FrugalDad’s blog entry for yesterday (“Saving for Retirement: What’s Your Number?”) explored the infamous “4 percent rule” from the Old School safe-withdrawal-rate studies.
Juicy Excerpt: The rule of 4% uses a couple assumptions, some of which are hard to justify in our current market conditions.
I put forward some comments explaining why I believe that the Old School studies are analytically invalid and why the New School studies are the future of retirement research. I pointed out that The Retirement Risk Evaluator shows that the safe withdrawal rate for retirements beginning at today’s valuations is over 6 percent.
Juicy Excerpt: Suggesting that the number is low today just adds to the doom and gloom, which is the last thing we should be doing today. The reason why we are inclined to overstate the bad news today is that we are reacting to the shock experienced in seeing stocks perform from insane price levels just as we would have expected them to had only the “experts” warned us of the dangers. Emotional extremes beget emotional extremes.