Author Topic: "The 4% Rule is Broken"  (Read 4732 times)


UnleashHell

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Re: "The 4% Rule is Broken"
« Reply #1 on: November 04, 2014, 11:10:59 AM »
An article saying that a simple rule of thumb is wrong. Written by someone who will earn money from people asking him for advise.

Scaremongering and a free advert for the author at the same time.
Charming.


shame on the author and CNBC

PloddingInsight

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Re: "The 4% Rule is Broken"
« Reply #2 on: November 04, 2014, 11:11:30 AM »
The main thrust of the argument has been that interest rates are lower.  Um, isn't inflation pretty low too?  Just asking.


This is pretty awful too:

Quote
So what's the modern-day retiree to do?

Fortunately, technology has come a long way since the 1990s. There is an emerging class of services from tech-savvy investment managers that provide dynamic withdrawal rates using algorithms that look at market performance, balance and term of portfolio, all of which work together to ensure you won't run out of money.

For a low low fee of 1% of the portfolio per year, no doubt.

Beric01

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Re: "The 4% Rule is Broken"
« Reply #3 on: November 04, 2014, 01:38:14 PM »
It's just another advertisement for Betterment, disguised as a news article. These tactics, as well as the heavy dose of referrals encouraging people (including MMM) to recommend something they wouldn't otherwise, give me no doubt that I won't be leaving my money with this company.

The actual article is almost content-free. Basically it reads: "you should be worried about the 4% rule. Therefore, leave your money with us!"

Kaspian

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Re: "The 4% Rule is Broken"
« Reply #4 on: November 04, 2014, 02:18:08 PM »
That paragraph jumped out at me too! 

Quote
There is an emerging class of services from tech-savvy investment managers that provide dynamic withdrawal rates using algorithms that look at market performance, balance and term of portfolio, all of which work together to ensure you won't run out of money.

Hahaha...  What a joke!  Ooo...  A "tech-savvy investment manager"?   Not like that crusty, old Bogle guy!  Surely he doesn't know how to operate an iPad and probably uses a butter-churn at home.

Gone Fishing

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Re: "The 4% Rule is Broken"
« Reply #5 on: November 04, 2014, 03:09:48 PM »

Quote
So what's the modern-day retiree to do?

Fortunately, technology has come a long way since the 1990s. There is an emerging class of services from tech-savvy investment managers that provide dynamic withdrawal rates using algorithms that look at market performance, balance and term of portfolio, all of which work together to ensure you won't run out of money.

No doubt those algorithms are proprietary. 

fantabulous

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Re: "The 4% Rule is Broken"
« Reply #6 on: November 04, 2014, 04:43:13 PM »

Quote
So what's the modern-day retiree to do?

Fortunately, technology has come a long way since the 1990s. There is an emerging class of services from tech-savvy investment managers that provide dynamic withdrawal rates using algorithms that look at market performance, balance and term of portfolio, all of which work together to ensure you won't run out of money.

No doubt those algorithms are proprietary.

Risking a potential patent lawsuit posting this, but I have it on good authority that this is one of the key algorithms.


if ( balance ) {
    take_cut_from_client;
}

lemanfan

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Re: "The 4% Rule is Broken"
« Reply #7 on: November 05, 2014, 12:44:52 AM »
Given this thread, it's kind of funny that todays blog post by MMM himself is called
Why I Put My Last $100,000 into Betterment.

http://www.mrmoneymustache.com/2014/11/04/why-i-put-my-last-100000-into-betterment/


HairyUpperLip

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Re: "The 4% Rule is Broken"
« Reply #8 on: November 05, 2014, 08:52:43 AM »
It's just another advertisement for Betterment, disguised as a news article. These tactics, as well as the heavy dose of referrals encouraging people (including MMM) to recommend something they wouldn't otherwise, give me no doubt that I won't be leaving my money with this company.

I was surprised about the article too. I didn't read it yet, but a quick glance quickly made me think it was more of an advertisement than a blog post.

dude

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Re: "The 4% Rule is Broken"
« Reply #9 on: November 05, 2014, 09:24:26 AM »
Yes, the Betterment advert aspect bothers me, but I thought this was the most egregious part of the article:

"Twenty years ago, when the rule appeared, the yield on a three-month Treasury bill was 6 percent."

What the Treasury yield was when "the rule appeared" (as if out of a poof of smoke) is irrelevant.  The Rule looked at 30-year periods (all of them) to determine that a 4% withdrawal rate would survive pretty much every one in history, for a 30-year retirement period.  Now, one can argue regarding the direction of T-Bill rates in the future, but this assumption that "this time is different" has been proven to be wrong so many times, that I don't put much stock in it.  True, as many have noted, and most notablly Wade Pfau himself recently, flexibility in using the 4% Rule is a good strategy, but to say that the 4% rule is "broken" based essentially on just the most recent 6 or so years is lazy if you ask me:

http://www.multpl.com/interest-rate/

QE is coming to an end, sooner or later, and it's not a stretch to assume that interest rates will return to more "normal levels," so the death knell of the 4% Rule seems a bit premature to me.

pom

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Re: "The 4% Rule is Broken"
« Reply #10 on: November 05, 2014, 10:10:39 AM »
15 basis points is not  trivial to me, specially if you consider that some funds at Vanguard charge only 5 bps.

100k spent at retirement earning 4.00% is the same as 104k earning 3.85%, would you pay someone 4k for this service? I know that I would not.