Author Topic: NYT - New Math for Retirees and the 4% Withdrawal Rule  (Read 4462 times)

a1smith

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NYT - New Math for Retirees and the 4% Withdrawal Rule
« on: May 08, 2015, 10:17:48 PM »
Interesting article discussing history of Bill Bengen inventing the 4% SWR with discussion of whether or not it applies for people heading into retirement now with a low interest rate and high stock valuation environment.  Modified methods are also discussed.

New Math for Retirees and the 4% Withdrawal Rule

TomTX

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #1 on: May 09, 2015, 07:05:55 AM »
Is this one based on the paper Pfau wrote handicapping results with a 1% advisor fee, or the one he handicapped by taking the historical record, cutting off ~25% of the return and then running a simulator?

forummm

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #2 on: May 09, 2015, 07:36:46 AM »
I found the article to just be confusing. If I were a financial novice reading the article I would be bewildered. "Do I use a 2% or 5% withdrawal rate? I don't know what to do. Let me pay fees to some person who will make me feel more secure about whatever I'm doing."

a1smith

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #3 on: May 09, 2015, 07:33:39 PM »
Is this one based on the paper Pfau wrote handicapping results with a 1% advisor fee, or the one he handicapped by taking the historical record, cutting off ~25% of the return and then running a simulator?

I don't believe so.  The paper of Pfau's linked to in the article discusses variable SWR strategy where you can start out at 5% SWR.

Making Sense Out of Variable Spending Strategies for Retirees

Do you have links to the other papers?  Please pass them on if you do; I'd like to read them.

a1smith

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #4 on: May 09, 2015, 07:36:33 PM »
I found the article to just be confusing. If I were a financial novice reading the article I would be bewildered. "Do I use a 2% or 5% withdrawal rate? I don't know what to do. Let me pay fees to some person who will make me feel more secure about whatever I'm doing."

I don't think a financial novice would start with the NYT.  If they want a primer they can start here: Retirement Planning for Dummies or this website!  :-)

MrMoogle

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #5 on: May 11, 2015, 02:53:18 PM »
I'd say the people on his forum are much more financially savvy than on the NYT...  The average NYT reader is a financial novice, not here.  A lot might start out novices here, but they don't stay that way.

hubcity

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #6 on: May 11, 2015, 07:34:38 PM »
The "Low Bond Yields and Safe Portfolio Withdrawals Rates" (http://news.morningstar.com/pdfs/blanchett_lowbondyield_1301291.pdf) paper from Pfau is not the one referenced in the NYT article, but it ends up with a SWR of 2.8% and very nearly does both of the things that TomTX mentioned (1% advisor fee and cutting 16% off historical US stock returns):

Quote
[These results stem] from three key differences in this study versus past studies (especially those that have used purely historical data). First, we use a model that incorporates the actual yields available to retirees today (that converges towards the long run expectation, on average). Second, we reduce the expected arithmetic return on equities by 2.0% (to 9.77%) to reflect a more realistic forecast for U.S. equities. Third, we assume a fee of 1.0% as a proxy for the asset management fees that are likely to be paid by an investor.
« Last Edit: May 11, 2015, 07:36:09 PM by hubcity »

a1smith

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Re: NYT - New Math for Retirees and the 4% Withdrawal Rule
« Reply #7 on: May 15, 2015, 07:31:49 PM »
With 40/60 stock/bond in cFIREsim and 30 year retirement you get 3.57% SWR at 90% success if 1% fee.  If fee is 0.2% the SWR is 3.97% for 90% success.  The reductions in bond and stock returns are food for thought, even for mustachians.  As they say, past results are no guarantee of future returns.