Ben Felix And The 2.7% Safe Withdrawal Rate
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- Опубликовано: 10 янв 2023
- A recent study claimed that the 4% rule was based on biased data. Specifically, it was flawed because it relied on U.S. returns data and inflation, and assumed a 30-year retirement. Based on life expectancy data from the Social Security Administration and returns and inflation data dating back to 1890 from 38 developed countries, the study concluded that a "safe" withdrawal rate assuming a 1% chance of failure was just 0.80%.
Recently, Ben Felix produced a video on this study that many have asked me about. In this video, I cover what I think are some fundamental flaws in the study, at least if one tries to apply it to a real-life retirement. More importantly, I discuss safe withdrawal rates in general and how one much use them in an uncertain world.
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Ben Felix 2.7% Video: • The 2.7% Rule for Reti...
Safe Withdrawal Rate Study: deliverypdf.ssrn.com/delivery...
Wade Pfau research: retirementresearcher.com/4-ru...
Guyton-Klinger paper: www.financialplanningassociat...
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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You are absolutely the best man thank you so much for putting this out
I think a safe withdrawal rate would be 0% per year.
With current inflation it’s maybe minus something😆
Death and taxes
What a great topic all compiled into a short video. Thanks for all the great content.
21 minutes is short?
@@dietbajablast5790 Considering some "How to buy I-bonds" videos are 30 minutes long, I'd say this video is pretty short given the complexity of the topic.
Excellent video, I like the idea of having two withdrawal rates, one for normal living and one for belt tightening. Helps to know we could still make it even if times got tough.
Very thoughtful common sense analysis, as in most of your videos. Thanks Rob. Keep up the good work.
I am not an english native and like following you because you speak very clear. this makes you a great finance expert for much more people than english ones.
Love it when both (this and Ben's) base arguments of intellectual experience
Wow, what a great video Rob! So many other channels tell you what to believe with no analysis or rationale behind it. As an investor who enjoys getting into the data this video is pure gold. Thanks for not dumbing things down and trusting the intelligence of your viewers.
Your 2-3% withdrawal rate based on retirement age for reasonably comfortable minimal necessary expenses is I think the best advice you’ve given so far... and it’s what I’ve positioned for as well. Appreciate your work and channel.
@@hightide4782 you're right. I read that article as well. What I believe Rob is suggesting is that you figure out what your minimum comfortable get-by is (meals, shelter, bills, health insurance) and aim for that number to be 2-3% of your portfolio... but that you're free to spend more towards or even above 4% if you want on travel, hobbies, charity, etc if it makes sense that year.
I have a number of decades to go but I want to be closer to 2% for reasonably comfortable minimal necessary expenses and closer to 3% for that plus some reoccurring but smaller optional expenses.
For the one closer to 3%, I would have that be what I automatically or manually withdrawal from on a regular basis.
Then, if my portfolio has a good year *and* inflation is reasonable, I will withdrawal the remaining 1% or 2% (depending if I use the 4% rule or use the 5% Klinger strategy) and put it into a High Yield Savings Account.
With that extra money in a High Yield Savings Account (which would be above and beyond any cash I wanted in there at the start of my retirement), I can use that money for larger optional expenses (such as vacations, more expensive outings, or a large purchase) *or* use some of that money for optional expenses in some future year when my portfolio isn't doing as well or I want to spend money on a larger expense later in that bad year instead of immediately the current good year.
So while I won't try to have excess cash for asset allocation purposes or for a bucket strategy, I do like the idea of not consuming the entire 4% or 5%, saving the difference, and then using the excess money whenever I want to, regardless of how the market or inflation is doing.
Have a few decades to go still, but that's my current thinking.
M* just posted a Follow Up to its withdrawal rate...3.8% is Very Conservative. I too only have to withdraw 2.5%...but not worried if I had to withdraw 3.5%.
It is always great to hear Rob's take on retirement! At present, my withdrawal rate calculated for expenses less my non-retirement assets is 3.37%. Since I am drawing some social security, my numbers are not too scary.
Excellent! Thank you
Ben not once claimed that a 2.7% SWR is the way to go of even that fixed WR are preferable at all, in fact he mentions that other strategies are superior. The main point if his video is: if your going for a SWR-strategy, 4% is too damn high
Thank you for the insight Rob. In my mind, the more risks you account for, the lower your safe withdrawl rate becomes until you get to nuclear winter, at which point the safe withdrawl rate is a well stocked bunker. The best anyone can do is to make an educated guess and be flexible. No matter how much you have saved, there are plenty of Americans retiring with zero savings, and they must be getting by some how.
Yep, they don't bury you on top of the ground...
Many countries now. Hope for best prepare for worst.
I like the way to worded that about the well stocked bunker. I really agree with you.
Incredible video, and excellent content. I’ve been a fan of Ben Felix for years, and I’m glad to see another analysis of his incredibly low safe withdrawal rate videos. He has also had on a lot of guests that also share the advice of being flexible, as well as the difficulty coming to a specific number, how portfolio allocations can improve safe withdrawal rates, etc.
All in all, I think your channel is the best advanced personal finance content around. Big kudos to you, and thank you for all of the effort you put into the channel!
Me too, thank you Mr. Rob for sharing your thoughts and knowledge. I'm a big fan of your channel. I can't thank you enough how much I learned from you. You gave me hope, peace of mind and confidence how save and invest.
Great critiques, and I appreciate how you present it in a less sensationalist way. We need to get you into academia so we can have you doing some peer-review on these sorts of studies before they're published.
My concern with the Bengen studies and others calculating retrospective worst case 30 year or 50 year return sequences is the lack of expenses. There were no 10 and 20 basis points funds before Vanguard developed these alternatives. Merrill was recommending funds with 5% purchase fees or 1% per year for 5 years (what a deal) when I was there in 1990. Jack Bogle reported a study of all US equity funds from 1984-2004 showing that while the S&P 500 total return was 13.2% per year and investors received 7.1% per year. The categories of the difference were fund costs: “survivor bias 0.5%, front-end sales charge 0.3% and other indirect 0.1%”, returns below benchmark -1.9% (fund total short fall -2.8%). Investors lagged the funds by 3.3% due to poor timing and choosing high cost or poor performing issues. Data from “The Battle for the Soul of Capitalism”, p 162-167
Interesting argument. Thanks!
Yes, I came away from watching Ben’s video with similar misgivings about how the study had been conducted and the dataset used.
I feel like "gut guardrails" will work fine. I'll start taking 4%. if my portfolio is down the following year, I'll take less, if it's up significantly, I'll get a raise. Nobody knows for sure what will happen so why spend days doing calculations unless you enjoy it!
That's my plan as well. I have a pension that will cover most of my basic expenses. Income from my investments and SS will be largely fun money. In market good years, I'll have more fun!
So, looking for confirmation here, Rob (love your sensible/measured approach to everything!). I believe that you're saying that we choose our initial SWR, confirm that our necessities are within the target percentage (early=2%) and then increase each year for inflation. However, one could be flexible in spending or decreasing inflation additions for a year (or more). And, based on guardrail approach, we should cut back if we're over 6% of total portfolio or increase if we're under 4% of total portfolio. Am I getting this right??
Thank you
Very well-reasoned episode. 9 out of 10 don't live into their 90's. I think we can take a small percentage risk that we will not. I certainly can almost guarantee i will not.
The Social Security “LIfe Table” shows 10% of men will reach 93 and 10% of women will reach 96. One adds a year or two for a couple combined outcome.
I agree. I'm playing the odds as well. My parents didn't live beyond average ages.
Hey Rob, great videos thx for making them. Have a question for you. Do you feel like it is wiser to invest in an employee stock purchase plan(ESPP) vs. a general taxable account. My employer allows me to purchase stocks at a 15% discount from withdrawals from my paycheck and I'm able to put up to 15% toward that if I choose to. I'm currently doing just 1%. The other thought was would be be more advantageous to just setup an automatic deposit to vanguard for VTSAX investments. thx for your thoughts, Alex
Rob - Could you discuss the real implication of a retirement plan (Living Expenses, Social Security, & Taxes - Single Bracket vs MFJ) of a couple in retirement when one spouse dies before the other. Let’s assume the spouse that dies first has the higher SS income.
I'd love to see a comparison between this, the updated guidance from Bill Bengen, and guardrails.
Problems aside. This study will serve as a reminder that a safe withdrawal rate can't be guaranteed.
Your interview with Bill Bingen the founder of the 4% rule and the fact he's sitting 90% cash is scary that the founder of the 4% rule doesn't follow the 4% rule.
no really.... if he has enough to weather inflation and isn't concerned about leaving $ to someone else then why risk 40, 50, 60 % loss in your capital?
But he says he’s also taking out more than 4%/year. As of 2023-2024
Great counterpoints Rob. Bottom line you are going to do whatever it takes to get by.
It’s a starting point. Most people way over estimate what they actually spend after a few years of retirement. Expense control is the key
Did you read the Bogleheads thread on this? Ben responds where he received the 2.7% number. A range would be practical, I don't think the 4% rule disagrees with that either. We humans love making things more complicated than they need to be 🙂
Really like your content and the though process, would all weather portfolio with commodities increase the chances of success though with lesser growth but less down side risk and an established safe withdrawal rate.
Thanks Rob, Very well done. While back testing is very important we also desperately need to be more forward looking and proactive as to how we chose people that will lead our country forward. Those who believe in free markets ,pro growth and fiscal responsibility may put us in a great position moving forward.
Deciding for which person to vote and financial planning have nothing to do with each other. Mostly because your vote don't have any effect in the outcomes (a single vote never change the election results of a whole country, not even the ones of a district) but your financial planning decisions do.
Rob, I retired at 53 in 2019 from my IT job of 27 years and had been dreaming of early retirement since age 23 in 1989 because work and I never agreed🤣. Five years before William Bengen's 1994 report I had did basic layman formula and determined 6% was as safe. Boy was I off. But you have to remember when I did the caculation it was a different time in 1989. That year one could walk into just about any bank and get a 7% - 8% 5 year CD. Today as someone who early retired and is conservative as possiable with spending to avoid having to go back what I hate the most on my 1.6 million portfolio I am withdrawing 2.5% which divideds/yeild alone covers. I do agree with the flexible year to year approach. With no debt so far in past 3.5 years of early retirment I am in spending less than that so I am still an net saver.
Thanks for sharing your experience. I hope to retire in 3 years and will also be 53. Similar job as well. Life is too short so want to enjoy life!
Great video! Most insightful. Question, does anyone know if there has been a study done on the safe withdrawal rate using the MSCI World Index and a global bond index?
Would really appreciate if you someone can direct me to such a study if it is available. Thank you!
I have just started reading this book which lays out the case for not following cookie cutter retirement advice but allowing for possible real-life risks in your planning. Written by a woman who went through some of those financial shocks at a young age. Recommended. The Big Retirement Risk: Running Out of Money Before You Run Out of Time, by Erin Botsford
Talking about time segmentation and OAS wasnt taken into account is comparing apples and oranges. Ben felix was comparing the 4% to 2.7% rule .. both excludes oas and assumes NO dynamic adjustments.
They should have used the term "portfolio depletion" not "financial ruin." (Or, as you say, "change in plans.")
Hello Rob, I was wondering what your thoughts on Invesco High Yield Equity Dividend Achievers ticker: PEY. Maybe you could do a video on that?
Since the world financial systems have decided to eliminate deflation (because of the depression in the 30s) aren't we limited to looking back to the 40s? Doesn't it always boil down to budgeting and knowing what you can afford versus what you are able to spend?
Chase bank has a 4% CD in these times I don't see a reason to take under what a bank CD is paying as my withdraw
It won't always be there
Do stocks tend to do better during high inflation? If not, then adjusting for inflation is a huge issue and has to be almost as big of a factor as market returns. Adjusting for inflation is always just discussed as a throwaway when it seems like it’s be a huge deal, unless, again we just expect stronger market returns during high inflation periods.
Rob, regarding your question at around the 4:30 mark, where does Ben get his 2.7% SWR from as the percentage in the paper is different. Ben reached out to the author with similar concerns to yours regarding how International exposure was factored into the simulation. Ben wanted to know if the inclusion of a "World Ex-Domestic" fund in the simulated portfolio would improve outcomes. The author re-ran the simulation including this fund (notably assuming a higher cost compared to the Domestic holding, I believe an extra 50 basis points), and arrived at the slightly higher 2.7% figure. So the number Ben is using is not peer-reviewed, but is essentially comparable with results of the study. I'm surprised he didn't mention it in his short form video (maybe cut for time), it was mentioned in the longer podcast episode on the topic.
You had some excellent big picture take-aways from the issues raised by study. I think many of us tend to get caught up in our differences in the minutia, pointing to the larger commonalities is a great way to cap things off.
Interesting that they assume an expense ratio of 50 basis points. Much, much higher than one would actually pay.
I plan to base my spending budget on my RMD, my wife's RMD, plus our Social Security benefits, plus dividends on a diversified taxable account (currently yielding about 3.5%) minus income taxes. If the market goes down my RMD will go down and my budget will go down. We live simply and I suspect we will spend less than the budget most years and will add the excess to the taxable account. By limiting our spending to our income, we may have to tighten out belts but I am confident we won't run out of money.
Did they really make it like that? I mean was really a one month return in Poland as important as 1 month return in the USA?
The worrying issue is inflation, since our government would probably like to print money and inflate its way out of debt.
Having watched Ben’s video first, he does mention a range of 2%-3% with the specific 2.7% purely to determine a figure. All he was pointing out is once you account for a more global portfolio (which a diversified investor ought to) the 4% rule becomes more likely to lead to 0. I personally think guardrails and a large cash buffer are the best guarantees of extending your retirement as long as you need to
I prefer to invest in Income funds designed to produce income. I am getting a 5%+ dividend that I live on and never sell any shares. So I achieve a 5% withdrawal rate and will never run out of money (barring a WW III type of catastrophe)
If you are only living off your portfolio, then the “4%” rule being valid is very important. The rule is based on historical US data. Not future data!!!
If you have other income the 4% rule is just a guide for how to make the money last. If you plan on having both, which is what many do, the issue is how much money does your portfolio have to produce, not so much the “safe withdrawal rate”. What is the minimum vs the max.
Our goal is also to have enough base income to survive forever, and use the portfolio for all the extras. This gives us much more flexibility.
Unless you are truly wealthy, making sure you have good Social Security income (and pensions if lucky enough) is the easiest and safest way to create base income, and a strong incentive to take at least one SS check late. We plan on a minimum of $4000 in SS for one and $6500 for both(all inflation protected) And have QLAC longevity annuities kicking in at 82-84 to provide the single person a little cushion. So we don’t need our portfolio after age 70 at all, but hope to have it producing income till our mid 80’s at least.
So if stocks don’t do well, it will just decrease our discretionary spending, it won’t make us poor! Consequently we don’t need to worry about money, but can maintain adequate stock investments to have a good income stream should history repeat.
Ben Felix has a video on the international question you asked @4:50. Basically, it's because adding international stocks broadens the assets so you're more protected against US market fluctuations. I don't accept that adding international is better (because internation rates of return are historically lower) but Ben has data showing it's marginally less risky. (With "risk" defined as beta or variability in market pricing.)
I bet many Japanese didn't think too adding international stocks is better than having all domestic. And then 1989 came...
@@superdingo9741 The Japanese don't hold the world's reserve currency either.
Ben's point is that volatility is lower by holding international stocks. His point isn't that holding international stocks yields better returns. So it depends on your goals: do you want less volatility or more growth? People holding long term (younger people not near retirement, for example) might want more growth. Those nearing retirement might want lower volatility.
Even for those retired with enough saved up to survive a market downturn (like me), better gains could still be more important.
Everyone is different.
I will use 2.5% withdrawal rates when I retire, but granted I have a larger portfolio so 2.5% is not a small amount. I will use 2.75% if the portfolio grew large enough
The X.X% withdrawal rate that I decide on using may not work with the financial situation of a lot of people!
Thanks for an interesting video. Sadly, this '2.7% rule' study is an example of what Dave Ramsey was complaining about: nerds with calculators. Ramsey's flat 8% rule is not good advice but a flat 2.7% also is not realistic. Predicting the future accurately is not possible so inflexible rules don't work; people are going to have to pay attention to their investments and make changes throughout their lives based on their comfort level at that point. I would be interested to see a study that focused on how much money you could have pulled every year for 30 years if you adjusted your withdrawal each year based on the prior year's results. Most non-wealthy people in America will have some baseline income from Social Security and probably use this figure as a starting point. They probably constantly adjust lifestyle up/down based on actual income/expenses (e.g. good market return or inheritance windfall vs. new roof or car needed) and the other unpredictable stuff that happens every year. I don't know of many financial advisors who predicted COVID would come along in early 2020 and play havoc with people's lives. People are far more adaptable than these rigidly-concocted studies presume.
The safest withdrawal rate is 1.75% .
The 4 percent should be just fine . I don't know why people over analyze
Its been a year since this video came out. The markets rose like 26%. Planning your retirement rate around WW3 is ridiculous and forces people to work far longer than they need to. There will always be scary what ifs but those scenarios are outliners. Id rather plan around sensible likely outcomes and retire a decade earlier. If the markets do tank several years back to back for the critical first few years (unlikely) I'll just adjust my spending or maybe go back to work for year. My SWR is 5-6% and I'm not worried in the slightest.
First year of retirement ends soon. After I pay my taxes, we'll see. My plan was simply buying what I needed and a few things I wanted. My income from investment should cover my expenses. There never was a plan of withdrawal, not 4%, 8% or 2%. Hopefully nothing
At least in the US on a macro level, Millennials and younger generations are going to be primed to work well past the traditional retirement timeframes of today…and have less available to them when they do. Just the act of implementing significant Social Security and Medicare reforms will shift more of a ‘cost’ burden to them further limiting saving opportunities. In talking with younger folks compared to even 10-20 years ago, that even have a thought about end of career goals, 4%, 2.5% and so on,it doesn’t seem to even matter as retirement as we think of it today seems unattainable. Not sure this was a legacy older generations wanted to leave their kids, grandkids, and future generations.
I could guess where Ben comes up with the number. Assuming a 50% stock, 50% bond, with 70% international stocks and 30% US stocks, the portfolio withdrawal would be around 2.7%. He's endorsed 70% international and 30% domestic in several videos
I retired at age 51. I live in Mexico now and I receive a state government pension, which is more than enough for me to live on.
I invested in a 457 for government workers my entire 30 year career, so I have a sizable amount that I’ve rolled over into a Rollover IRA.
My question is: should I take regular withdrawals after 59.5 yo, or try and stick it out as long as I can?
I’m single but living in what is known as “sandwich” years, where my kids are young and attending college, and my parents are advanced age.
Congrats on your early retirement. Wish I would have invested at an early age as well. Best information you can give to your children.
Are you still a US citizen and paying taxes? What part of Mexico did you settle in? How is the healthcare?
What do you plan to do with the money if you don't spend it? I don't think there is a "should" in your situation other than your values. I intend to work as long as I can and spend conservatively so I can be independent and charitable. Some people spend lavishly on their children and then expect their children to provide in retirement. Some people want to leave a nest egg behind for the children.
And if you have a financial advisor and he/she screws you out of 1-3% of your portfolio annually; the withdrawal rate could be less. If you go into low cost index funds you can double your withdrawal rate
Nice critique -- this was a very academic study with little practical use in the real world.
But what it really shows is that you should not be investing much in unstable and worn torn countries, especially in their sovereign debt. If anything, this tells you why you should NOT invest in any but the most stable countries who hold reserve currencies and can borrow in those currencies. Debt denominated in non-reserve currencies in particular is just speculative folly.
In 1900, United kingdom was at its imperial high noon, and sterling was the world reserve currency. If you told a British man in 1900 to invest in US treasuries instead of British government bonds, he might question your sanity. And the rest is history.
@@yu-weiwang6002 But he/you wouldn't given the chaotic and weak financial system of the U.S. at the time that almost collapsed entirely in 1907. Maybe you would have considered US bonds around the time of World War 1 when the U.S. finally had a central banking institution after going without one for 75 years. In 1900, most investors -- in Britain and elsewhere --- would have been buying lots of gilts and very few US bonds.
Ugh...Have to school Rob again. M* does a good job addressing this in detail..Real Time. Early last year with interest rates low...3.3%. M* just revisted withdrawal rates this year...3.8%. All about interest rates and future stock returns.
I know I am late to this, but does not the USA have annuities- they would make help a lot of retirees get some certainty, and a lot more than 2.7% ( because the punters that die early and up paying for the ones that live a long time effectively as you know) both single life and joint life. I just looked at some current rates which have recovered a lot recently, joint life you can get more than 5% stating around 67. Guaranteed....... but you lose the capital.
If you are afraid of living well into your 90s and running out of money buy a QLAC that kicks in at 85. Doesn't cost very much if you are say 65 and you can move on with your life
It’s very possible to get around 4% dividend safely… why then bother about selling 4 or 2.7% of portfolio ?
There is an issue with the 3.5% for the "global markets" because that dataset only includes countries that survived the past century (survivorship bias). It does not include countries that collapsed like China, Russia, Argentina, etc. My guess is that it's much lower than that and probably closer to 3.0%.
You should only plan on living to 80. At that point just be happy with your social security and do a reverse mortgage. Or just sell your home and bank your cash to pay rent somewhere for many years.
2.7% withdrawal rate? That is the saddest thing I have ever heard. May as well just work until death.
That’s my plan
Amen. Yeah.. retire with 1M and you can only pull $27K (with annual inflation increases) for the rest of your life. No thanks.
Pay attention, that has a lot of caveats, the most obvious one is that that 2.7% can be increased by investing globally, and probably by putting some portion of the portfolio in small cap value. Other point: right now it's already possible to achieve a 4% withdrawal using a TIPS ladder.
Lastly, Rob mention during the video reasons to question that 2.7% validity.
Part time work (even for just a a few years) resolves a lot of retirement issues.
If 2.7% is good then 1% would be terrific!
This gets a little ridiculous and over complicated IMO.🤨
Ben is wrong, A 2.7% withdrawal rate would take 25 years without any investment gains at all, before running out and that includes adjusting your withdraw by 2% per year for inflation. I can't model sequence of returns but if you add in only a 0.1% annual gain (1/10th of a percent) a year, you could get nearly 30 years. That 2.7% safe withdrawal must, in part, represent some absolutely terrible markets with significant sequence risk. Way too conservative.
If the US market outperforms the world an efficient market whould make it so US stocks going forward the US market is going to be overpriced to compensate for the potential outperfmance till the risk reward matches other parts of the international market. And since the world market includes all parts of the world it is more diversified than any individual part offering better risk to reward than any individual part like the US.
That data also includes the Japanese stock market bubble where pe ratios got above 60. You could argue that someone should have been able to see that coming. I'd be interested in seeing what would happen if this data took into account market valuations or removed war torn countries. The US is unlikely to have a war on its own soil.
Do you still think that a war on American soil is unlikely given the significant tension between opposing political views?
@@superdingo9741 I think it's still pretty unlikely but then again I never thought Trump would be elected in a million years so yeah. I think people are just talk though and only a few crazies are willing to bite.
I am 28 years old watching these kinds of videos lol.
Crazy yeah??
Can you do a video on Dave Ramsey's 8% withdraw?
he did
If WW III is in the U.S. the return on my money will be the least of my concerns. I guess we could be hit by an asteroid or super caldera in Yellowstone could erupt too. I would be more concerned with an aging population something that is happening and the increase in voluntarily in the market. You are correct Rob if you end up making less live more frugally which is possible.
But Japan.
2.7 or 4.0% withdrawal rate? I retired in 2000. Based on my experience the withdrawal rate is impacted greatly by those moments in investment history like the “Tech Bubble”, “Fed Changing Rates” “Covid” and the “Great Recession”. One year $1,000,000, next year $600,000.
Ideally, social security, a pension and being debt free at retirement are your cushion in the always fluctuating retirement portfolio.
My opinion. Ask the Advisor your choosing to hand over your Portfolio to, “how has your typical client Portfolio performed over the past ten years?” If he says it’s “the same Portfolio I’ve got my mother in” Time for a another Advisor interview.
Seems like luck or bad luck can be a major factor. I think I read that 1966 was worst year to retire (so far). The $1M to $600K scenario is what keeps me up at night.
If you never spend more than the dividends and interest that your portfolio produces, you will never run out of money..
If you pay an advisor 1% fee, does the withdraw rate drop to 1.7%?
If you pay an advisor 1% in this day and age (especially in retirement), you are financially irresponsible and should not retire early.
Why would you try and come up with a fixed percentage to withdrawal every year into the future, based on the past? Makes no sense....just adjust as the market changes. If things go down, adjust your spending. The past is not a predictor of the future. There is no safe withdrawal rate as there is still a chance the market could go to zero, although unlikely.
Hi Rob, I can't see how having any money in the market after the age of 70 makes any sense at all. Can you or any of your readers enlighten me on this?
Without an equity allocation, it is difficult to generate high enough returns to provide much income. You could actually make the case for a higher equity allocation as you age. This is a very long topic though and you aren't going to get a full answer here. Do some reading. Try anything by Wade Pfau.
@@howardfriedman7077 But what do you do in a bear market that could last ten years when you are seventy and need the money to live on as you are approaching death?
@@sanekabc Well, if you absolutely need the money to live on, you have a different problem.
This is 100% pure bunk!! If you have $1M you can only withdraw $27,000? Buy an annuity, It will pay you about $68,000 per year. Even with 3% inflation it would take more than 31 years for your $27,000 to increase to $68,000.
I have been living in several countries outside the US, and I can tell that this study has the typical North American bias. Nobody in a European country would think about limiting their investment to their home country. Outside the US, "international" as represented eg. in an MSCI World ETF (often adding emerging markets) is the default (if ever they limit themselves to one country it would be the US ;-). This should result in lower volatility thanks to greater diversification.
EUNL iShares Core MSCI World UCITS ETF is great. I'm investing in S&P500 & core MSCI World as a European.
I'm not sure about my future asset allocation. It's 100% stocks + an emergency fund worth 4 months of expenses right now.
For the stock part, I've thought about going 30% S&P500 & 70% MSCI World, but I'm not sure. 60% of MSCI World is already US stocks, but those past returns of S&P500 look very attractive.
Right now S&P500 makes up 59% of my allocation, MSCI World 35% and two individual companies make up the rest.
I think Rob has missed the whole point. The idea of this was to remove factors like us winning WW2 and the Cold War…..
The 4% “rule” has always been kind of ridiculous. At the end of the day most people should simply use a dynamic withdrawal rate and I bet many already do without even thinking much about it
That what Ben proposes
@@EinzeltonTV Of course
The "4% rule" is not really used as a withdrawal strategy but most as a rule of thumb to know how much you need to retire (if your most basic expenses are above 4%, then you are good to go).
Imagine that your most basic expenses (after cutting all the costs as possible) are X% of the portfolio, the year you retire, the market crashes, and you have to spend the minimum as possible, the you would end spending X%. The next year the market hasn't recovered yet, so you spend again your most basic expenses, and that would be X% of your starting portfolio adjusted for inflation, the next year the market starts to go up, but you already withdrew too much of the portfolio the previous years, so you have to spend the minimum again, and so on....
Then, withdrawing with a "4% rule" would only come naturally if things go terribly wrong.
Elimination of survivorship bias by looking at post WW2 doesn't seem to make sense.... Your assertion that it doesn't matter because if that happens withdrawal rate will be much lower and therefore don't look at it is illogical. That would assume that all of your $ was invested in the place that got hit by the war. Maybe 25% of your investments are in countries hit by WW3.
I find most of time Rob's reasoning well but I'm surprised by his take on this and suggesting further cherry-picking time period. The home country bias in original Bengen's 4% rule should be accounted for and hence the new study. Funny that Rob walked back and convinced himself that safe withdrawal rate should not be 4% but came to the same lower number in 2%-3% for a different reason (the margin of safety).
I can buy a CD paying almost 5%
Can you get a 30 year CD?
Not after inflation you can't.
Ben works at a hedgefund, 90% hedgefunds can't beat index, anymore questions?
For the USA given our existing government debt levels, the coming entitlements burden on our governments finances will be the economic equivalent of a world war. Short of discovering some magical way of boosting economic growth the only thing the government can do is to redistribute income from workers and those retirees with enough savings to those retirees without enough savings. There is no historical record that one can use to predict the outcome of this “experiment”. Therefore I would take any portfolio spending percentages with a giant heap of salt.
Millions have been following the 4% rule for almost 30 years now with great success. If there were too many failures we would have heard about that by now. No guarantees for the future but I'm confident in the 4% rule while using flexibility and guardrails. It's easy to say for some they would just cut down spending to 2-3%, however, most people have not saved enough money for that. They need 4% of a smaller amount saved. So either people are going to get into financial trouble or they will be working into their later years. Many are hoping the 4% rule is still valid. That is what they prepared for.
Illogical reasoning. It assumes one of the best performing nations in the world will continue to beat the odds and ignores survivorship bias.
@@jeffsim4191 Not any more illogical than assuming the USA won't do as well as it has done during the past 70 years. You nor I know the future. If you are able to save up extra and spend only 2.7% of your savings then good for you. However, the majority of Americans will have a difficult time saving extra for anything less than 4%.
@@yippie6862 history and statistics disagree with you.
@@jeffsim4191Whatever that means...
@@yippie6862 the 4th turning + large debt cycle + 3x national debt that there was 14 years ago. + Politicians unwillingness to not provide bailouts creates zombie companies and mal investment. Nations predictably rise and then fall because of these things. It happens over and over and over. To think the US will to continue to outperform instead of reverting to the mean is just recency bias. PE ratios are still near all-time highs and currently suggest a dollar in today shouldn't do better than 3-4% per year over the next decade. Relatively flat. Don't think it can happen? Take a look at Japan and what debt has done to them.
It could be the right withdrawal rate for a Canadian investor like Felix.
The only safe withdrawal rate is: whatever your dividends are paying.
And if the dividends get cut?
Most people are wishful thinking. 80 years old is much closer to our life expectancy.
Depends on your starting point, doesn't it?
Yes but what happens if you're in better than average health? Life expectancy also includes the guy that smokes two packs of cigarettes a day and drinks a case of beer.
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Mexico sampled as developed country since 1994?, that's just wrong
if I run out of money at 95 I'm fine living on social security, but I'm not going to be that conservative. The 30 year t-bill is paying 3.7 right now%, so you could just buy that and live on 3.7% dividends and never touch your principal.
True but that doesn’t include inflation adjustments.
And how much money will you lose from inflation? 30 years ago I made $6 an hour
@@johngill2853 agree equates to only around 2.3% initial withdrawal rate with 3% inflation to net out the same as the 3.7% flat for 30 years
@@johnlittle8267 are you sure? Because I just used a Future inflation calculator and at 3% one dollar today will equal $2.42 in 30 years
You need to include inflation, you should only be withdrawing around 1.2% if you want to keep up with inflation, and 1.2% is just overly Conservative and there are better portfolios than treasuries alone
Just build a portfolio of stocks and ETFs that all together give you a 4% first year yield that has a history of rising with or faster than inflation over time, not counting hyper inflation which would be a black swan for sure.
That way you are only spending dividends and never have to touch principal which also means not running out of money, barring no financial crisis hits you personally.
any % withdrawal rule is meaningless, because it is assumes you can unscramble an egg. The % withdrawal rate is whatever the % withdrawal rate, not some fixed % withdrawal rate.
Really? Ben is a joke.