This is another complaint about those dastardly Old School safe withdrawal rate studies. It might not seem to be such at first. It might seem that I have turned my attention elsewhere for a passing moment. But it is not so. Keep reading and you’ll see. It ends up being about SWRs, just as most everything else does in the HocoMind.
There’s an article at John Reed’s site in which he complains about readers who complain about typos in his self-published books. I cannot quite go along with what John says re the typos matter. It takes a lot of work to get all the typos out. But it’s rude not to do so. You are asking your reader to take time out of a busy day to read your words. The words need to be polished. Typos are smelly stuff.
That said, John is right on in the more important point that he is making in the article. He points out that the big publishers who apply the polish needed to get the typos out too often fail to get factual inaccuracies out. If typos are smelly stuff, what are factual inaccuracies? To get the facts wrong creates an even more offensive odor. There’s a thing called Priorities. If you are going to make the effort to get the typos out, you should also be making a more serious effort to get the factual inaccuracies out. There’s no sensible justification for doing otherwise.
I go a step farther than John. I say that book publishers should run a logic check on the arguments presented in their books. I’m not saying that all books should express the same viewpoint. If I were the head of a large publishing firm, I would publish lots of books that employed logic that was not my logic. But I would have standards. There are some ideas that are so weak that a publisher should not be putting its name to them. When you publish something, you are giving it a sort of endorsement. You are not saying that you agree with the arguments. But you are saying that the arguments possess at least the minimal merit required for you to put your company’s name on the jacket.
Now we get at last to the SWR part, the part that matters to aspiring early retirees.
The same lack of standards that John is saying applies in the publishing field applies triple in the investing field. I have been horrified to discover in recent years how low the standards are in this field.
Most middle-class investors I have spoken with have no idea how bad things are. No idea whatsoever.
My sense is that what most people do is to assume that the “experts” apply the same sorts of standards that they would apply if they were standing in their shoes. It doesn’t work like that. But most people assume it does. This is how we all came to find ourselves in the dangerous place we find ourselves in today.
Why do people trust the experts? It’s because they see trustworthy behavior. That fools them.
Say that you read a book put out by a big publisher and you note that it contains zero typos. You’re impressed. You understand that it must take some effort to get all the typos out and you are pleased to see that this book does not contain any. That builds trust. It is like seeing a job candidate who has taken the time to polish his shoes and read up on the company. You don’t believe everything in the book just because of that. But it certainly gets you leaning in the right direction.
The Old School studies get the numbers that people use to plan their retirements wildly wrong. People who retired at the top of the bubble were reading in the Old School studies that, if they went with a high stock allocation and planned on taking out 4 percent of their portfolio each year, their plans were “100 percent safe.” Analytically valid studies show that such retirements have only a one-in-three chance of surviving 30 years, according to the historical data. Millions of middle-class people are going to suffer one of the worst life setbacks imaginable because of these demonstrably false claims.
I have not been able to find anyone with any “juice” who cares much. I’d love to get an article on the front page of the Wall Street Journal telling people what we have learned so that we can save millions from suffering busted retirements. A typical response I have heard to my pitches to the major newspapers is the words I heard from a fellow at USA Today: “Not for us.”
Not for us. There are millions of people who are likely going to suffer busted retirements in days to come and who could be spared that fate by accurate reporting of what the historical data says. But the story is “not for us.” It certainly is not my intent here to pick on USA Today. As noted above, this has been a common reaction.
It’s because what we have discovered is not a typo. It’s far, far, far, far worse. If we had discovered a typo, the papers would be jumping on it. We would see banner headlines; there’s always room for more silliness in the papers. But a story that would help millions avoid one of the most terrible life setbacks imaginable? There’s only so much space and there’s been a lot going on lately, you know? Britney recently tried a new brand of shampoo. The people must be kept informed.
People focus too much on the petty stuff and care too little about the fundamental and truly important stuff.
Lots of people have asked me: “What calculation did they get wrong in the Old School SWR studies?” They didn’t get any calculation wrong. They got all the numbers wrong because the methodology ignores the most critical factor in determining what withdrawal rate is safe (the valuation level that applies on the start-date of the retirement). “Oh, that’s all. Well, call us if you come up with anything that would be of interest to our readers.”
The obvious question is — Why? Why do people in positions of responsibility care only about the petty stuff?
I think the explanation is that the petty stuff is easier to deal with. If someone gets a calculation wrong, it’s easy to say what needs to be done to get it fixed. If the studies that we have been using for many years now to plan our retirements get all the numbers wildly wrong, we’ve got a big job ahead of us. We’ve got millions of retirees we need to try to contact. We’ve got to rewrite all the textbooks. We’ve got to figure out how so many “experts” failed to notice this doozy of a mistake. We need to review the peer review process that let these whoppers through. We need to revisit all the investing advice rooted in the same model of how investing works, which is pretty much all of what we have been hearing for 25 years now.
The errors that were made in the Old School studies are a big, big, big, big story. Too big. Too big for lots of folks to take in. Too big for lots of folks to deal with. Too big for lots of folks to get worked up over. Too big for lots of folks to write up.
You’ve heard of the banks that the government has deemed too big to fail? The Old School SWR studies are the retirement studies that the investing “experts” have deemed too wildly inaccurate to correct.
The other side of the story is that I haven’t discovered any typos in any of them.
If I ever do, watch out, world!
Today’s Passion: In the blog entry entitled Rocky Meets Bogle, I say that, if I saw Jack driving carelessly, I would yell out the window a suggestion that he slow down and perhaps invite him out for a Tony’s tomato pie in the bargain. My thought is that anyone who sees anything mean-spirited in that idea hasn’t had a Tony’s pie in too long a time.