Posted: Wed Jan 19, 2005 1:12 am
If your analysis says a 2.5% SWR is about right for 80% stocks what does it say for 50% stocks?
Here's a link to a thread that JWR1945 put up titled "Calculated Rates of the Past Decade:"
http://nofeeboards.com/boards/viewtopic.php?t=2657
JWR1945's research shows an SWR of 3 percent for a 50 percent S&P allocation. This post is a little dated, but I don't believe that the valuation levels have changed greatly. So that appears to be a reasonable ballpark number.
It's important that you understand the distinction between a safe withdrawal rate (SWR) and a personal withdrawal rate (PWR). The SWR is a mathematical construct. There is a right and wrong when it comes to reporting SWRs. The PWR is the take-out number that a particular retiree elects for himself or herself. This is a subjective judgment call. There are no right or wrong answers when it comes to PWRs, only better informed and less-well informed judgment calls.
The SWR is a highly conservative number. When we say that the SWR for an 80 percent S&P allocation today is about 2.5 percent, we are NOT saying that aspiring early retirees who have large stock allocations should be planning on a 2.5 percent take-out. There is no law of the universe that says that you have to take the SWR as your PWR.
It alarms me to hear a retiree heavily invested in stocks say that he is going to take a 4 percent PWR. For an 80 percent S&P portfolio, a 4 percent take-out has only a 50 percent chance of working out, according to the historical data. That's not just a little bit unsafe. That's real real unsafe. I do not recommend that anyone put their life savings at risk in a plan that is basically a coin flip.
But I see no problem with someone going with a PWR of greater than 2.5 percent, even for a 80 percent S&P portfolio. Perhaps 80 percent safe is safe enough for you, or something like that. If you take the allocation down to 50 percent, you can obviously go with a higher take-out and still retain the same level of safety.
Nothing that we are saying makes it impossible for people to attain their Retire Early dreams. You hear that one all the time, and it is pure and complete nonsense. There are few posters in the history of our movement with as many posts in their records expressing enthusiasm for the Retire Early concept as me. But I see this movement as a movement of Practical Dreamers. Yes, we want to free ourselves of the corporate shackles. But we want to do so in ways that have a good chance of working out. We want to be realistic in our planning.
People who sell dreams not rooted in reality are not our friends. Not in my book. Unrealistic Retire Early schemes hurt people. When people get hurt trying this stuff, it discredits all of us and it discredits the Retire Early idea itself. We are dreamers, yes, but we are Practical Dreamers. That makes all the difference.
Here's a link to a thread that JWR1945 put up titled "Calculated Rates of the Past Decade:"
http://nofeeboards.com/boards/viewtopic.php?t=2657
JWR1945's research shows an SWR of 3 percent for a 50 percent S&P allocation. This post is a little dated, but I don't believe that the valuation levels have changed greatly. So that appears to be a reasonable ballpark number.
It's important that you understand the distinction between a safe withdrawal rate (SWR) and a personal withdrawal rate (PWR). The SWR is a mathematical construct. There is a right and wrong when it comes to reporting SWRs. The PWR is the take-out number that a particular retiree elects for himself or herself. This is a subjective judgment call. There are no right or wrong answers when it comes to PWRs, only better informed and less-well informed judgment calls.
The SWR is a highly conservative number. When we say that the SWR for an 80 percent S&P allocation today is about 2.5 percent, we are NOT saying that aspiring early retirees who have large stock allocations should be planning on a 2.5 percent take-out. There is no law of the universe that says that you have to take the SWR as your PWR.
It alarms me to hear a retiree heavily invested in stocks say that he is going to take a 4 percent PWR. For an 80 percent S&P portfolio, a 4 percent take-out has only a 50 percent chance of working out, according to the historical data. That's not just a little bit unsafe. That's real real unsafe. I do not recommend that anyone put their life savings at risk in a plan that is basically a coin flip.
But I see no problem with someone going with a PWR of greater than 2.5 percent, even for a 80 percent S&P portfolio. Perhaps 80 percent safe is safe enough for you, or something like that. If you take the allocation down to 50 percent, you can obviously go with a higher take-out and still retain the same level of safety.
Nothing that we are saying makes it impossible for people to attain their Retire Early dreams. You hear that one all the time, and it is pure and complete nonsense. There are few posters in the history of our movement with as many posts in their records expressing enthusiasm for the Retire Early concept as me. But I see this movement as a movement of Practical Dreamers. Yes, we want to free ourselves of the corporate shackles. But we want to do so in ways that have a good chance of working out. We want to be realistic in our planning.
People who sell dreams not rooted in reality are not our friends. Not in my book. Unrealistic Retire Early schemes hurt people. When people get hurt trying this stuff, it discredits all of us and it discredits the Retire Early idea itself. We are dreamers, yes, but we are Practical Dreamers. That makes all the difference.