Set forth below is the text of a comment that Wade Pfau posted to a recent blog entry here:
Hi Rob,
I know you like getting to the point, but I think your comment about Mr. Bengen causing failed retirements is too harsh. Just a couple of things to keep in mind:
1. As you know, he was the one to point out that 7% is not safe because of sequence of returns risk. In that regard, he made a very positive contribution by bringing expectations down from 7% to 4%.
2. He notes that 4% is the worst-case scenario from history. Though he puts more faith in the idea that history already provided some bad situations (Great Depression, Great Stagnation) and so we are unlikely to get an outcome even worse, I am comfortable with the way that he does highlight 4% as the SAFEMAX. I like this approach better than the probability tables in the Trinity study.
3. It still isn’t obvious that 2000-era or more recent retirees will have withdrawal rates below 4%. It is likely, but not guaranteed, so in that regard your comment is too strong.
4. Mr. Bengen is keeping an open mind about valuations. I think there is still some confusion since Michael Kitces 2008 article didn’t recognize that high valuations could cause even lower withdrawal rates (that is something he corrected in a later blog post). Financial planners seem to be most familiar with Michael’s article and not his follow-up. But Mr. Bengen is recognizing that there is something going on here and he is still working through it.
5. Researchers shouldn’t be blamed if they didn’t think of everything when producing their research. He made a great contribution, and others are extending his work. He is keeping an open mind and not dismissing these extensions.
Best wishes and happy holidays.
And so, what is your take on what Pfau has said?
Usually you are quite liberal with your opinions, surprised you did not do your usual attempted point by point deconstruction.
I responded point by point in the thread to which I linked above, Drip Guy.
I made this a separate blog post because I think the comment is of some significance and I want it to be highlighted a bit more than it would be as a mere comment to a blog post.
I strongly disagree with Wade re this point. I was happy to be able to make the many positive comments re Bengen that I was able to make in my response. It of course always makes me happy to be able to do that sort of thing. But I strongly disagree with the idea that retirement studies that get the numbers wildly wrong don’t need to be corrected.
The fact that there is even one person on Planet Earth who thinks it is okay not to correct a retirement study that gets the numbers wildly wrong is stunning. The reality that prevails today — that the number holding this viewpoint is larger than one — is beyond the understanding of the rational human mind.
That said, it is my job to at least try to understand it. It’s by understanding how messed up things are today that we move to a better place.
I think people pull back because they sense the significance of acknowledging the obvious reality of the situation: Once we permit honest posting on SWRs, the entire Buy-and-Hold shebang goes down.
I think that would be wonderful beyond words. Once Buy-and-Hold is buried 30 feet in the ground, we all get to take advantage of the 30 most exciting years of investing research ever seen in the history of the planet. It’s going to be one breakthrough finding after another after another. We all will be investing far more effectively than we ever imagined before, earning returns that permit us to retire many years sooner while taking on only a tiny fraction of the risk we had to take on to invest in stocks in earlier days.
Why would anyone hesitate to go down that road?
Why does anyone hesitate to show their feelings when they have met the love of their life? Why do some smart kids hesitate to pursue the career for which they are obviously best suited? Why do many people never even explore the idea of early retirement when it would be easy for them to pull it off if they directed only a tiny bit of effort to financial planning?
Some of us don’t love ourselves enough, Drip Guy. That’s the bottom line re all this.
I think early retirement is a wonderful option and I see the possibility of showing people how to invest more effectively as a win/win/win/win. My feeble brain is not even able to imagine any possible downside.
We are on the threshold of entering the greatest period of economic growth ever seen in our history, Drip Guy. I very much would like to see Wade serve as one of the leaders bringing us there. So I was disheartened to see the gibberish he put forward in that post and in the follow-up comments he put forward in the earlier thread. I hope he comes to love himself more over time. I hope you do too. And I hope I do too. And I hope that all the others who have participated in our investing discussions over the course of the first ten years do too.
Those of us fortunate enough to be alive to see the greatest expansion in history of our knowledge of how investing works are truly a blessed people. If only we could stop feeling so angry about it!
Rob
A follow-up point.
If Bill Bengen were to work up the courage and grace to correct his study, I am highly confident that that would over time become known as the greatest contribution he ever made in this field. My strong hunch is that there was a day when Bill was a young man when he dreamed of someday being able to do something so important. Many years later, the opportunity to do so has been presented to him on a silver platter. If he elects to move forward, there is no one alive who can stop him. He has today within his grasp the power to through his own actions realize his lifelong dream.
That’s cool stuff, Drip Guy.
We all should pray for Bill Bengen (and for Wade and for you and for me and for all the others, to be sure) that we are inspired and emboldened to make good choices re these highly important matters.
Is the glass half full or is the glass half empty? It appears to me that how you respond to the question depends on how you have lived your life up to this point and on what sorts of beliefs about people and life and the purpose we serve during our years down here in the Valley of Tears have come to govern your heart.
Be well, my old friend.
Rob