Any UK forumite will be familiar with Monevator, which has a very good weekly roundup of articles that are interesting to people....er, interested in things that we are. I normally enjoy these weekly collections, but one (from a blog that I personally hadn’t come across before) got me thinking - a not necessarily in a good way.
The central argument is that efficient markets mean prices for stocks etc are ‘right’ based upon clever buyers and sellers having complex financial models to reach that price. So rather than model things ourselves, why not let the market do that?
I studied Economics to a fairly rudimentary level, but I understand that markets are always efficient, right, or helpful. But they are a proxy for what people think about things now, and dependent upon the product, the future. Doesn’t make it right or wrong, of course.
Anyway - the thing that got me thinking was the idea that annuity rates are the market’s (I.e. insurance companies selling those products) view of what the SWR is today. Now, cleverer folks than I will explain that it can’t be right because companies have to make a profit, they have to match liabilities with less volatile (!) instruments therefore not lean towards equity, which has a premium (or should have).....
I’m no expert. But there are many things I don’t know, so I keep reading. I was surprised to learn that in the UK, the proxy SWR is 1.7%. So for every £100k paid over for an annuity, you might expect £1,700 per year, forever (well, until death, obviously).
That’s very different to my perception of a 3-3.5% SWR (in the UK, globally diversified) given I’d want my stash to last up to 50 years.
The article is here:
https://www.finumus.com/blog/low-interest-rates-and-the-safe-withdrawal-rate-swrI’d really like some help in understanding - in plain language, please (I’m a simple soul) - what am I missing - and whether I can rest easy that 3-3.5% remains a viable option, so I can call it a day and never have to do paid work again in all but the most extreme circumstances.
Thanks in advance those folks cleverer than me!