I recently wrote a Guest Blog Entry for the Moolanomy blog entitled The Difference Between the Multiply-by-25 Rule and the 4-Percent Rule.
Juicy Excerpt: I believe strongly that the 4-Percent Rule at some times overstates and at other times understates the amount needed for a safe retirement; at times of high valuations the true safe withdrawal can drop to as low as 2 percent and at times of low valuations it can rise to as high as 9 percent. The Multiply-by-25 Rule isn’t by itself perfect either. There are times when obtaining a 4 percent return is child’s play and there are times when you need to go hunting for a mix of asset classes that will provide that level of return.
Old Hand says
I wrote the following reply to the guest blog, but I’m not sure it appeared. Would you please host it here, and perhaps respond?
Thanks!
Old Hand
Anyone interested in the actual data and studies underpinning the 4% Withdrawal Rate Rule developed in the nineties in response to Financial Advisors previous claims that 7 to 10% withdrawal rates were “safe”, might want to go to this link for a very thorough explanation, using the actual source materials:
http://www.bogleheads.org/wiki/Safe_Withdrawal_Rates
When the guest blogger claims: “the 4-Percent Rule at some times overstates and at other times understates the amount needed for a safe retirement; at times of high valuations the true safe withdrawal can drop to as low as 2 percent and at times of low valuations it can rise to as high as 9 percent,” it is the belief of most who respond to him over the years he has been claiming this (including myself) that he is either misinterpreting or misstating the studies findings and/or intent. The question the study set out to find was the single rate that would survive all periods for a given interval, and it turns out that was as little as half of what many advisors were suggesting! That was the purpose and the value of the study. Period. It’s results (if not it’s implications) remain completely unchallenged by competent parties as to accuracy, arithmetic, method, and clarity of reporting the findings.
http://www.bogleheads.org/wiki/Withdrawal_Methods
And finally, the forum at the link is dedicated to a philosophy of investing that is the OPPOSITE of what the guest blogger espouses on his own site. Getting a *full* and balanced picture helps everyone!
http://www.bogleheads.org/forum/index.php
Good investing, everyone! I would suggest that you read much, consider the source of what you read, and ask lots of questions!
John Walter Russell says
Rob,
That’s a really good article. Thanks.
Have fun.
John Walter Russell
Rob says
Thanks for the kind words, John.
Rob
Rob says
Thanks for sharing your thoughts, Old Hand.
Your words do indeed appear at the Moolanomy site. Perhaps there was a moderation delay.
I responded over there. Here is another link:
http://www.moolanomy.com/1690/the-difference-between-the-multiply-by-25-rule-and-the-4-percent-rule/
Rob