safewithdrawalrates
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Todd Tressider is the owner of the Financial Mentor blog. I had an amazing conversation with him at one of the financial bloggers conferences. His blog is highly successful and Todd is a highly respected member of the financial bloggers community. He was a speaker at several of the events that I attended. He is in tight with a number of the big shots in this field. He could have helped me out in a big way. So I tried very hard to become friends with him. He told me that he had seen my work relating to safe withdrawal rates and that it prompted him to do his own research into the question. He t...
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The conventional safe withdrawal rate studies claim that the safe withdrawal rate is always the same number and that that number is four. This cannot be. Robert Shiller’s Nobel-prize-winning research shows that valuations affect long-term returns. So the safe withdrawal rate is a number that changes with shifts in valuation levels. Do the math and you learn that the safe withdrawal rate can drop to as low as 1.6 percent when stock valuations are as high as they were in early 2000 and can rise to as high as 9.0 percent when stock valuations are as low as they were in 1982. I’m glad that that’s ...
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The safe withdrawal rate is 4 percent. You hear Buy-and-Holders say that all the time. The idea is that a retiree can count on being able to withdraw 4 percent of his portfolio value ($40,000 from a $1 million portfolio) to live on each year for 30 years. The number was developed by looking at historical returns. A 4 percent withdrawal would have worked in all the 30-year return sequences available in the historical record. Safe Withdrawal Rate Changes With Changes In Valuation LevelsI don’t buy it. Shiller’s Nobel-prize-winning research shows that valuations affect long-term returns. If that’...
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I am the person who discovered the error in the Buy-and-Hold safe-withdrawal-rate studies. This was back in May of 2002. I had never had much interest in writing about stock investing before then. But the reaction to my post pointing out that the retirement study posted at John Greaney’s web site — which claimed that a 4 percent withdrawal rate is always “100 percent safe” — lacks an adjustment for the valuation level that applies on the day the retirement begins persuaded me that I had caught a tiger by the tale. A large number of community members thanked me profusely for launching the most ...
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I wrote last week about a recent article in Financial Advisor magazine titled Bill Bengen Revisits the 4 Percent Rule Using Shiller’s CAPE Ratio, Michael Kitce’s Research. I like the article because it says things that could not be said in May 2002, when I first pointed out the error in the studies claiming that the safe withdrawal rate is always 4 percent.Q3 2020 hedge fund letters, conferences and moreBengen writes: “High initial withdrawal rates are consistently associated with ‘cheap” stock markets and low initial withdrawal rates are associated with ‘expensive’ stock markets. The correlat...
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Bill Bengen has written an important article on safe withdrawal rates for Financial Advisor. It is titled Bill Bengen Revisits the 4 Percent Rule Using Shiller’s CAPE Ratio, Michael Kitce’s Research.The 4 Percent RuleThe 4 percent rule has been around since the mid-1990s. The idea in creating it was to provide aspiring retirees a rule-of-thumb that they could use to determine whether they had saved enough to hand in a resignation. Stocks were king in the mid-1990s. So the researchers calculating the number would assume an 80 percent stock allocation. They would look to the worst time-period in...
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