number of years you have left in your life decreases.
"It’s a selective retirement," Richard explained, "a retirement from boring s**t."

My source code & my journal

Virtus

  • Stubble
  • **
  • Posts: 206
Re: Stop worrying about the 4% rule
« Reply #956 on: July 31, 2017, 08:21:52 PM »
Runewell, you like the idea that things like CAPE and other measures can predict the future.  They cannot.  But as long as you feel like they can, you'll continue to hold on to it as a means to have some level of control over the future. 

If you're going to index, at some point you'll have to accept that the market is gonna do what it's gonna do, and the only rational response is to just let it ride (ie, buy and hold).  Then o8nce a year, re-balance your portfolio so you maintain your 80/20 (or 60/40 or whatever) stocks/bonds ratio.

Vanguard disagrees with you, saying on page 2 of https://personal.vanguard.com/pdf/s338.pdf

Quote
We confirm that valuation metrics such as price/earnings ratios, or P/Es, have had an inverse or mean-reverting relationship with future stock market returns, although it
has only been meaningful at long horizons and, even then, P/E ratios have “explained” only about 40% of the time variation in net-of-inflation returns. Our results are similar whether or not trailing earnings are smoothed or cyclically adjusted (as is done in Robert Shiller’s popular P/E10 ratio).

They say that: historically higher P/E's (and CAPEs) have result in lower returns going forward. 

I also have no reason to believe that the selection of a portfolio at one point in time precludes making adjustments later. 

I don't care who says it - it's wrong to listen to it and it's even more wrong to act on it.  Vanguard doesn't know.  Buffet doesn't know, runewell doesn't know.  No one knows, that's the point.  That's why you create your asset allocation and your investment plan and you stick with it. 

The approach your taking (removing $$ from high CAPE investments and moving them to a low CAPE investment) involves both trying to time the market AND pick winners.  That's going to end badly.  That type of thinking is exactly why "active" investors don't beat passive investors over time. 

You might wish it weren't true.  You might wish that your magic CAPE numbers give you an edge and insight over all the dumb indexing schlubs.  But you're wrong.  And it's gonna cost you money. 

I may be reading into to it but this argument feels like it is running from knowledge straight to the do it because I said so cliff.

You state "active" investors don't beat passive investors over time but can you show evidence of this? If you do your homework you will find there is not a comprehensive study that supports this statement. There have been many studies performed on active mutual funds be very few on active investors.

http://www.retailinvestor.org/activeVSpassive.html

matchewed

  • Magnum Stache
  • ******
  • Posts: 4043
  • Location: CT
Re: Stop worrying about the 4% rule
« Reply #957 on: August 01, 2017, 06:29:32 AM »
https://web.stanford.edu/~wfsharpe/art/active/active.htm

In short they have to under-perform because of math and logic. All things being equal on average the performance of passive and active investors is equal. The costs for the active investor is greater therefore after cost performance is lower for the active investor.
« Last Edit: August 01, 2017, 06:31:32 AM by matchewed »

Retire-Canada

  • Magnum Stache
  • ******
  • Posts: 4285
Re: Stop worrying about the 4% rule
« Reply #958 on: August 01, 2017, 07:43:25 AM »
This is why it's so hard to beat the market: https://www.bloomberg.com/news/articles/2017-04-09/lopsided-stocks-and-the-math-explaining-active-manager-futility

Trading costs and taxes also provide additional headwinds.
« Last Edit: August 01, 2017, 07:46:22 AM by Retire-Canada »

Le Barbu

  • Pencil Stache
  • ****
  • Posts: 987
  • Age: 45
  • Location: Lake Wobegon
  • We are all strong, handsome and above average
Re: Stop worrying about the 4% rule
« Reply #959 on: August 01, 2017, 11:02:48 AM »
networth is above your starting point and 3.3% of your starting portfolio balance when your network is below your starting balance you wouldn't run out of money in any historical retirement window using retirement lengths from 20 years to 100 years.

https://forum.mrmoneymustache.com/investor-alley/the-4-rule-for-those-in-their-mid-20's-completely-unrealistic/msg1368531/#msg1368531

Theoretically the amount of net worth you need every year is less than the year before, since your expected life expectancy is lower.  Even though it is hard to tell what your net worth goal line should look like, you could probably squeeze out a few more tenths of withdrawal if you had some such adjustment.  I don't know exactly what this would look like though.

Yup, that's the idea behind the death and bankruptcy graphs from further upthread.



If you read up on the variable percentage withdrawal method (link), they're also using actuarial data to increase your withdrawal rate by spending more and more of your portfolio each year the expected number of years you have left in your life decreases.

Maizeman, is this interesting graph available for anyone to enter self situation or scenario? I would like to compare ER @ 45 with a 5% WR vs a later retirement @ 50-55 with a lower WR (3.5-4%) without splitting hairs. Your graph talks so much!
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

maizeman

  • Handlebar Stache
  • *****
  • Posts: 1154
  • Location: The World of Tomorrow
Re: Stop worrying about the 4% rule
« Reply #960 on: August 01, 2017, 01:06:05 PM »
I posted the source code I used to rule the calculations in make the charts in my signature, but I don't know if anyone else has gotten it working or not (if not it says more about my poor documentation than anything else), so I ran some of the scenarios you mentioned myself. If you feel up to getting the code working, I've added in the option to experiment with different percentages of your portfolio allocated to stocks, bonds, and cash.

5% WR, starting at age 45.



Risk of bankruptcy before death was 15.5%

4% WR, starting at age 50.



Risk of bankruptcy before death was 2.4%.

At that point there's already basically no visible red left, but if I raised the starting age to 55 and kept the WR at 4% the risk of bankruptcy before death dropped to 1.6%
"It’s a selective retirement," Richard explained, "a retirement from boring s**t."

My source code & my journal

Le Barbu

  • Pencil Stache
  • ****
  • Posts: 987
  • Age: 45
  • Location: Lake Wobegon
  • We are all strong, handsome and above average
Re: Stop worrying about the 4% rule
« Reply #961 on: August 01, 2017, 01:22:55 PM »
I posted the source code I used to rule the calculations in make the charts in my signature, but I don't know if anyone else has gotten it working or not (if not it says more about my poor documentation than anything else), so I ran some of the scenarios you mentioned myself. If you feel up to getting the code working, I've added in the option to experiment with different percentages of your portfolio allocated to stocks, bonds, and cash.

5% WR, starting at age 45.



Risk of bankruptcy before death was 2.4%.

At that point there's already basically no visible red left, but if I raised the starting age to 55 and kept the WR at 4% the risk of bankruptcy before death dropped to 1.6%

Thank you so much! I will try to run the experiment version but the 2 graphs above are amaising.

I am 45 now, fairly well paid but with not so much options to come back into business when I quit. My expenses actually represent 5-6% of portfolio on average. So maybe another 5MY worth but 10MY would be an upfront fail as Arebelspy already mentioned.
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1014
  • Age: 51
  • Location: Ann Arbor, Michigan
Re: Stop worrying about the 4% rule
« Reply #962 on: August 01, 2017, 08:33:45 PM »
Great graphs Maizeman

Virtus

  • Stubble
  • **
  • Posts: 206
Re: Stop worrying about the 4% rule
« Reply #963 on: August 01, 2017, 08:59:14 PM »
https://web.stanford.edu/~wfsharpe/art/active/active.htm

In short they have to under-perform because of math and logic. All things being equal on average the performance of passive and active investors is equal. The costs for the active investor is greater therefore after cost performance is lower for the active investor.

Its ironic that you posted an article to argue against an article that was partly written in response to the article you posted.

"3) The Total Equals the Sum of the Parts: This argument was famously presented by William Sharpe in this article. It argues that "All portfolio returns that beat the market are offset by other portfolios with lower returns ... because the market is the sum of its parts". There are counter-arguments.

The first is that this is another straw-man argument. No one says ALL active investors outperform. Some do and some don't. Yes, measured together they are only average, but your personal returns will not be the average. You don't care about everyone else. You care about your own returns.

Sharpe's analysis ignores cash. The most powerful (and easy) way to outperform the market is by retreating to cash during major market crashes. You don't have to time the tops and bottoms perfectly. All you must do is re-enter the market at a level lower than when you exited on the way down. If nothing else this reduces your portfolio"s risk, if not its return. The stocks sold to exit the market are bought by someone, and that someone is included in Sharpe's set of investors. But your cash portfolio is not included in his math.

Also on the issue of 'cash', in Sharpe's basic argument he models a group of investors owning all the publicly listed shares of some 'market'. As the 'market' goes so goes the the group. But consider what would happen to dividends paid to that group. Sharpe's model has all the outstanding shares already owned. What happens to the cash in his model? The theoretical total return benchmarks presume that distributions are reinvested in the same equities as received. This assumption works for ETFs because they do not own all the outstanding share. But it violates Sharpe's model and math. He uses a model that cannot be duplicated in reality.

More generally on the issue of 'cash', Sharpe's model ignores cash flowing between the primary and secondary markets that create market cycles. IPOs and insolvencies move cash in and out of the circle of his 'market'."

http://www.retailinvestor.org/activeVSpassive.html

waltworks

  • Handlebar Stache
  • *****
  • Posts: 2361
Re: Stop worrying about the 4% rule
« Reply #964 on: August 01, 2017, 09:26:59 PM »
1: This isn't an active vs. passive investing thread.
2: Oh, just go to cash when things crash and get back in when they're significantly lower? My god! Why didn't I think of that?

Derp. Go throw your own money away trying to do that if you want to, you'll certainly stand a nice high chance of FIRE failure that way, 4% SWR or otherwise.

-W

dividendman

  • Pencil Stache
  • ****
  • Posts: 959
  • Age: 35
Re: Stop worrying about the 4% rule
« Reply #965 on: August 02, 2017, 08:35:59 AM »
1: This isn't an active vs. passive investing thread.
It also isn't a thread where someone unilaterally decides whether it's an active vs passive investing thread.

Well, you're correct if by unilateral you mean the person who created the thread. The 4% rule is based on a passive index approach, hence the conversation is around that and why it's a feasible rate of withdrawal.

With active investing, you could have a SWR of 100% per year if you're good (lucky) enough.

waltworks

  • Handlebar Stache
  • *****
  • Posts: 2361
Re: Stop worrying about the 4% rule
« Reply #966 on: August 02, 2017, 08:55:42 AM »
1: This isn't an active vs. passive investing thread.
It also isn't a thread where someone unilaterally decides whether it's an active vs passive investing thread.

Well, I could try to get everyone to talk about golf, or investing in gold, or GOT, or post endless cute cat pictures, but that would presumably annoy the people who are trying to discuss/learn about the 4% rule, right? Which is based on *market returns* rather than beating/not beating said returns via clever/lucky/disastrous investing. If I go to Vegas every year and turn my remaining $1000 of savings into a million bucks at the slot machines, I don't start talking about how the 4% rule doesn't apply to me.

Because that would be stupid, since I'm talking about something irrelevant to the discussion.

-W

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #967 on: August 02, 2017, 09:56:34 AM »

Well, I could try to get everyone to talk about golf, or investing in gold, or GOT, or post endless cute cat pictures, but that would presumably annoy the people who are trying to discuss/learn about the 4% rule, right? Which is based on *market returns* rather than beating/not beating said returns via clever/lucky/disastrous investing. If I go to Vegas every year and turn my remaining $1000 of savings into a million bucks at the slot machines, I don't start talking about how the 4% rule doesn't apply to me.

Because that would be stupid, since I'm talking about something irrelevant to the discussion.

-W

I'm not advocating gambling.  I'm advocating that we not pretend that the market, at high as it is right now, will actually realize the historical market returns that the 4% rule blindly assumes.

I don't think that's true, that we're in for lower returns.  But even if it were, what is you alternative?  3%, 2%?  Never retire?
Frugalite in training.

markbike528CBX

  • Bristles
  • ***
  • Posts: 425
  • Location: the Everbrown part of the Evergreen State (WA)
Re: Stop worrying about the 4% rule
« Reply #968 on: August 02, 2017, 10:00:56 AM »
The 4% rule (per Trinity study and others) is "designed" to fail 5% of the time (95% success).   
It does NOT assume 100% certain, locked in success.   It does NOT blindly assume (mean, average) historical market returns, it fails only in worst case scenarios.

Sure the 4% rule might fail in the future for 5% of the scenarios.   

Do we know now that FIREing now will be certain of failure. No.

We (runewell et al) might suspect it.   

With any sort of flexibility (lowering withdrawals a bit or even simply not incrementing withdrawals for inflation), one can mitigate those risks.

Some comments are foamy.  So be it.  Black foam box or Orange foam box (from the Overheard at Work thread page 200 or so).

sol

  • Walrus Stache
  • *******
  • Posts: 5283
  • Age: 40
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #969 on: August 02, 2017, 10:48:27 AM »
I'm advocating that we not pretend that the market, at high as it is right now, will actually realize the historical market returns that the 4% rule blindly assumes.

I'm advocating that the market WILL.  I will literally wager a million dollars that a 4% SWR will survive for 30 years, on the exact day I retire.  I have no hesitation about this bet.

But you're not an aspiring early retiree, and you don't believe in (or even understand, apparently) the historical analysis this decision is based on.  In fact, I'm not even sure why you're here.

Please go away.  Work just as long as you like.  Bet against the stock market all you like.  Wallow in pessimism and doom as much as you like.  Just stop doing it here.

Because frankly I'm sick and tired of all these folks showing up in carefully researched and referenced threads they have not read and loudly shouting the opposite conclusion without any evidence, forethought, or credibility.  You degrade the quality of this conversation and you look like an ignorant rube.  Just read the thread already, and you'll see that all of your questions and naive criticisms have already been answered thoughtfully by caring people with professional expertise.

But we all know I'm fooling myself.  You won't read it.  You don't want real answers because you're not asking real questions.  You're regurgitating cable show talking points without any understanding of context or motivation.  You've been duped, and it shows.  Your consistent and total refusal to accept the education offered to you here is, I suppose, a clear explanation as to why you were so easily duped in the first place, so maybe I shouldn't be surprised.

So to reiterate: please go somewhere else.  The internet is full of forums targeted at people just like you, places where you will be welcomed with open arms.  Here, you do not fit in.  Here, you are obviously out of place, a single black rose in a field of yellow daylilies.  Go away, and leave us in peace to spread our message of hope and optimism to others eager to escape their 9-5 treadmill of oppression and despair.  You are clearly happy with that life, but it has no place here and neither do you.

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #970 on: August 02, 2017, 10:52:22 AM »
I don't think that's true, that we're in for lower returns.  But even if it were, what is you alternative?  3%, 2%?  Never retire?
Have you considered there might be numbers between 3% and 4%? 
And that the safe withdrawal rate might change over time?

Have you considered reading the rest of this thread, where these very ideas have been discussed already?
Frugalite in training.

dividendman

  • Pencil Stache
  • ****
  • Posts: 959
  • Age: 35
Re: Stop worrying about the 4% rule
« Reply #971 on: August 02, 2017, 10:58:47 AM »
I don't think that's true, that we're in for lower returns.  But even if it were, what is you alternative?  3%, 2%?  Never retire?
Have you considered there might be numbers between 3% and 4%? 
And that the safe withdrawal rate might change over time?

Have you considered reading the rest of this thread, where these very ideas have been discussed already?

On top of that, runewell, what is your actual position assuming the goal of retiring early and/or having financial independence?

You think the 4% rule isn't sufficient. So, what is your position? How are you going about achieving FIRE?

If you're not interested in FIRE or think it cannot be achieved then I agree with Sol that you've come to the wrong place.

runewell

  • Bristles
  • ***
  • Posts: 423
  • Age: 45
  • actuary
Re: Stop worrying about the 4% rule
« Reply #972 on: August 02, 2017, 11:17:32 AM »

On top of that, runewell, what is your actual position assuming the goal of retiring early and/or having financial independence?

You think the 4% rule isn't sufficient. So, what is your position? How are you going about achieving FIRE?

If you're not interested in FIRE or think it cannot be achieved then I agree with Sol that you've come to the wrong place.

I currently have about 10x-15x of expenses saved up.  If I wanted to aggressively retire early and scrape by, I could probably do that in 6-10 years.
But, I might prefer to provide more to my kids and to charity, so I probably won't retire for 13-20 years.
It's pointless to narrow these ranges down until the ideal date approaches since there are so many unknowns.

I think that IF you use the 4% study as a STARTING POINT, you should be more pessimistic since current market valuations and higher than historical, that's all.  I can't understand why that statement generates so much fury.   
« Last Edit: August 02, 2017, 11:22:03 AM by runewell »
Please leave Dicey out of this! Have you not been paying any attention? Trolls are not welcome here!

sol

  • Walrus Stache
  • *******
  • Posts: 5283
  • Age: 40
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #973 on: August 02, 2017, 11:34:46 AM »
I'm here to stay, and there's no way you're going to bully me to leave. 

I still think you're an ignorant troll, but I admire your perseverance.  Maybe if you stick around long enough, you'll actually read this thread and learn something.  C'mon, I know you have it in you.

Quote
I think diversity of opinion is important, and if you disagree than I guess I look forward to irritating you. 

You are not expressing diversity of opinion, you are contradicting pages and pages of mathematical analysis without offering any evidence at all, and it makes you look silly.

And you're doing so with such undeserved conviction that I fear new readers will come here, read your silly nonsense and not the overwhelming bulk of evidence presented in this thread, and become confused.  You have single handedly destroyed this previously helpful thread, by tacking on a bunch of idiotic contradictory drivel at the end.  What used to be a citable resource for new people like you has instead become just another Fox news style "fair and balanced" discussion where one side just makes stuff up and the preponderance of evidence and logic is totally overruled by being presented side by side with nonsensical deceptive lies.

Quote
You are quite arrogant, aren't you?

Yes, very.  Part of it is my natural personality deficiencies, but part of it is too many years of education and too many words contributed to this forum arguing with dummies.

But I'm not the only one, now am I?  Why are you so arrogant as to think your totally unresearched criticisms haven't already been addressed in this very thread, that you still refuse to read?  What gives you the authority to so confidently dispute the conclusions of all of the smart folks who have contributed to this discussion before you?

Seriously dude, just go read the thread already.  Your eyes will be opened, and you can either quit revisiting old questions or move on to some new ones.

tooqk4u22

  • Handlebar Stache
  • *****
  • Posts: 2021
Re: Stop worrying about the 4% rule
« Reply #974 on: August 02, 2017, 11:43:57 AM »
I'm definitely not furious. Ok cool, your opinion has been stated many many times. Now what? What do we do with that opinion?

To be fair, opinions are like assholes....everyone has one and because of that opinions don't carry much value....you could quite possibly use one to wipe the other. 

My opinion is that I am the fairest one of all....mirror mirror do thou agree.  However when I asked that I got a different opinion (based more on facts).   The mirror replied "In the land of the ugly the fairest you shall be"  G'damn facts messing with my opinions!

Clean Shaven

  • Pencil Stache
  • ****
  • Posts: 542
  • Location: Wild Wild West
Re: Stop worrying about the 4% rule
« Reply #975 on: August 02, 2017, 11:54:14 AM »
This blog has been discussed on MMM forum (and within this very thread, around post #554), but this guy argues that 4% isn't safe enough when extrapolated out beyond 30 years, and argues for something more like 3.5% for longer periods like 40-50 year retirements:

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

Prior MMM thread (see post #13 and onward):
https://forum.mrmoneymustache.com/post-fire/a-swr-fort-today/?nowap

Personally, I'm using 4% as a general rule, with some flexibility planned into it.  My wife and I are actually going to semi-FIRE next spring at around a 4.5% WR, with several flexibility factors that will change the actual WR lower:  (1) she's going to stay working on a very P/T basis for another year or two, (2) we'll both get Soc Sec (she could collect as early as 9 years from now -- we're not as young as many here), (3) our WR provides for a good margin of fluff on which we can scale back if the market tanks, (4) we will sell our house in another 10-15 years and extract a good chunk of equity, (5) if the market severely tanks in the first 5 years of FIRE, or I get bored, I'll go back to work, and finally, (6) I'll get an inheritance of some amount -- possibly well into 6 figures -- though we aren't planning on this at all as part of the #s.

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #976 on: August 02, 2017, 11:57:49 AM »

On top of that, runewell, what is your actual position assuming the goal of retiring early and/or having financial independence?

You think the 4% rule isn't sufficient. So, what is your position? How are you going about achieving FIRE?

If you're not interested in FIRE or think it cannot be achieved then I agree with Sol that you've come to the wrong place.

I currently have about 10x-15x of expenses saved up.  If I wanted to aggressively retire early and scrape by, I could probably do that in 6-10 years.
But, I might prefer to provide more to my kids and to charity, so I probably won't retire for 13-20 years.
It's pointless to narrow these ranges down until the ideal date approaches since there are so many unknowns.

I think that IF you use the 4% study as a STARTING POINT, you should be more pessimistic since current market valuations and higher than historical, that's all.  I can't understand why that statement generates so much fury.   

Please read the very first post of this thread.  It indeed talks about the 4% rule being a starting point, and that there are other safety measures.  FIRST POST!

But of course, your real issue is fear.  Fear that 4% won't be enough.  Fear that the market is overvalued.  That's your core belief, and no amount of math or logic will change that for you.  But that's fine.  If you're happier with a 3.5% withdrawal rate, have at it.  It's your life. 

I should also point out that if you are at least 10 years away from retirement, as you state, then things like CAPE are irrelevant to you.  During accumulation you shouldn't care one way or another about any of that - just keep socking money away and see where things stand as you get closer to you end point.  Seriously, I thought you were are lot closer to FIRE.  Most of your posts are sort of pointless in view of your time horizon.
Frugalite in training.

tooqk4u22

  • Handlebar Stache
  • *****
  • Posts: 2021
Re: Stop worrying about the 4% rule
« Reply #977 on: August 02, 2017, 12:07:00 PM »
I currently have about 10x-15x of expenses saved up.  If I wanted to aggressively retire early and scrape by, I could probably do that in 6-10 years.
But, I might prefer to provide more to my kids and to charity, so I probably won't retire for 13-20 years.
It's pointless to narrow these ranges down until the ideal date approaches since there are so many unknowns.

I should also point out that if you are at least 10 years away from retirement, as you state, then things like CAPE are irrelevant to you.  During accumulation you shouldn't care one way or another about any of that - just keep socking money away and see where things stand as you get closer to you end point.  Seriously, I thought you were are lot closer to FIRE.  Most of your posts are sort of pointless in view of your time horizon.

And possibly not for 20 years - I get the CAPE argument if you are close to pulling the trigger but not so much if 10-20 years.  There is no denying that when markets are more highly valued there is more risk to the downside but that doesn't invalidate the 4% rule and doesn't mean markets will go down or earnings won't grow into the valuations.

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #978 on: August 02, 2017, 02:31:46 PM »
Sigh.  Yes all history backs up the idea that the 4% rule is safe.   

The Trinity Study itself shows that the 4% rule is not completely safe. 

Quote
Like I said in a previous post, you're main problem is fear.  CAPE is just an excuse to indulge that fear.  If it wasn't CAPE, it'd be some other measure that allows you to wrap your emotional reasoning within the illusion of logic.

Actually I think it is you that is afraid.  Fear that modern research will debunk the 4% rule and threaten early retirement.

Nothing is completely safe, ever.  The 4% rule fails about 5% of the time.  Which means it has a 95% success rate.  That's an overwhelming success rate.  But even then, there's more you can do to bolster it, such as flexible spending in retirement, etc... 

I didn't start seriously saving until a few years ago, so I might RE but not by much :) 

And re: modern research.  Riddle me this, Batman.  Why is it that "modern research" ALWAYS weights toward things being worse in the future than in the past?  I've never, ever seen any analysis that says "Hey, the future is different than the past, and it's BETTER!  Hello 6% withdrawal".

No, the research is always doom and gloom.  "The future is different from the past, and it's WORSE.  Hello 3% (or 2%) withdrawal."  It'd be funny if it weren't so tragic.
Frugalite in training.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1447
Re: Stop worrying about the 4% rule
« Reply #979 on: August 02, 2017, 04:12:59 PM »
I think the future could be significantly better than the past. I think the world is generally safer (excluding terrorism) and there are a bunch of countries (China and India are the big ones) expanding economically which I think will continue. We also aren't living in a pro inflationary environment at this point.

It's guesswork but I think we may end up with less bad periods that what we've had in the past 100 years.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4043
  • Location: CT
Re: Stop worrying about the 4% rule
« Reply #980 on: August 02, 2017, 04:32:06 PM »
Sigh.  Yes all history backs up the idea that the 4% rule is safe.   

The Trinity Study itself shows that the 4% rule is not completely safe. 

Quote
Like I said in a previous post, you're main problem is fear.  CAPE is just an excuse to indulge that fear.  If it wasn't CAPE, it'd be some other measure that allows you to wrap your emotional reasoning within the illusion of logic.

Actually I think it is you that is afraid.  Fear that modern research will debunk the 4% rule and threaten early retirement.

Nothing is completely safe, ever.  The 4% rule fails about 5% of the time.  Which means it has a 95% success rate.  That's an overwhelming success rate.  But even then, there's more you can do to bolster it, such as flexible spending in retirement, etc... 

I didn't start seriously saving until a few years ago, so I might RE but not by much :) 

And re: modern research.  Riddle me this, Batman.  Why is it that "modern research" ALWAYS weights toward things being worse in the future than in the past?  I've never, ever seen any analysis that says "Hey, the future is different than the past, and it's BETTER!  Hello 6% withdrawal".

No, the research is always doom and gloom.  "The future is different from the past, and it's WORSE.  Hello 3% (or 2%) withdrawal."  It'd be funny if it weren't so tragic.

You can't sell "well things are probably going to be just fine". :)

Clean Shaven

  • Pencil Stache
  • ****
  • Posts: 542
  • Location: Wild Wild West
Re: Stop worrying about the 4% rule
« Reply #981 on: August 02, 2017, 05:15:00 PM »
You can't sell "well things are probably going to be just fine". :)

Sure you can!

http://www.billboard.com/artist/294987/bobby-mcferrin/chart?sort=timeon&f=379

26 weeks on the Billboard charts.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4043
  • Location: CT
Re: Stop worrying about the 4% rule
« Reply #982 on: August 02, 2017, 06:15:58 PM »
You can't sell "well things are probably going to be just fine". :)

Sure you can!

http://www.billboard.com/artist/294987/bobby-mcferrin/chart?sort=timeon&f=379

26 weeks on the Billboard charts.

The Billboard charts started in July of 1940. That's about 4022 weeks.

.65% of the Billboard charts is Bobby Mcferrin.

Pink Floyd's Dark Side of the Moon spent 861 weeks on the Billboard.   21%

:D

TomTX

  • Handlebar Stache
  • *****
  • Posts: 2495
  • Location: Texas
Re: Stop worrying about the 4% rule
« Reply #983 on: August 02, 2017, 07:50:43 PM »
I still think you're an ignorant troll, but I admire your perseverance.  Maybe if you stick around long enough, you'll actually read this thread and learn something. 

Maybe I have read the entire thread and still believe that I have something meaningful to contribute.  Besides, I can't remember everything that has been said on this forum.

"Maybe" means you haven't actually read it.

Nothing but a fear troll.
Credit card signup bonuses:

$150 bonus on $500 spend for Chase Freedom:
https://www.referyourchasecard.com/2/MU4TDQ1N3K

$50 bonus (no min spend, just use it once) plus double all cash back at the end of 1 year for Discover, including the initial $50:
https://refer.discover.com/s/37e3u

$500 bonus on $4,000 spend for Chase Sapphire Preferred:
https://www.referyourchasecard.com/6/Z8JIP66H7G

maizeman

  • Handlebar Stache
  • *****
  • Posts: 1154
  • Location: The World of Tomorrow
Re: Stop worrying about the 4% rule
« Reply #984 on: August 02, 2017, 08:24:19 PM »
Actually I think it is you that is afraid.  Fear that modern research will debunk the 4% rule and threaten early retirement.

Runewell, as some others have commented above, it's not clear what your motivation in this discussion is. It is very clear that you don't like the 4% rule, as you've used very charged language to try to disparage it for as long as I've seen you be active in various SWR threads. I don't really understand why it carries so much emotional weight for you given that, as you point out, you're decades away from having to make decisions about your own spending plans for retirement. But let's put that aside. Maybe a vocal advocate for the 4% rule ran over your dog, or stole your spouse, or something.

If you really thing there is evidence that falsifies the 4% rule, put it out there. We've already been over the previous study you brought up and the problems with how they are using CAPE ratios and how other evidence suggests that the market may be somewhat overvalued right now but not nearly to the same extreme level suggested by CAPE. We've gone over the fact that the 4% rule doesn't assume average market returns, but in fact assumes some of the worst returns that have ever been seen. We've been over the fact that despite retiring in an extremely overvalued market even the 2000 FIRE retiree doesn't appear to be in too much trouble 17 years in.

Is there other evidence or are there studies you think "debunk" the 4% rule that you'd like to bring up for discussion? Or are there other points you've made previously that you feel debunk the 4% rule that I've missed in my summary above?

In addition, would you be willing to briefly summarize what would you like people to be doing differently as a result of your posts? Do you, for example, want everyone to save up enough money that they can live on only 3.5% of their savings (or some other number)?
Or move most of their stocks to international index funds?
Or just not FIRE until either profit growth or a market correction brings the market to a valuation that you don't think in overvalued?
Or something else entirely?
"It’s a selective retirement," Richard explained, "a retirement from boring s**t."

My source code & my journal

Clean Shaven

  • Pencil Stache
  • ****
  • Posts: 542
  • Location: Wild Wild West
Re: Stop worrying about the 4% rule
« Reply #985 on: August 02, 2017, 08:28:05 PM »


Maybe a vocal advocate for the 4% rule ran over your dog

^^^ Plot of 2018 summer blockbuster John Wick 3?

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1009
  • Age: 48
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Stop worrying about the 4% rule
« Reply #986 on: August 02, 2017, 08:50:46 PM »
DFTT.
Like Overwatch?  Check out this YouTube channel:  http://bit.ly/AgeOfEon

markbike528CBX

  • Bristles
  • ***
  • Posts: 425
  • Location: the Everbrown part of the Evergreen State (WA)
Re: Stop worrying about the 4% rule
« Reply #987 on: August 03, 2017, 12:26:11 AM »
.... big snip.....
. Maybe a vocal advocate for the 4% rule ran over your dog, or stole your spouse, or something.
.....snip....

And if the 4% rule doesn't work out for maizeman, I see a bright future for him as a country song writer. :-)

cerat0n1a

  • Pencil Stache
  • ****
  • Posts: 680
  • Location: Cambridge, UK
Re: Stop worrying about the 4% rule
« Reply #988 on: August 03, 2017, 07:13:28 AM »
over the last 72 years the only time this metric was higher was 1965-1972 and 1997-2001 and both those periods went on to experience lower than average market returns.

1965 and 1966 were two of the four years when a 4% withdrawal rate left a portfolio which was smaller after thirty years than it was at the start. Nevertheless, the 4% rule did not fail for retirees between 1965 and 1972 and doesn't currently look likely to for 1997-2001 either.

Le Barbu

  • Pencil Stache
  • ****
  • Posts: 987
  • Age: 45
  • Location: Lake Wobegon
  • We are all strong, handsome and above average
Re: Stop worrying about the 4% rule
« Reply #989 on: August 03, 2017, 07:48:48 AM »
Considering the actual CAPE, p/e, p/b, public and personal debt, political instability, energy scarcity, global warming, pollution, markets could tank 80% for 2 years in a row anytime soon. This makes the 4% rule provide only 1 year of living!

Unless some smart people already figured out some of these issues and actual pricing is not out of wack that much?
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

waltworks

  • Handlebar Stache
  • *****
  • Posts: 2361
Re: Stop worrying about the 4% rule
« Reply #990 on: August 03, 2017, 08:02:16 AM »
Did it occur to you that trying to further reduce risk below what the 4% rule offers will generally *greatly decrease* your time retired?

As Arebelspy once noted, if you hold out forever for  1% SWR, your retirement has already failed - because you didn't take it.

-W

Le Barbu

  • Pencil Stache
  • ****
  • Posts: 987
  • Age: 45
  • Location: Lake Wobegon
  • We are all strong, handsome and above average
Re: Stop worrying about the 4% rule
« Reply #991 on: August 03, 2017, 08:39:45 AM »
Some of the best shit ever typed by MMM was posted years before he became famous. Back in time, hooked readers use to go through every single post within few days. Comparing registration date vs comments and general attitude, I suspect that the newer crowd dont do this anymore...

As an exemple below, this is a post written in early 2014 wich title could have been "Stop worrying about the 4% rule". Whenever I feel insecure about money (job loss 1 year ago, urge feeling to repay mortgage, etc) I read this again and feel better.

"Give Yourself the Gift of Not Worrying About Money"

We are already masters at reducing expenses and investing. Why are we so anxious while the other 99% of population who sucks with money dont give a fuck and still manage to live their life anyway?
« Last Edit: August 03, 2017, 08:41:45 AM by Le Barbu »
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #992 on: August 03, 2017, 09:42:49 AM »
Sigh, can we just concede to runewell that 3.5% is safer than 4% and maybe then he'll shut up and go away?
Frugalite in training.

waltworks

  • Handlebar Stache
  • *****
  • Posts: 2361
Re: Stop worrying about the 4% rule
« Reply #993 on: August 03, 2017, 09:46:00 AM »
Well, it's probably not "safer" if your goal is to maximize non-working lifetime.

It's "safer" if your goal is to never run out of money. But that's a different goal than maximizing your enjoyment of life.

-W

Le Barbu

  • Pencil Stache
  • ****
  • Posts: 987
  • Age: 45
  • Location: Lake Wobegon
  • We are all strong, handsome and above average
Re: Stop worrying about the 4% rule
« Reply #994 on: August 03, 2017, 09:52:09 AM »
As stated back in february 2013:

The “internet retirement police” (IRP), which you’ll meet in various online forums, have established five main directives:
In principle you can only participate in certain pre-approved retirement activities such as beach-sitting, staring out the window, and receiving visits from your grandchildren.

Traveling is also okay, as is eating “delicious food”, just make sure you don’t cook it yourself, see below. Think twice before doing anything that’s not on this list! The IRP is watching you.

The IRP does grant one exemption should you become bored with the activities above. You can work for a nonprofit organization. Make sure you’re not getting paid though even if you have to plead your case with the CEO to put in special exemptions. Accepting money obviously means you didn’t do your retirement-math and that you ran out of money a couple of years after retiring. After all, what other obvious explanation could there be? (Besides the obvious ones) If you can’t find a way to work without pay, it’s best to head back to the beach towel and sit on that.

Just to be clear: You’re most definitely NOT allowed to be a kayak-instructor in your retirement. While it may sound like a fun job that you picked yourself even if you didn’t have to, the keyword is J-O-B. You can, however, spend a Saturday morning dressed up as an elephant handing out fliers and free lemonade at the entrance. And if you really must instruct in kayaking, please avoid doing something more engaging than blogging about kayaks (and if you do blog, try not to make the blog popular… because … then the blog would be a job!).

Next, I feel like I should warn MMM readers lest they stumble into the retirement pitfall of saving money by living frugally. You can’t do that! According to the IRP saving money IS a full time job and—try to follow this—since you can’t have a job and be retired, you are not allowed to save money in retirement. You see, if you save money by doing your own cooking, you’re now WORKING as a cook, thus no longer retired.

The IRP would like you to take this to its extreme logical conclusions, e.g. you’re working as a money manager if you handle your own investments, you’re working as a gardener if you mow your own lawn, you’re working as a chauffeur if you don’t hire a driver, you’re a pro-blogger if you have a blog, and so on.

Disclaimer: All examples are taken from real world cases as presented to me by the IRP. They’re not kidding!
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #995 on: August 03, 2017, 10:54:25 AM »
runewell, your stance is basically to trot out a figure (CAPE) that may or may not predict the future, use it to say "the future will be much, much worse than the past" and then say "prove that it won't".  It's not up to us to prove that it won't.  It's up to you to prove that it will.  Correlation and speculation aren't proof.  Till you have something substantive to add, I'm done with you.

And no, you don't 'win' because I stopped engaging with you.

You didn't stop engaging, otherwise you wouldn't have written this.

The 4% rule doesn't prove anything either.  It also tries to guess at what future returns are.  If you can't admit the CAPE, you can't have the 4% rule either.

OK fine, I'll respond.  4% rule says the future won't be worse than the worst times in the history of the stock market.  You're saying it will be worse because of CAPE.  Prove it.
Frugalite in training.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4043
  • Location: CT
Re: Stop worrying about the 4% rule
« Reply #996 on: August 03, 2017, 11:03:25 AM »
OK fine, I'll respond.  4% rule says the future won't be worse than the worst times in the history of the stock market. 

Prove it.

Because the rule is based on the past that is the inherent assumption. The statement is just stating that assumption.

You seem to be saying that assumption is false because of CAPE.

You're just being asked to provide evidence of that.

So your counter is to ask for evidence that the 4% rule uses past data as an assumption?

/bogle

tyort1

  • Handlebar Stache
  • *****
  • Posts: 1507
  • Age: 45
  • Location: Denver, Colorado
Re: Stop worrying about the 4% rule
« Reply #997 on: August 03, 2017, 11:09:29 AM »
OK fine, I'll respond.  4% rule says the future won't be worse than the worst times in the history of the stock market. 

Prove it.

Look at the data and all of history.  The assumption of the 4% rule is that the future won't be worse than that. 

Now, if I came in here and said "Wait, the future is gonna be WAY BETTER than the past and we can all start doing a 6% withdrawal", no one would believe me and it would be up to me to prove that 6% was actually correct. 

Same thing going the other way.  You say the future withdrawal rate should be less than 4%.  Prove it.

But I suspect you won't even try - I think you're more vested in trying to win the argument rather than get at the truth.  I started to suspect it back when it was pointed out to you that CAPE was only mildly elevated, taking in to considerations the modern changes in accounting rules.  An at no point is a mildly elevated CAPE even semi-associated with poor sequence of returns. 

That's not even bringing up the fact that NO ONE here is advocating robotic 4% withdrawal regardless of market conditions.  We talk a lot about flexibility in retirement as a hedge against poor sequence of returns, especially during the first decade when portfolios are the most vulnerable. 

So, either you haven't read, don't care, or don't understand these things.  I'm not sure which.  But you keep posting the same things over and over and over and over again, and it seems like nothing will change your mind, because you don't want to change your mind. 

Or, put another way, what would convince you that the 4% rule is safe?  I'll hazard a guess and say your answer is "nothing".
Frugalite in training.

Le Barbu

  • Pencil Stache
  • ****
  • Posts: 987
  • Age: 45
  • Location: Lake Wobegon
  • We are all strong, handsome and above average
Re: Stop worrying about the 4% rule
« Reply #998 on: August 03, 2017, 11:17:46 AM »
Being 45yo now, I started few years ago to show up quite regularly at relatives funerals. Many of them died in their 60s (FIL @ 64, mother's cousin @ 66, etc) the later being one of my sweetest aunt who just turned 60yo and never retired. She was eating well, do not drink alcool, not overweigth etc but got cancer anyway. Changed my mindset about ER and SWR. Death is for real and this is what stats are made of. Why in Hell one choose to bother challenging a rule of thumb called "the 4% rule" while most of our relatives enjoy retirement for <10 years on average?
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

sol

  • Walrus Stache
  • *******
  • Posts: 5283
  • Age: 40
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #999 on: August 03, 2017, 11:44:36 AM »
If your horizon is instead 40-50 years Now you need a 2.0%-2.5% SWR. 

You are (acting like) an idiot who keeps repeating the same idiotic claim despite it being disproven to you over and over again.

I'll just quietly reiterate that a 3% SWR of an ordinary US asset allocation has never failed, for any length of time.  Not during global wars, the great depression, stagflation, currency crises, oil embargoes, real estate bubbles popping, savings and loan scandals, stupid presidents with counterproductive foreign policies, crippling natural disasters, none of it has ever caused an inflation adjusted 3% to fail.  Not over 30 years or 100 years.

If you're shooting for anything under 3%, then you are basically betting that America is over.  You think our future will be significantly worse than our worst times ever?
« Last Edit: August 03, 2017, 11:54:40 AM by sol »