New research on SWR

[retireatbirth]

Not sure if this has been posted yet.

https://www.reddit.com/r/financialindependence/comments/7x8r0w/a_new_way_to_determine_the_swr_based_on_the_cape10/

[2Birds1Stone]

Gotta love Reddit scientists.

[retireatbirth]

Gotta love Reddit scientists.

Well, I appreciate them much more than MarketWatch and similar mainstream "advice" regarding retirement.

Pretty interesting stuff IMO.

[Monkey Uncle]

Early Retirement Now gave this topic a much more thorough and professional treatment:

https://earlyretirementnow.com/2016/12/21/the-ultimate-guide-to-safe-withdrawal-rates-part-3-equity-valuation/

https://earlyretirementnow.com/2017/02/08/the-ultimate-guide-to-safe-withdrawal-rates-part-9-guyton-klinger/

https://earlyretirementnow.com/2017/02/15/the-ultimate-guide-to-safe-withdrawal-rates-part-10-guyton-klinger/

https://earlyretirementnow.com/2017/03/15/the-ultimate-guide-to-safe-withdrawal-rates-part-11-criteria/

https://earlyretirementnow.com/2017/08/30/the-ultimate-guide-to-safe-withdrawal-rates-part-18-flexibility-CAPE-Based-Rules/

The problem I have with CAPE-based rules is that the market's behavior with respect to CAPE clearly has changed in the last three decades.  The Great Recession bear market was the worst decline in the US since the 1929 crash, but it only took CAPE down to the long term average.  Either investors are willing to pay more for a stream of earnings now, or the way earnings are calculated has changed, or both.  The Philosophical Economist has explored this conundrum at length:

http://www.philosophicaleconomics.com/2014/08/capehigh/

http://www.philosophicaleconomics.com/2015/03/payout/

It's been a while since I read those Philosophical Economist articles, but if I remember correctly, he talked himself in circles and basically came back to the conclusion that CAPE is a reasonably accurate measure of valuation.  Which leaves unanswered the question of why it has been so high for the last 30 years.  But the fact that it's only been down to the long term average value once in the last 30 years tells me that we should take any predictions and calculations based on CAPE with a huge grain of salt.

[Huskie87]

Philosophical Economics is a great site.  The two best reads I've seen on CAPE flaws are here:

http://www.news-to-use.com/2012/11/the-shiller-pe-alas-a-useless-friend.html
https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n3.1

Boils down to two issues.  First, accounting practices have changed, it's no longer comparing apples to apples.  Second, a dollar of earnings is worth more if inflation/interest rates are low (and expected to remain low) compared to when inflation/interest rates are high (and expected to remain high).  Market valuations reflect these expectations accordingly, and someone who believes in the CAPE must also believe that inflation/interest rates will return to the 'norm' of the past 90 years.