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Does 4 % withdrawal work today ?

https://finance.yahoo.com/news/does-4-withdrawal-rule-still-181509579.html

It's been hashed over before , but you may find something new ! Also check out comments. some good , some bad, & some really ugly !

Have a nice day, Derf

Comments

  • It depends on how much money you start with.

    One thing I'm sure about, it has nothing to do with higher stock dividends which is what many write obsessed about. If the biggest high tech companies with no/low div didn't convince you, then nothing will.
  • I think a rational answer would say 4% rule, NO due to the low yields which will be held low due to "QE forever"...again, the savers are being penalized while we bail out the major shareholders, no way you can tell me these stocks are worth what the market is saying they are worth, I know, liquidity from the Fed blah blah...I heard recently that Wade Pfau thought that a 2.4% rule was now in effect due to low interest rates, seems more like it, wouldn't surprise me to think the 4% rule will segue into a 2% rule.

    I think we are well on our way to our markets being "Japanified"...gov't will own the majority of the markets and they will go nowhere for many years making it rough on retirees...I think the new way to invest and fulfill our speculation Jones' will be in Sports gambling, similar to the Jai Alai in Miami, maybe by the year 2025 here on this forum we'll be wagering on eSport athletes, discussing funds that sponsor a group of eSport athletes?

    Seems to me all "investing" now has crossed into the realm of total speculative BullSpit but what do I know....I believe to fund one's retirement one would have to look at total portfolio value, total return, reduced spending, pull in lifestyle spending etc with the key being reducing spending as the investment gains will not be there.

    Also think we are going to see a gov't type of retirement savings plan similar to I bonds, a guaranteed rate of return over inflation (and how they decide that I don't know, no way inflation is only 2% or so now) as the markets won't exist in the form factor they have been in the past as there are no more free markets anymore....welcome to the casino...

    Stay Healthy, good luck to all,

    Baseball Fan
  • the opposite of anything new
  • Can we all agree that Jill Fopiano is making planning sound overly complicated so you will think you need to hire her?

    “ "We have never felt that the standard 4% withdrawal rule was particularly relevant," says Jill Fopiano, president and CEO at O'Brien Wealth Partners in Boston.

    "Each person's situation is unique in terms of their assets, income and expenses, never mind their life expectancy and goals," she says. "Layer different market environments on top of this, and it's overly simplistic to calculate one percentage that applies to everyone. You're far better off having a cash flow plan that factors in your own specific information."”
  • I also want to point out that in the very first line, Kate gets the 4% rule wrong - “ On its face, the "4% rule" is pretty straightforward: Retirees withdraw 4% of their portfolio value every year and avoid the risk of outliving their money.”. This is not the 4% rule! The 4% rule says you withdraw 4% the first year & the raise that $ amount by an inflation factor in all subsequent years, while ignoring the value of your portfolio.
  • edited May 14
    I'm thinking that the 4% rule might still work. However, it will depend on how one is invested. For me, I'll take up to a sum of what one half of what my five year total return has averaged. Generally, this leaves money for new investment opportunity to grow my principal. I live conseratively and don't have a lot of financial obligations being debt free. For 2020 I'll probally take a sum equal to about 1.25% to 1.5% of my 12/31/2019 portfolio's value. It's called living below one's means. I especially try to trim spending in years where returns are thin.
  • MJG
    edited May 15
    Hi Guys,

    Maybe yes; maybe no. It depends. It depends on future events which always escape predictions. Nobody predicts the future with anything like accuracy. That’s life. It’s mostly what-if guesswork.

    But a tool does exist to explore the general sensitivity of outcomes to uncertain events. That tool is a Monte Carlo simulator that examines thousands and thousands of possible scenarios. They are fast to use and yield some interesting insights. Please give them a try. You can find one excellent version at:

    https://www.portfoliovisualizer.com/monte-carlo-simulation#analysisResults

    No final answer. No definite answer really exists. Just some probabilities. But that reflects the real nature of the world. Just some likelihoods without complete certainty.

    Once again, please examine the referenced Monte Carlo tool to understand its advantages and shortfalls. Then use it and learn! The answer depends on your investment portfolio strategy and future unpredictable returns. Luck helps!

    Best Wishes
  • beebee
    edited May 15
    @MJG said,
    But a tool does exist to explore the general sensitivity of outcomes to uncertain events. That tool is a Monte Carlo simulator that examines thousands and thousands of possible scenarios. They are fast to use and yield some interesting insights. Please give them a try. You can find one excellent version at:

    https://www.portfoliovisualizer.com/monte-carlo-simulation#analysisResults
    When I use PV's withdrawal options the percentage choice will withdraw a fixed percentage, say 4% annually. This is different than the 4% rule.

    The 4% rule states that 4% is only used for year one, based on that years portfolio balance. After year one, the dollar amount (what 4% equaled in year 1) then receives an inflation adjustment each year calculated from the previous years withdrawal.

    For example, a $100,000 balance in year one would distribute $4000 (at 4%). That $4000 in year two would than include an inflation adjustment (say a 3% inflation rate) or an additional $120 ($4000 X .03). Year 3 would add 3% to the $4,120 amount and so on.

    The PV site uses a 4% calculation for each year based on the portfolio's balance each year. You can selected Inflation adjusted balance which adjusts the overall balance based on inflation for that year. This calculation provides a much different withdrawal amount (in dollars) compared to the typical 4% withdrawal strategy mentioned above.

    Does anyone see it differently? Also could someone explain the percentile (90th% - 10th%) ?

    Thanks.
  • FWIW: It seems to me that RMD's have a somewhat inflation provider built in as they rise each year with the only a falling market causing your portfolio to be less than the year before. So that leaves taxable as how much to withdraw if needed.

    Stay safe, Derf
  • MJG
    edited May 15
    Hi Bee,

    Thanks for the input. The 10 to 90 percent data shown is simply reported to demonstrate the huge difference of outcomes received by the near bottom and near top of the statistical distribution. This disparity is indeed large and meaningful.
  • edited May 15
    “On its face, the "4% rule" is pretty straightforward: Retirees withdraw 4% of their portfolio value every year and avoid the risk of outliving their money.”

    The above rule would seem to overlook many variables, including whether inflation’s running at a “tame” 1-2% or a “hot” 8-10% during those withdrawal years. If it’s running 10% annually and you’re pulling 4% from investments amassed during bygone low inflation days and now sitting in lower yielding securities, quite possibly you have already outlived your money.

    In difficulty of applying the 4% rule to varying circumstances it’s somewhat reminiscent of a rule credited to Jack Bogle that that the percentage of bonds in your portfolio should equal your age. Even Bogle recognized the fallacy of that rule later in life and modified the calculation to account for increasing longevity coupled with never before observed minuscule bond yields.

    The problem with rules like that is that circumstances change. You never quite know what’s coming around the corner. What’s the “rule” for investing during a year that begins with Impeachment, progresses through pandemic and ends with a mail-in election almost certain to be contested as “fraudulent” by one side or the other afterward? Pray do tell.


    Offered as food for thought: 9 Common Investing Myths - “To have unconventional success, you can’t be guided by conventional wisdom.”

    https://observer.com/2016/04/the-9-most-common-investing-myths/
  • edited May 15

    - most do not want unconventional success

    - we will never see 8% inflation again

    - why mention bogle's bogus rule when he himself eventually saw its bogosity?

    - the whole point of guidelines is to help as things around the corner become clear, including this time, with the circumstances you posit
  • edited May 16
    Just riffing on the post by Baseball_Fan . . .

    It's beginning to feel like a lot of people would be just as happy to see everyone over 60 pass on.
  • Rbrt said:

    it's overly simplistic”

    I never trust anyone that wants my money to protect me from being "overly simplistic."
  • edited May 16
    “ - we will never see 8% inflation again”

    That may be true. I lack your ability to predict the future.

    Sometimes past is prologue.

    image

    image

    Source of Charts: https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp


    SEE ALSO - Worst Hyperinflation Episodes in History https://www.businessinsider.com/worst-hyperinflation-episodes-in-history-2013-9


    @davidrmoran: The Proofreading Pulse - Avoid Absolutes https://proofreadingpal.com/proofreading-pulse/writing-guides/avoid-absolutes/

  • Bee,
    If you are still checking in - this interview from Morningstar is interesting: https://www.morningstar.com/podcasts/the-long-view/54

  • @hank

    right, all good advice, except when things have changed for keeps

    there are too many controls now (thank goodness), not like back when people thought inflation was an unpredictable natural outcome of something or other, and should be let to run its course

    it's more like asserting that we will never have a coal economy again, or enslavement of imported Africans in this country, or universal male-only suffrage
  • edited May 16
    My only take is that the 4% rule is it is only a guide, not a hard and fast rule. You have to make adjustments with all the variable inputs surrounding that rule periodically, kind of as @MJG's monte-carlo simulation suggests.

    Hell, deciding to set any rule that has so many inputs is like setting the cruse control on your car and then hopping in the back seat to play with the grand-kids. You still have to keep your hands on the wheel.
  • @MikeM
    Not to mention that "playing around in the back seat of the car" causes kids...and grand-kids.
  • :) ahhh, the memories bee. Those days are long gone.
  • Rbrt said:

    Bee,
    If you are still checking in - this interview from Morningstar is interesting: https://www.morningstar.com/podcasts/the-long-view/54

    Thanks for the link:
    One of my favorites is actually Bill Bengen defined it and he's the one who created the 4% rule initially. But he talked about a floor and ceiling approach, where you spend a fixed percentage of what's left every year, but you decide you're going to have a floor that you don't want your spending to fall below a certain dollar amount, and then you have a ceiling where you're not going to let your spending go above a certain dollar amount. So, as long as you're within that range, you just spend a fixed percent, but you apply the floor and the ceiling. And because you have that floor, it can be the case in the way this helps to manage sequence risk by adjusting your spending that that floor might not be all that much less than what the 4%-rule logic of always spend the same amount every year no matter what, would have had you spending so that you have the potential to spend more on average, and even on the downside, not really spending all that much less. So, that can work very well to help manage the sequence risk. And that's a pretty easy strategy to implement. And I think it has a lot going for it. It's one of my favorites.
  • beebee
    edited May 16
    Derf said:

    FWIW: It seems to me that RMD's have a somewhat inflation provider built in as they rise each year with the only a falling market causing your portfolio to be less than the year before. So that leaves taxable as how much to withdraw if needed.
    Stay safe, Derf

    From article linked by @Rbrt:
    So, the academically optimal way to spend is, you're going to adjust your spending every year to reflect your portfolio value and your remaining longevity. And so, as people age, their remaining life expectancy gets shorter. And so, naturally, people can spend a higher percentage of what's left as they age. And so, the required minimum-distribution rules are an existing guideline we have to guide that sort of spending. Now, they are conservative, because they're based on assuming a zero-percent return for the asset base. And they're also based on a couple where one spouse is 10 years younger than the other spouse. So, you could play around with making them a little more aggressive if you want to spend a bit more aggressively. But generally speaking, that's what academics are saying: spend an increasing percentage of what's left every year as you age. And that can be the most efficient way to spend down your assets in retirement. So, that's where they get attention as an easy way to implement a more efficient and optimal type of way to spend down assets in retirement.
  • Another read on the topic:
    Wade Pfau (thought leader) was cited in the article, his work leads him to think that a 2.29% withdrawal rate is the new 4% and David Blanchett from Morningstar chips in with a 3% opinion. The actual 4% rule says you start at 4% and increase it by the rate of inflation every year. This has always seemed impractical to me, who crunches the numbers and sees "oh, my expenses went up 0.3%." My experience is that clients who are taking money out usually take a fixed dollar amount that is reasonable, they stick with it for some period of time, then something changes and they will either take more or less depending on that change. If three years into your retirement, you pay off your mortgage then maybe you'd reduce what you take. And of course along the way people have occasional big one off expenses and they take money out to cover those expenses.
    a-2-withdrawal-rate-are-you-kidding
  • bengen actually higher

    Maybe not... from your first link:

    1994 was about the last year we had “average” stock market valuations (according to the Shiller CAPE), except for a few months in the spring of 2009. Thus, for the last twenty-plus years, new retirees would have found it risky to use anything other than the SWR of 4.5%. I believe this length of time at above-average valuations is unprecedented, and raises questions about the validity of the long-term average- or will we finally see years of below-average valuations, as has occurred in the past. We will have to wait and see.




  • as an alternative to 4% theory, one could always go the variable route, which i am currently pondering. here's a big thread on it from the boggleheads site. would love to know what the folks here think. https://ishort.ink/wmG6
  • @bee, I was taking his 'other' to mean 'higher', perhaps wrongly, and have been trying to reconcile it with this 3yo interview's other section,

    the 4.5% rule is not a law of nature, like Newton’s laws of motion, which will probably never change. Markets can change, and it is possible that in the future the 4.5% rule, which has held up for 50 years, might be violated. But I haven’t seen those circumstances yet

    wondering if he thinks he has now seen those circumstances
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