The Boglehead Wiki Statement on Safe Withdrawal Rates

The Bogleheads wiki contains the following statement on safe withdrawal rates (SWRs) under the heading “Controversy”:

“Unfortunately, the term ‘Safe Withdrawal Rate’ is necessarily an ambiguous term. This is because initial methods utilized historical data to statically determine what would have been safe given the actual results that past portfolios would have generated with the variables given. The next logical step, of course, was to use that information to predict future SWRs. Either use is technically correct, but one should always be sure to be clear whether the use is in reference to past or projected SWRs, so that unnecessary argument can be prevented.”

Set forth below are my reactions:

1) The statement is a positive development. There was a time when “defenders” of the Passive Investing approach were asserting that the Old School SWR studies are accurate. This statement implicitly (but not explicitly, to be sure) acknowledges that they are not. The SWR is the product of a mathematical calculation. It is obviously not possible for the Old School studies (which include no adjustment for the valuation level that applies at the beginning of the retirement) and the New School studies (which do) to both be accurate. For years, the Goons have asserted that anyone arguing that an adjustment for valuations is needed is “mentally ill.” This statement says that the New School studies are “technically correct.” This is a big advance from the former Goon position and represents an implicit acknowledgment that the Old School studies are analytically invalid (if it is “technically correct” to include a valuation adjustment to calculate the SWR, it is analytically invalid not to include such an adjustment).

2) The statement is logically incoherent. It is obviously not possible for both the Old School studies and the New School studies to be “technically accurate.” Either an adjustment for valuations is required to determine the SWR or it is not. The historical stock-return data shows beyond any reasonable doubt that a valuations adjustment is required. Many experts have confirmed this. For example, William Bernstein, author of The Four Pillars of Investing, has advised any investor giving thought to using one of the Old School studies to plan a retirement to “FuhGedDaBouDit!”

3) The statement is disingenuous. The statement asserts that the New School studies are “technically correct.” Yet the remainder of the wiki article contains references only to Old School studies. Did the Bogleheads that crafted the remainder of the article not bother to read the “Controversy” statement?

4) The statement is unhelpful to its readers. The statement does not include a link to The Retirement Risk Evaluator, the first New School SWR calculator. There is no excuse for the failure to provide such a critical link in a wiki treatment of this topic.

5) The statement is false. It is not so that the SWR phrase is “ambiguous.” The “safe withdrawal rate” is the withdrawal rate that is safe presuming that stocks perform in the future at least somewhat as they always have in the past. I have seen thousands of discussion–board threads in which investors saw references to safe withdrawal rates and were quite naturally led by them to believe that the matter being discussed was what withdrawal rate was safe. The Old School studies identify the withdrawal rate that would be safe in an imaginary world in which valuations have zero effect on stock returns. There is nothing “ambiguous” about the error made in these studies. It is a clear error and an obvious error and a highly significant error.

6) The statement is reckless. The statement appears in a wiki article that contains links (without warnings) to both the Greaney SWR study and to the FIRECalc SWR calculator. I notified Greaney of the errors in his study six years ago. I notified Bill Sholar, author of FIRECalc, of the errors in his calculator not too much later. Neither the Greaney study nor FIRECalc have been corrected in the time since. Both Greaney and Sholar have advocated bans on honest posting on SWRs at discussion boards at which they participate.

7) The statement is silly. It urges that “unnecessary argument” be avoided. I have had a front-row seat to the first six years of The Great Safe Withdrawal Rate Debate. I am not able to recall a single incident in which a poster supporting the idea that honest posting on SWRs be permitted on our boards engaged in any “unnecessary argument.” I witnessed tens of thousands of cases in which “defenders” of the Old School studies engaged in endless rounds of word games and abusive posting. The way to avoid unnecessary argument is for those now “defending” the Old School studies to urge corrections of the errors in them. Once the Old School studies are corrected, there is nothing to argue about.

8 ) The statement provides a false history of the development of our knowledge of how to calculate SWRs. Investing experts have been using the Old School studies to advise aspiring retirees for a good number of years now. The claim has always been that these studies report the SWR, not “what would have been safe” under the convoluted scenario described in the wiki statement. This is so for obvious reasons. An aspiring retiree is not seeking to learn what withdrawal rate “would have been safe” under some convoluted scenario; she is seeking to learn what withdrawal rate is safe for someone beginning a retirement at the time she is planning to begin her retirement. Even Ataloss, one of the lead Goons, has said that, if the Old School studies get the SWR number wrong, they are “worthless” (I view this as an overstatement, but I certainly do not believe that aspiring retirees should be using the Old School studies to determine what withdrawal rate to use in their plans).

9) The statement contains no apology to the thousands of fine community members in the Retire Early and Indexing communities who either participated honestly in our discussions or expressed a desire that honest posting be permitted. Given what these community members have been put through for six years now by the “defenders” of the Old School studies, an apology is obviously appropriate.

10) The statement does not explain the importance of our discovery that the Old School studies are analytically invalid. The Old School studies are the product of a Passive Investing mindset. Passive Investing advocates recommend that investors not adjust their stock allocations when valuations move from reasonable levels to dangerously overpriced levels. The Old School studies posit that the SWR is a constant number. The connection is clear; the idea that the SWR is a constant number follows from the idea that one’s stock allocation need not be adjusted when stocks go through dramatic price changes — the flaw in both claims is a belief that valuations don’t matter. Our finding that the Old School studies are analytically invalid throws serious doubt on all valuation-related claims made by those advocating Passive Investing, not just the Old School SWR claims.

11) The statement contains no discussion of a publicity campaign to warn the retirees taken in by the false claims of the Old School studies. This is our most pressing need today. The point of learning about investing is to help investors to avoid falling into traps. The point of SWR analysis is to prevent retirees from suffering busted retirements. What purpose is served by talking about the “controversy” without outlining the steps that need to be taken for the controversy to lead to positive action?

12) The statement does not explore the implications of our SWR findings. Our finding that the Old School studies get the number wrong served as the beginning of The Great Safe Withdrawal Rate Debate, not as its ending. The Stock-Return Predictor is the product of these discussions. We have been using what we learned about retirement investing from our examination of the flaws in the Old School studies to develop tools and strategies to help investors in the asset accumulation stage for some time now.

13) The statement ignores the Goon phenomenon. It is impossible to discuss The Great Debate in a fair and complete and accurate and balanced way without making reference to the role played by the Goons and by the site administrators, experts, and ordinary investors who have tolerated their presence in our community for so long now.

14) The statement fails to discuss investor emotions. It is clear from our discussions that many of today’s stock investors are emotionally invested in stocks and in all likelihood will remain so for so long as prices remain at sky-high levels. This is a reality of critical importance to any informed understanding of the “controversy” that has evidenced itself in our investing discussions of recent years.

15) The statement offers no recommendations for dealing with the abusive posting that has destroyed or damaged a number of Retire Early and Indexing boards. Again, why not address the practical?

It’s not a perfect statement. The reality remains, however, that it evidences an inching in the right direction. At this rate of progress, honest posting will be permitted at all the boards well before the close of the 23rd Century.

I’m joking! I do see positive signs and I think it is fair to classify this statement as one. We need more, a lot more. But progress is being made over time and it’s every bit as much a mistake to become too pessimistic as it is to become too optimistic. Let’s hope that a good number of our fellow community members are taken aback by this wiki statement and prompted by it to study the SWR matter in a good bit more depth. I see it as being entirely possible that that will happen and in that event the statement will end up pushing things forward. Let us pray!

Today’s Passion: Dallas Morning News Columnist Scott Burns has described my efforts to get the Old School SWR studies corrected as “catastrophically unproductive.” No, honestly!

Comments

  1. Rob says

    I’ve noticed that. It’s a good thing that I’m not the sensitive type. If I were, I think I might almost be getting the feeling at times that there are one or two or perhaps even three who don’t really want me around.

    It does no good to get paranoid, of course.

    Rob

  2. Anonymous says

    So, one of the major problems with the wiki is that it doesn’t link to your site and acknowledge you. Do you think there might be a bit too much ego involved here?

  3. Rob says

    It wouldn’t shock and amaze me to learn that there’s ego involved in the failure to provide a link to The Retirement Risk Evaluator, Anonymous.

    There have been hundreds of community members who have come forward with constructive input during the first six years of our investing discussions. It is those contributions that supplied the insights that led to the development of The Retirement Risk Evaluator (see tab at left). This is the only accurate SWR calculator available on the internet today. Are you able to think of some reason other than ego for the failure of the people who control what goes into the Bogleheads wiki to provide a link? Attributing this to a case of overblown egos is propably the most charitable explanation that the rational human mind is capable of imagining.

    I think it would be fair to say that the Bogleheads community would benefit from having the link available, right? Those who don’t care to make use of the calculator are obviously free not to do so, link or no link. So there’s zero possible downside to providing one. Those who would like to make use of an analytically valid calculator to plan their retirements would obviously benefit from being able to click on a link and to be taken to the only one that exists as of today. It’s a win/win/win/win.

    Yet there’s no link to The Retirement RIsk Evaluator in that wiki article. There is a link to an analytically invalid Old School study and there is a link to an analytically invalid Old School calculator. But there is no link to the analytically valid New School calculator.

    That makes a lot of sense, Anoynmous. That’s the community-minded way to go. That’s an act of integrity. That makes indexers look good to those learning about our investing approach for the first time. That reflects well on Jack Bogle, the guy who has given permission for this group to make use of his name in their promotional efforts. That’s the responsible way to go.

    Holy moly!

    Rob

  4. Schroeder says

    “Yet there’s no link to The Retirement RIsk Evaluator in that wiki article. There is a link to an analytically invalid Old School study and there is a link to an analytically invalid Old School calculator. But there is no link to the analytically valid New School calculator.”

    Actually, there are several links to Old School SWR studies. They have been authored by financial planning professionals and published in peer reviewed journals.

    Rob, you need to do the same. For you and your New School SWR studies to gain a measure of credibility, they need to be embraced by the financial planning community — both by practitioners in the field and journals read by both practitioners and academics.

    Another idea is to partner with someone who does have that credibility. I realize that the partners you have petitioned like Scott Burns and Jonathan Clements have not given you a warm reception. But surely, there must be others, right? How about Robert Shiller? That’s just one name that comes to mind. I’m sure you can think of dozens of other practitioners and academics who will partner with you.

    Schroeder

  5. Rob says

    Thanks for posting your comment, Schroeder.

    I don’t agree with that you are saying here.

    You’re raising an important point that has not been discussed in great depth in earlier discussions. I think that the best way for me to respond is to devote my blog entry for today to my response to your comment. I’ll get that up in a few hours.

    Rob

  6. SWR Lover says

    Rob,

    I personally wrote the intial article for the Wiki section on SWR. I also purposely included the statement you see there now:

    Original Author, in Wiki: “…one should always be sure to be clear whether the use is in reference to past or projected SWRs, so that unnecessary argument can be prevented.”

    I did that to illustrate there is no need to misunderstand history versus future. Most folks handle that concept quite nicely and naturally without needing to see such a clause, but I thought it added a nice closed loop to that potential argument(!) It certainly does not mean what you ascribe to it:

    RB on his blog: “This statement implicitly (but not explicitly, to be sure) acknowledges that [“old school studies”.. are not [correct].”

    It does not mean that in any way, shape or form. I know what it means, because I wrote it. My intent was to make sure the record is plain as can be, and I think it actually is. (Well, perhaps except for one person. We do what we can, but sometims there are limits…)

  7. Rob says

    I appreciate you explaining what was in your mind when you wrote the Bogleheads wiki statement, SWR Lover.

    I find what you say here repulsive. I mean no personal offense to you in saying that. But that is my sincere take and it is my job to share my sincere take with the readers of this blog.

    To say that your statement repulses me is a strong comment. As I did above with Schroeder’s comment, I think the thing to do here is to write a separate blog entry explaining why I use such strong words. I will reschedule the blog entry that I planned for today and write a new one. I expect that I will be able to get that up in a few hours.

    Rob

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