What Berstein says about swr- via email
Posted: Thu Jul 24, 2003 4:30 pm
I couldn't coax him to say anything about mathematical certitude but he is clearly supporting a lower withdrawal rate. I sent him a link to gummy's
swr/life expectancy page which he said was "nice"
i *do* like the trinity study--it's groundbreaking work, it's just that the
embedded return is all wrong going forward . .
all depends on just how long you're going to live, how safe you want to
be, and how much you want to retire on. the three trade off against each
other. if you're 50 and you can't live with even a 2%-4% risk of failure, then you're stuck with a 2% withdrawal rate. if you don't mind a 10% risk (and i can live with that) then 3%-4% is likely ok. and if you're 70, you can probably get away with 5%. the trinity study?? fuggedaboudit. the methodology is sound, but remember, there's a 7% real equity return embedded into it. who in the peanut gallery wants bet their retirement on that?
swr/life expectancy page which he said was "nice"
i *do* like the trinity study--it's groundbreaking work, it's just that the
embedded return is all wrong going forward . .
all depends on just how long you're going to live, how safe you want to
be, and how much you want to retire on. the three trade off against each
other. if you're 50 and you can't live with even a 2%-4% risk of failure, then you're stuck with a 2% withdrawal rate. if you don't mind a 10% risk (and i can live with that) then 3%-4% is likely ok. and if you're 70, you can probably get away with 5%. the trinity study?? fuggedaboudit. the methodology is sound, but remember, there's a 7% real equity return embedded into it. who in the peanut gallery wants bet their retirement on that?
I have a question about 4 Pillars. I am part of the group of investors that read your books, anxiously await each Efficient Frontier issue and discuss the implications endlessly. Obviously we would all like to know the maximum safe inflation adjusted withdrawal rate from a portfolio. We have been looking at statements in 4 Pillars, especially page 234. You indicate that because of lower projected stock returns (Gordon equation) and the risk of adverse sequences one "might not be entirely safe" withdrawing more than 2% (based on the market at that time). I take this to be a cautionary warning that we can't always rely on the 4% range number from the Trinity study and others when valuations are extreme. You go on to mention reasonable withdrawal rates of 2-5% with a small risk of a need to reduce spending if you hit an adverse sequence of returns. My friend feels that since this 2% number was "produced as the result of a mathematical calculation" and based in data that you were "able to state (not predict) that the safe withdrawal rate for investors retiring in 2000 was 2 percent, not 4 percent."
Although I accept that a 2% inflation adjusted withdrawal based on
initial, portfolio value is always safer than 4%, I don't think we can actually call the 4% rate unsafe.
We have a mutual friend who thinks the Trinity study result will be a
fine guide to the future. Can you help us? Was any inflation adjusted withdrawal greater than 2% "unsafe" at the time the book was written?