Author Topic: Stop worrying about the 4% rule  (Read 1146049 times)

RWD

  • Walrus Stache
  • *******
  • Posts: 6499
  • Location: Arizona
Re: Stop worrying about the 4% rule
« Reply #1650 on: March 04, 2019, 05:11:19 PM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

Of course that'll work! The funds he shills recommends give 12% returns!

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1651 on: March 05, 2019, 03:08:04 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

Of course that'll work! The funds he shills recommends give 12% returns!

So what is this 12% unicorn fund that Ramsey recommends? It must be an actively managed fund and I assume has not had too long of a track record.

nereo

  • Senior Mustachian
  • ********
  • Posts: 17472
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Stop worrying about the 4% rule
« Reply #1652 on: March 05, 2019, 05:10:42 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

Of course that'll work! The funds he shills recommends give 12% returns!

So what is this 12% unicorn fund that Ramsey recommends? It must be an actively managed fund and I assume has not had too long of a track record.

well, according to his website, he recommends front-end load growth funds that have 'done well' in recent years.  Having trouble finding one?  DR's website has a handly link to "investing pros* in your area", right after the link to buy his book.

*these 'investing pros' are not fiduciaries.  Now I need a shower.

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1740
  • Location: West-by-god-Virginia
Re: Stop worrying about the 4% rule
« Reply #1653 on: March 05, 2019, 07:13:01 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

Of course that'll work! The funds he shills recommends give 12% returns!

It might actually work for the average American male who works until his late 60s, develops a few lifestyle-related health conditions along the way, and doesn't make it to 80.

RWD

  • Walrus Stache
  • *******
  • Posts: 6499
  • Location: Arizona
Re: Stop worrying about the 4% rule
« Reply #1654 on: March 05, 2019, 07:24:08 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

Of course that'll work! The funds he shills recommends give 12% returns!

It might actually work for the average American male who works until his late 60s, develops a few lifestyle-related health conditions along the way, and doesn't make it to 80.

Well sure, but in that case they could be invested entirely in CDs and wouldn't run out of money.

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1655 on: March 05, 2019, 05:12:49 PM »
Well, with 12 percent expected return, no problem with drawing out 4 percent per year.  Shucks, I was looking at backing it down to 3-1/2 percent per annum in December.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1656 on: March 05, 2019, 10:12:20 PM »
Well, with 12 percent expected return, no problem with drawing out 4 percent per year.  Shucks, I was looking at backing it down to 3-1/2 percent per annum in December.

Just have to give DR some money to get his secret investing formula.. Sounds strangely familiar somehow?..:)

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1657 on: March 06, 2019, 04:52:45 AM »
Well, with 12 percent expected return, no problem with drawing out 4 percent per year.  Shucks, I was looking at backing it down to 3-1/2 percent per annum in December.

Just have to give DR some money to get his secret investing formula.. Sounds strangely familiar somehow?..:)

Does he sell Dr. Dave Ramsey's patent medicine too?

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8944
  • Location: Fayetteville, NC
Re: Stop worrying about the 4% rule
« Reply #1658 on: March 06, 2019, 07:16:23 AM »
As for DR and the amazing 12% mutual fund, given that the information is public knowledge and no one can figure out what fund it is, I think it's likely that we'll find El Dorado first.

sol

  • Walrus Stache
  • *******
  • Posts: 8433
  • Age: 47
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #1659 on: March 06, 2019, 08:14:06 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

To be fair, an 8% withdrawal rate is not entirely unreasonable for the right investor.  Especially if he's in the last 10 years or so of life expectancy, higher withdrawal rates are the norm.

tooqk4u22

  • Magnum Stache
  • ******
  • Posts: 2823
Re: Stop worrying about the 4% rule
« Reply #1660 on: March 06, 2019, 08:41:30 AM »
Well, with 12 percent expected return, no problem with drawing out 4 percent per year.  Shucks, I was looking at backing it down to 3-1/2 percent per annum in December.

Theoretically, that is when you should be increasing your WR.   Markets down 20% and with a 75/25 portfolio your WR would be 4.7% and that should have the same adjusted probabilities of the standard 4% "Rule".  Not saying I would do that, but it certainly wouldn't be the moment to decrease the WR.   Back in September before the drop or now for that matter as we are close to being back to the highs, then yes I would think about backing it down. 


Metalcat

  • Senior Mustachian
  • ********
  • Posts: 17235
Re: Stop worrying about the 4% rule
« Reply #1661 on: March 06, 2019, 08:42:46 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

To be fair, an 8% withdrawal rate is not entirely unreasonable for the right investor.  Especially if he's in the last 10 years or so of life expectancy, higher withdrawal rates are the norm.

Yep.
Not everyone wants to die rich.

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1662 on: March 06, 2019, 10:17:29 AM »
Well, with 12 percent expected return, no problem with drawing out 4 percent per year.  Shucks, I was looking at backing it down to 3-1/2 percent per annum in December.

Theoretically, that is when you should be increasing your WR.   Markets down 20% and with a 75/25 portfolio your WR would be 4.7% and that should have the same adjusted probabilities of the standard 4% "Rule".  Not saying I would do that, but it certainly wouldn't be the moment to decrease the WR.   Back in September before the drop or now for that matter as we are close to being back to the highs, then yes I would think about backing it down.

Not there yet - still working (somewhat).  The 3.5 percent was for planning.

John Galt incarnate!

  • Handlebar Stache
  • *****
  • Posts: 2038
  • Location: On Cloud Nine
Re: Stop worrying about the 4% rule
« Reply #1663 on: March 09, 2019, 05:23:45 PM »


Does he sell Dr. Dave Ramsey's patent medicine too?

He does.

I happen to know that it's main ingredient is a rare snake venom.

Ha!

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1664 on: March 10, 2019, 03:05:35 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

To be fair, an 8% withdrawal rate is not entirely unreasonable for the right investor.  Especially if he's in the last 10 years or so of life expectancy, higher withdrawal rates are the norm.

Yep.
Not everyone wants to die rich.

"Rich" is a qualitative term.

As in I am not rich as my NW is ONLY around $3M.. Warren Buffet is rich at $87bN

Some might have a different perspective..:)

Metalcat

  • Senior Mustachian
  • ********
  • Posts: 17235
Re: Stop worrying about the 4% rule
« Reply #1665 on: March 10, 2019, 06:10:30 AM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

To be fair, an 8% withdrawal rate is not entirely unreasonable for the right investor.  Especially if he's in the last 10 years or so of life expectancy, higher withdrawal rates are the norm.

Yep.
Not everyone wants to die rich.

"Rich" is a qualitative term.

As in I am not rich as my NW is ONLY around $3M.. Warren Buffet is rich at $87bN

Some might have a different perspective..:)

Lol, that's like my family member who is worth several tens of millions who says she's not "rich" because she doesn't have a private plane.
...not sure what that has to do with withdrawal rates though...

Regardless of what anyone considers "rich", you need a higher withdrawal rate not to end up dead with a pile of money if that's not what you want.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1666 on: March 10, 2019, 07:50:45 AM »
@Malkynn .. Wait, having a private plane makes you rich?.. I sold mine.. So I WAS rich, but I'm not now, even though I have more money..

I'm so confused.

I am working on increasing my 1.5% WR though...:)

RWD

  • Walrus Stache
  • *******
  • Posts: 6499
  • Location: Arizona
Re: Stop worrying about the 4% rule
« Reply #1667 on: March 10, 2019, 08:04:18 AM »
@Malkynn .. Wait, having a private plane makes you rich?.. I sold mine.. So I WAS rich, but I'm not now, even though I have more money..

I'm so confused.

I am working on increasing my 1.5% WR though...:)

I suspect not just any private plane will do. Gotta be a private jet. And not some cheap junk like an old Westwind either, you need at least a modern Citation. My personal preference is the Phenom 300, strikes a nice balance between practical and opulent.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1668 on: March 10, 2019, 08:09:37 AM »
@Malkynn .. Wait, having a private plane makes you rich?.. I sold mine.. So I WAS rich, but I'm not now, even though I have more money..

I'm so confused.

I am working on increasing my 1.5% WR though...:)

I suspect not just any private plane will do. Gotta be a private jet. And not some cheap junk like an old Westwind either, you need at least a modern Citation. My personal preference is the Phenom 300, strikes a nice balance between practical and opulent.

Yes the Phenom is my best plane too. They normally fly at 45,000ft.. i.e above the airliners..:)

nereo

  • Senior Mustachian
  • ********
  • Posts: 17472
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Stop worrying about the 4% rule
« Reply #1669 on: March 10, 2019, 08:40:38 AM »
@Malkynn .. Wait, having a private plane makes you rich?.. I sold mine.. So I WAS rich, but I'm not now, even though I have more money..

I'm so confused.

I am working on increasing my 1.5% WR though...:)

I suspect not just any private plane will do. Gotta be a private jet. And not some cheap junk like an old Westwind either, you need at least a modern Citation. My personal preference is the Phenom 300, strikes a nice balance between practical and opulent.

Yes the Phenom is my best plane too. They normally fly at 45,000ft.. i.e above the airliners..:)

Ok - why is this important?  I mean, I get that the air is smoother at 30,000 feet commericial jetliners) than 5,000 feet (private prop planes), but is there a big advantage of staying at 45,000 vs 30,0000?
Genuinely curious...

TomTX

  • Walrus Stache
  • *******
  • Posts: 5345
  • Location: Texas
Re: Stop worrying about the 4% rule
« Reply #1670 on: March 10, 2019, 11:17:48 AM »
Ok - why is this important?  I mean, I get that the air is smoother at 30,000 feet commericial jetliners) than 5,000 feet (private prop planes), but is there a big advantage of staying at 45,000 vs 30,0000?
Genuinely curious...
Think about having another highway located 3 miles above the main highway - except with far less traffic and zero of those big semi trucks.

At least that's how I picture it.

sol

  • Walrus Stache
  • *******
  • Posts: 8433
  • Age: 47
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #1671 on: March 10, 2019, 11:33:00 AM »
Yes the Phenom is my best plane too. They normally fly at 45,000ft.. i.e above the airliners..:)

Ok - why is this important? 

Pilots are a very ego-driven bunch.  They always want to fly higher and faster than everyone else in the sky. 

nereo

  • Senior Mustachian
  • ********
  • Posts: 17472
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Stop worrying about the 4% rule
« Reply #1672 on: March 10, 2019, 11:49:22 AM »
Ok - why is this important?  I mean, I get that the air is smoother at 30,000 feet commericial jetliners) than 5,000 feet (private prop planes), but is there a big advantage of staying at 45,000 vs 30,0000?
Genuinely curious...
Think about having another highway located 3 miles above the main highway - except with far less traffic and zero of those big semi trucks.

At least that's how I picture it.
Is the sky that crowded where flying higher would significantly cut down on travel time?  I was under the impression that the bottlenecks were coming in/around major airport hubs - something cruising altitude wouldn't change. 
I'm not a pilot, so I'm happy to be corrected on this assumption...

markbike528CBX

  • Handlebar Stache
  • *****
  • Posts: 1899
  • Location: the Everbrown part of the Evergreen State (WA)
Re: Stop worrying about the 4% rule
« Reply #1673 on: March 10, 2019, 12:47:07 PM »
Yes the Phenom is my best plane too. They normally fly at 45,000ft.. i.e above the airliners..:)

Ok - why is this important? 

Pilots are a very ego-driven bunch.  They always want to fly higher and faster than everyone else in the sky.

Example: SR-71 speed check
https://m.youtube.com/watch?v=8AyHH9G9et0

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1674 on: March 10, 2019, 04:36:41 PM »
@ Nero.. My airplane cruised at 18,000 ft.

@sol.. what ego?..;)

Hehe, yeah the primary reason for flying higher in a jet is that you can fly at the same speed for less fuel burn.. I.e the airplane becomes more fuel efficient.

secondly, we pilots (hah.. I sold my airplane in 2013) like to find the altitude with the best tailwinds.. Having more altitudes to choose from helps.

Yes less congestion, although any flight above 18,000ft is automatically flown by instrument flight rules, basically means Air traffic control is navigating for you. But flying higher does give them more options to avoid congestion.

I think the Phenom flys a little slower than most airliners so having it fly higher means less chance of them having to vector airplanes of different speeds around one another.

Its also cool..:)

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1675 on: March 12, 2019, 02:30:46 PM »
Is the stock market flying to high on too lean a fuel to deliver the returns needed for 4 percent?

Here's an  article from a guy who says 2-3 percent are in order for the next 20 years.  That wouldn't break even with the policy of maintaining inflation at 2 percent or lower.

https://www.marketwatch.com/story/investor-credited-with-calling-the-2008-crisis-says-the-next-20-years-in-the-stock-market-will-break-a-lot-of-hearts-2019-03-07

He has a blurb in there about climate change.  The world is kind of behind where they ought to be in regards to climate change.  Could investment by governments and industry into climate change development be the stimulus that will keep the stock market values up and prove this guy wrong?  This will be a sea change (pun intended).

nereo

  • Senior Mustachian
  • ********
  • Posts: 17472
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Stop worrying about the 4% rule
« Reply #1676 on: March 12, 2019, 02:43:48 PM »
Is the stock market flying to high on too lean a fuel to deliver the returns needed for 4 percent?

Here's an  article from a guy who says 2-3 percent are in order for the next 20 years.  That wouldn't break even with the policy of maintaining inflation at 2 percent or lower.

https://www.marketwatch.com/story/investor-credited-with-calling-the-2008-crisis-says-the-next-20-years-in-the-stock-market-will-break-a-lot-of-hearts-2019-03-07

He has a blurb in there about climate change.  The world is kind of behind where they ought to be in regards to climate change.  Could investment by governments and industry into climate change development be the stimulus that will keep the stock market values up and prove this guy wrong?  This will be a sea change (pun intended).

The problem with these sorts of articles is that people (often very financially educated people) have been saying similar things for over a century.  Pick a decade and start reading OpEds in the WSJ or the NYT and you'll find lots of opinions detailing how we aren't likely to see robust future market growth going forward.  I listed a whole bunch of them oh, 10-15 pages back (but am too lazy to find again). These predictions were particularly abundant in 2009-2010, just *before* one of the longest economic expansions in US (and global) history. The dot-com bust (2001) was supposed to have sucked all the wind from the tech sector. In the 1970s we'd reached the end of 'cheap fuel' and entered a world of chronic high inflation.  The 1950s could not possibly do well because so much of the infrastructure had been destroyed.  The 1930s exposed the underbelly of the industrial revolution - it would never get better! etc. etc.


MDM

  • Senior Mustachian
  • ********
  • Posts: 11473
Re: Stop worrying about the 4% rule
« Reply #1677 on: March 12, 2019, 02:58:25 PM »
Is the stock market flying to high on too lean a fuel to deliver the returns needed for 4 percent?
Don't know, but it need deliver only 1.31% CAGR (and not drop so much early on that an investor's balance goes to $0) to satisfy the "last for 30 years" condition.

robartsd

  • Magnum Stache
  • ******
  • Posts: 3342
  • Location: Sacramento, CA
Re: Stop worrying about the 4% rule
« Reply #1678 on: March 12, 2019, 05:33:24 PM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

To be fair, an 8% withdrawal rate is not entirely unreasonable for the right investor.  Especially if he's in the last 10 years or so of life expectancy, higher withdrawal rates are the norm.
I'd say an 8% WR is good for 12 years of life expectancy with a conservative allocation. If the investment is only a supplement to other income streams (skip that cruise if the market is down), you could realistically plan on 15 years of 8% withdraw with a moderate allocation.

rab-bit

  • Bristles
  • ***
  • Posts: 259
  • Location: Western PA
Re: Stop worrying about the 4% rule
« Reply #1679 on: March 12, 2019, 06:32:38 PM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate

To be fair, an 8% withdrawal rate is not entirely unreasonable for the right investor.  Especially if he's in the last 10 years or so of life expectancy, higher withdrawal rates are the norm.
I'd say an 8% WR is good for 12 years of life expectancy with a conservative allocation. If the investment is only a supplement to other income streams (skip that cruise if the market is down), you could realistically plan on 15 years of 8% withdraw with a moderate allocation.

The 8% WR would also work well for someone who only needs their stash to fund 8-12 years of retirement until other income streams (e.g. SS, pensions, paid off rentals) become available that would fully cover expenses. That's basically our plan.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6611
Re: Stop worrying about the 4% rule
« Reply #1680 on: March 15, 2019, 08:04:28 PM »
Plugging in an 8% withdrawal on Vanguard's simulator shows a 50/50 chance of going broke at 19 years.
(8% withdrawal using 60% stocks/40% bonds portfolio)
https://www.vanguard.com/nesteggcalculator

The chance of having money left starts dropping quickly after 10 years:
10 years, 97%
12 years, 89%
14 years, 78%
...

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1681 on: March 16, 2019, 01:21:30 AM »
Plugging in an 8% withdrawal on Vanguard's simulator shows a 50/50 chance of going broke at 19 years.
(8% withdrawal using 60% stocks/40% bonds portfolio)
https://www.vanguard.com/nesteggcalculator

The chance of having money left starts dropping quickly after 10 years:
10 years, 97%
12 years, 89%
14 years, 78%
...

Clearly thats why you need to invest in DR's mutual funds that average 12%.. Clearly...:(

TomTX

  • Walrus Stache
  • *******
  • Posts: 5345
  • Location: Texas
Re: Stop worrying about the 4% rule
« Reply #1682 on: March 16, 2019, 10:03:40 AM »
Is the stock market flying to high on too lean a fuel to deliver the returns needed for 4 percent?

Here's an  article from a guy who says 2-3 percent are in order for the next 20 years.  That wouldn't break even with the policy of maintaining inflation at 2 percent or lower.

https://www.marketwatch.com/story/investor-credited-with-calling-the-2008-crisis-says-the-next-20-years-in-the-stock-market-will-break-a-lot-of-hearts-2019-03-07

Sure, he predicted the 2008 crash. And the 2012 crash (oops). And the 2013 crash (oops). And the 2017 crash (oops). Probably others, but I can't be bothered to search more.

This is a guy who is always warning about market slowdowns/crashes/lower results going forward. If you predict bad performance every year - you're gonna be right eventually.

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1683 on: March 16, 2019, 03:17:21 PM »

- SNIP -

This is a guy who is always warning about market slowdowns/crashes/lower results going forward. If you predict bad performance every year - you're gonna be right eventually.

Got it - Even a broken clock is right twice a day.

OurTown

  • Handlebar Stache
  • *****
  • Posts: 1368
  • Age: 54
  • Location: Tennessee
Re: Stop worrying about the 4% rule
« Reply #1684 on: March 21, 2019, 03:30:19 PM »
Just heard Dave Ramsey tell a caller to go with 8% withdrawal rate


He has been confronted about this many times.  He just yells louder.  Sad.

lowroller4111

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Stop worrying about the 4% rule
« Reply #1685 on: April 01, 2019, 10:42:19 AM »
Ramsey keeps saying 12% but never gives out the name of this super fund... let me guess, it does not exist?  If it is performing so great and consistently then why not share the name?

At 12% you double your money every 6 years, if one could do this consistently it would be the holy grail of investing, apparently Ramsey claims to have found it...
« Last Edit: April 01, 2019, 10:44:33 AM by lowroller4111 »

lowroller4111

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Stop worrying about the 4% rule
« Reply #1686 on: April 01, 2019, 10:53:06 AM »
Is the stock market flying to high on too lean a fuel to deliver the returns needed for 4 percent?

Here's an  article from a guy who says 2-3 percent are in order for the next 20 years.  That wouldn't break even with the policy of maintaining inflation at 2 percent or lower.

that prediction has no basis, if you look at historical averages through 2018 and then removing the prior 20 years they are very much in sync.  So, the huge run up between 2011-2019 is just a catch up from the horrendous 2000-2009 decade which had 2 major busts.  Infact, if we look at 2000-2018 as a whole the return is not all that spectacular at a CAGR of 4.83% so not quite sure what these "experts" are talking about as though the market has been returning 20% a year for the last 20 years...no, it hasn't.  2000-2013 had a negative CAGR so obviously we have to have a re-adjustment upward.

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1687 on: April 01, 2019, 11:47:47 AM »
Is the stock market flying to high on too lean a fuel to deliver the returns needed for 4 percent?

Here's an  article from a guy who says 2-3 percent are in order for the next 20 years.  That wouldn't break even with the policy of maintaining inflation at 2 percent or lower.

that prediction has no basis, if you look at historical averages through 2018 and then removing the prior 20 years they are very much in sync.  So, the huge run up between 2011-2019 is just a catch up from the horrendous 2000-2009 decade which had 2 major busts.  Infact, if we look at 2000-2018 as a whole the return is not all that spectacular at a CAGR of 4.83% so not quite sure what these "experts" are talking about as though the market has been returning 20% a year for the last 20 years...no, it hasn't.  2000-2013 had a negative CAGR so obviously we have to have a re-adjustment upward.

CAGR - Compound Annual Growth Rate

Far from me to argue vehemently, but I've been told again and again by the guys on this site that you can't time the market.   Statement -  "no, it hasn't.  2000-2013 had a negative CAGR so obviously we have to have a re-adjustment upward."  The whole 4 percent thing is based on probability.  We have a high probability that 4 percent will be OK.  I don't think it will be ever that cut and dry that we can "obviously" bump from 3.5 % to 4% or 4% to 4.5%

Just because 2000-2018 wasn't all that great doesn't mean that 2019 and on will be better.  It also doesn't mean that it won't be better.  I think the best thing you can say is that based on current conditions and past experience, there is a good chance that using 4 percent as your withdrawal rate is still a good bet.

The manure can hit the blower at any time.  The United Nations has given bad information on global warming.  Flooding many coastal cities may affect that 4 percent.  There are crazy leaders out there with nuclear and biological weapons.  If they start World War 3, it may affect the 4 percent return.  There is a supervolcano beneath Yellowstone park that could wipe out a lot of life on North America as it has done before.  This could affect that 4 percent return.  There could be an asteroid with your name on it ready to strike the Earth and wipe out your 4 percent return as it did to the Dinosaur's stock market.

The stock market is a creation of man built upon a stack of cards.  The volatile and capricious manner of nature's reality will always be the master of the stock market.

I still think this 4 percent thing is the best thing we've got going.  It seems like there are a lot of guys out there always giving reasons why the returns will crash.  It's pretty easy to be a pessimist.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1688 on: April 01, 2019, 02:40:16 PM »
Don't forget the massive earthquake and tsunami thats going to happen on the left coast! Right where my house and rental property happens to be.. Oh and Seattle will be a pile of rubble!

lowroller4111

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Stop worrying about the 4% rule
« Reply #1689 on: April 02, 2019, 03:08:43 PM »
Just because 2000-2018 wasn't all that great doesn't mean that 2019 and on will be better.  It also doesn't mean that it won't be better.

True, I am not trying to predict what is inherently unpredictable...which is the point.  So many say oh because we have gone up then it must mean the next decade should be a bust, i'm just pointing out that we could have another blockbuster decade, we have virtually no idea what is in store.  Also the fact that we have gone up recently does not take into account the significant past.  Post 2009 isn't the full picture even if you were to make some kind of prediction... but I concur that predicting the future is essentially a pointless exercise.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4422
  • Location: CT
Re: Stop worrying about the 4% rule
« Reply #1690 on: April 03, 2019, 10:21:56 AM »
Yes, I was quoting Vanguard's retirement simulator.

Running a basic 60/40 through cfiresim gives a 95% success rate.
Are you talking about http://www.cfiresim.com/ ?  I don't see where you're getting the 95% success rate.

From a previous thread about taxes I wanted to continue this discussion in a more appropriate thread.

@MustacheAndaHalf

You made the claim in the other thread that a simplistic Vanguard tool was giving a 80% success rate for a 60/40 split. I think you need to state the time frame you are working with. At a thirty year time frame I'm seeing 91%, at 50 years I see the 80% you're talking about.

As for cfiresim at 30 years the success rate is 94.87 while the 50 year is 71.13%.

Regardless of those actual numbers this is entirely ignoring the actionable things. Over the course of 30-50 years as has been covered previously the opportunity for income, social security, or skill in being a person who does not need to spend money in order to solve a thing happens. Not to mention adding spending flexibility which the Vanguard tool doesn't do extends.

I'd recommend not relying on the simple tools to determine what constitutes a success or a failure as it is a bad model.

Rather than move to a 3% SWR just to make a simple calculator happy you can build resiliency in your plan via other methods.
« Last Edit: April 03, 2019, 10:53:11 AM by matchewed »

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5493
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Stop worrying about the 4% rule
« Reply #1691 on: April 03, 2019, 11:07:56 AM »
^ The Vanguard tool is a Monte Carlo simulator.  Cfiresim (and firecalc, from which it was derived) are historical analysis calculators.  In my experience, Monte Carlo simulators tend to produce significantly more conservative results that historical analysis calculators.  (Neither, of course, predict the future.)  Monte Carlo simulators also often produce different results from run to run, whereas cfiresim and it's ilk are deterministic.

sol

  • Walrus Stache
  • *******
  • Posts: 8433
  • Age: 47
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #1692 on: April 03, 2019, 12:20:57 PM »
^ The Vanguard tool is a Monte Carlo simulator.  Cfiresim (and firecalc, from which it was derived) are historical analysis calculators.  In my experience, Monte Carlo simulators tend to produce significantly more conservative results that historical analysis calculators.

We have previously discussed this effect, in this very thread.  Monte Carlo simulators randomly scramble the sequence of years, which gives you more negative results because the real world is not random.  In a Monte Carlo simulation, you can get the Great Recession immediately on the tails of the Great Depression immediately on the tails of Black Friday, but in the real world economies tend to go through up and down cycles and markets tend to overcorrect.  The real world never puts all of the worst days in history back to back, because that's not how the real world works.  But it IS how Monte Carlo sims work, sometimes, and since we're only talking about the worst case scenarios when discussing failure rates, the Monte Carlo sims give you more of those negative scenarios.

But back in the real world of history, terrible down years like 1932 (or 1974 or 2008) are often followed soon after by great years like 1933 or (1975 or 2009).  That means that historical simulators give you higher SWRs than do the Monte Carlo simulators, because history is not random.

So this is one case where I really think Vanguard has missed the boat.  MC simulations are very popular in lots of scientific fields where sequential results are randomly generated, but they're just not terribly appropriate for modelling stock market returns.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1693 on: April 03, 2019, 02:19:22 PM »
^ The Vanguard tool is a Monte Carlo simulator.  Cfiresim (and firecalc, from which it was derived) are historical analysis calculators.  In my experience, Monte Carlo simulators tend to produce significantly more conservative results that historical analysis calculators.

We have previously discussed this effect, in this very thread.  Monte Carlo simulators randomly scramble the sequence of years, which gives you more negative results because the real world is not random.  In a Monte Carlo simulation, you can get the Great Recession immediately on the tails of the Great Depression immediately on the tails of Black Friday, but in the real world economies tend to go through up and down cycles and markets tend to overcorrect.  The real world never puts all of the worst days in history back to back, because that's not how the real world works.  But it IS how Monte Carlo sims work, sometimes, and since we're only talking about the worst case scenarios when discussing failure rates, the Monte Carlo sims give you more of those negative scenarios.

But back in the real world of history, terrible down years like 1932 (or 1974 or 2008) are often followed soon after by great years like 1933 or (1975 or 2009).  That means that historical simulators give you higher SWRs than do the Monte Carlo simulators, because history is not random.

So this is one case where I really think Vanguard has missed the boat.  MC simulations are very popular in lots of scientific fields where sequential results are randomly generated, but they're just not terribly appropriate for modelling stock market returns.

I didn't know MC simulators did this.. I guess you learn something new every day..:)..Thanks Sol

honeyfill

  • Bristles
  • ***
  • Posts: 321
  • Age: 66
  • Location: Tucson
Re: Stop worrying about the 4% rule
« Reply #1694 on: April 03, 2019, 10:33:41 PM »
^ The Vanguard tool is a Monte Carlo simulator.  Cfiresim (and firecalc, from which it was derived) are historical analysis calculators.  In my experience, Monte Carlo simulators tend to produce significantly more conservative results that historical analysis calculators.

We have previously discussed this effect, in this very thread.  Monte Carlo simulators randomly scramble the sequence of years, which gives you more negative results because the real world is not random.  In a Monte Carlo simulation, you can get the Great Recession immediately on the tails of the Great Depression immediately on the tails of Black Friday, but in the real world economies tend to go through up and down cycles and markets tend to overcorrect.  The real world never puts all of the worst days in history back to back, because that's not how the real world works.  But it IS how Monte Carlo sims work, sometimes, and since we're only talking about the worst case scenarios when discussing failure rates, the Monte Carlo sims give you more of those negative scenarios.

But back in the real world of history, terrible down years like 1932 (or 1974 or 2008) are often followed soon after by great years like 1933 or (1975 or 2009).  That means that historical simulators give you higher SWRs than do the Monte Carlo simulators, because history is not random.

So this is one case where I really think Vanguard has missed the boat.  MC simulations are very popular in lots of scientific fields where sequential results are randomly generated, but they're just not terribly appropriate for modelling stock market returns.

I didn't know MC simulators did this.. I guess you learn something new every day..:)..Thanks Sol
I guess each company can design their MC simulations using whatever rules they want.  But I always assumed they just took the average rate of return  and the standard deviation and randomly calculated a return for each year in the simulation time frame.  They never used actual years returns like Cfiresim or Firecalc.  However Sol's point still holds. Since SD is based on independent variables and in the real world each years returns are somewhat correlated with the surrounding years. The MC will always give you lower returns in the worst case and higher returns in the best case.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1198
Re: Stop worrying about the 4% rule
« Reply #1695 on: April 03, 2019, 10:52:27 PM »
I guess each company can design their MC simulations using whatever rules they want.  But I always assumed they just took the average rate of return  and the standard deviation and randomly calculated a return for each year in the simulation time frame.  They never used actual years returns like Cfiresim or Firecalc.  However Sol's point still holds. Since SD is based on independent variables and in the real world each years returns are somewhat correlated with the surrounding years. The MC will always give you lower returns in the worst case and higher returns in the best case.

There are different approaches to Monte Carlo simulations.  Some use statistical models like you describe, while others use randomized historical returns in varying size chunks (called bootstrapping).  Frankly, I don't care for either method for all the reasons Sol explains.  When studying investments I personally believe it's important to stick to actual history and sequence of returns while varying the start and end dates to avoid timeframe bias.  The classic retirement studies from Bengen, Trinity, Firecalc, etc. all did that very well.
« Last Edit: April 03, 2019, 11:04:36 PM by Tyler »

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 8374
  • Age: 62
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Stop worrying about the 4% rule
« Reply #1696 on: April 03, 2019, 11:16:17 PM »
As long as I don't run out o' money I don't care what they do.

Of course not of the calculators factor in the whack job proposals that Ron Wyden of Oregon .. Who just lost my vote! What a dumbass.. Apparently he wants to tax all after tax investments on a yearly basis whether you sell them or not!

So no point in investing anymore.. just stick your money under the mattress..

I thought AOC was off the rails!

sol

  • Walrus Stache
  • *******
  • Posts: 8433
  • Age: 47
  • Location: Pacific Northwest
Re: Stop worrying about the 4% rule
« Reply #1697 on: April 03, 2019, 11:19:51 PM »
I guess each company can design their MC simulations using whatever rules they want.  But I always assumed they just took the average rate of return  and the standard deviation and randomly calculated a return for each year in the simulation time frame.

Monte Carlo simulations are, by definition, reshuffled resamplings of existing data pools.  They are not randomly generated data based on statistical descriptions.

If you see someone talk about Markov Chain Monte Carlo simulations, then your interpretation is much closer to what they're doing.  Markov Chains sample defined probability distributions, rather than data pools.  Despite often seeing them billed as an "advancement" on Monte Carlo sims they're really a much simplified version, designed to answer a different sort of question.  You commonly see Markov Chains MC sims used when the ordering of the results is less interesting than just generating an answer space, for example in purely theoretical math problems where people really have no clue what's going on behind the scenes.

I'm a physical scientist, and I spent many years learning about and then implementing various types of models about the physical world.  I rarely used Monte Carlo simulations because they're numerically inefficient if your goal is to find the right answer, rather than understand why the answers look a certain way, and I never once had to implement a Markov Chain MC simulation as part of my professional modeling career.  In my world, if you already know the probability distribution required to set up a Markov Chain, then you either already have an answer you believe in or you're using circular logic to pretend the answer you want is the correct one.

For government work, subsampling your parameter space never flies.  You churn through them all and publish the giant matrices, or if you can't get the computer time for that then you find a way to reparameterize your problem into something you CAN solve completely.  We usually considered Monte Carlo sims a toy for people who like to poke around interesting problems, rather than a tool for setting policy.  I'm sure I just offended an academic somewhere.

In the context of Vanguard's market simulations, Monte Carlo is a gimmick used to fabricate false credence.  The entire data pool of stock market history is less than 100k days long and all they're doing is shuffling those days (or months or years) into a few thousand other possible orders to see what they look like.  But market histories are a well linearized problem, so it's not like it matters all that much whether your hypothetical history goes 4%, 8%, 10% or 10%, 8%, 4%.  Over the entire history of the market, the answer is not going to be off by a million percent at the end.  As we've previously discussed in this thread, there are much larger uncertainties about the future of our stock market than can possibly be captured by just shuffling the historical monthly returns to see how they might have added up differently.  Their Monte Carlo simulations don't account for the 2057 robot uprising, or the 2083 asteroid impact that wipes out Earth and leaves only Mars to shoulder the burden of paying your dividends.

 

lowroller4111

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Stop worrying about the 4% rule
« Reply #1698 on: April 04, 2019, 04:01:19 PM »
The Monte Carlo simulations in tools such as PV are taken from historical data re-arranged in many permutations and combinations.  Obviously "generated" data would be quite crazy as you could essentially generate anything you wish outside the parameters of reality - imagine the stock market dropping 80% and then have a 2nd year after that when it dropped 70% - that would really have little value as it's never happened in history!

Using history as a base is quite sufficient for the vast majority as we've had some pretty horrible things that have happened to the markets in the past.  While nothing can be 100% excluded we can be sure that something happening that is worse than the worst event in history would be so severe that I doubt you would be worry about your portfolio then, you would have to worry about your life.  Perhaps something like worldwide nuclear war.
« Last Edit: April 04, 2019, 04:04:52 PM by lowroller4111 »

pecunia

  • Magnum Stache
  • ******
  • Posts: 2832
Re: Stop worrying about the 4% rule
« Reply #1699 on: April 05, 2019, 01:03:06 PM »

- SNIP -

.  While nothing can be 100% excluded we can be sure that something happening that is worse than the worst event in history would be so severe that I doubt you would be worry about your portfolio then, you would have to worry about your life.  Perhaps something like worldwide nuclear war.

You don't need the entire world.  The fallout can get the rest of us and lead to slow lingering deaths.  The bright side is that we won't be worrying about global warming any more.

 

Wow, a phone plan for fifteen bucks!