Set forth below is the text of a comment that I put to a recent blog entry here in response to a comment by Wade Pfau arguing that I had been unfair to Bill Bengen by saying that the mistakes he made in his Old School safe withdrawal rate study in all likelihood will cause millions of middle-class people to suffer failed retirements:
I am extremely grateful for your comment, Wade. I of course want to be fair in everything I say at the site and by challenging me you are adding some balance to the mix here. Your comment is important enough that I am going to run both your comment and my response as stand-alone blog entries on future dates. I am also going to send an e-mail to Bill letting him know of my blog entry and your comment to it and my response to your comment . In the event that Bill wants to add some words of his own, I will of course gratefully post here any comments he elects to add.
I don’t agree with your conclusion that my comment that Bill has in all likelihood caused many failed retirements is too harsh. I stand by that claim. There’s one aspect of my statement that was poorly stated. I describe below how that part of the statement should have been stated to be precisely correct.
I agree with all the points you made about the many valuable contributions Bill has made with this SWR studies.
Yes, he did effectively make the point that a withdrawal of 7 percent is not safe. That was an advance of huge importance. Bill is a pioneer in this field and we all should be grateful for his many valuable contributions. I like to think that in ordinary circumstances that would go without saying, but, given the circumstances that in fact prevail today, I don’t think it hurts to say it as often as possible.
Yes, he did show that 4 percent survived historically. We wouldn’t have the New School SWR research if we hadn’t first had the Old School SWR research. And we wouldn’t have Valuation-Informed Indexing if we hadn’t first had the New School SWR research. So Bill’s work has led us to some amazingly fruitful investigations. There’s no question whatsoever that this is so.
No, it is not certain that retirements that were initiated at the top of the bubble and that called for 4 percent withdrawals will fail. It is LIKELY that they will fail but not certain. This points to one element of my blog entry that is a bit overstated. The precise way of saying things is that the 4 percent rule caused millions to set up irresponsible retirement plans that are LIKELY in the process of going bust. The research shows that there is a 30 percent chance that those retirements will survive 30 years. That’s not a zero chance. But it is obviously a false claim to say that a retirement plan with a 30 percent chance of working out is “safe.”
Yes, Bill is evidencing an open mind on the valuations question. He said numerous encouraging things in his interview. I agree completely that “Mr. Bengen is recognizing that there is something going on here and he is still working on it.” That’s wonderful news. He could offer a huge help to our efforts.
Yes, you are 100 percent right that “researchers shouldn’t be blamed if they didn’t think of everything when producing their research.” Pioneers are people who go where none before them have dared to go. No human can be sure of getting everything right. It would be 100 percent wrong for someone to find fault with Bill for having made mistakes in his first draft effort at development of the safe withdrawal rate concept. His efforts taught us all important things about how stock investing works in the real world. They advanced the ball in highly significant ways.
All that said, it remains the case that there are millions of middle-class people who have been misled by the 4 percent rule into crafting dangerous and irresponsible retirement plans. In the event that stocks perform in the future anything at all as they always have in the past, we are going to see millions of people left destitute as a result of the errors that Bill made in his study (errors that were copied by many “experts” who followed Bill’s lead, to be sure). We are going to be seeing millions of people left without financial resources at an age at which they are too old to recover. We are seeing play out one of the worst social crises in the history of our nation.
What are we all doing to address this crisis?
I am trying to get attention drawn to the matter. I have been saying since the morning of May 13, 2002, (the day on which I put forward the post to the Motley Fool board pointing out the analytical errors in the Old School studies) that we should be permitting honest posting on SWRs and many other valuation-related topics on every board and blog on the internet. I have written John Bogle three times asking for his help with the Lindauer matter. I have written to numerous journalists, seeking to get these matters written up on the front page of the New York Times and the Wall Street Journal.
Is Bill doing that? If not, why not?
We all should aim to be fair to the financial planners who made mistakes while advancing our knowledge in significant ways. Should we not also aim to be fair to the millions of middle-class people who will in all likelihood be suffering one of the worst life setbacks imaginable as a result of the errors made by these financial planners? it certainly seems so to me.
I will do anything I can to help the financial planners who find themselves entangled in the mess that we as a society created when we pretended for a time that the market is efficient and that we know far more about how stock investing works than in fact we do know at this point in time. Part of that effort has to be doing things to get the word out to the millions of middle-class people who are suffering such terrible human miseries as a result of the very, very serious mistakes that have been made.
This is not a joke, Wade. This is very, very, very serious stuff. You know how much I respect your work and how much affection I feel for you as a person. But I also care about the people whose lives are being destroyed. I cannot forget those people. Bill should not be forgetting those people. You should not be forgetting those people. Bogle should not be forgetting those people. The journalists and the economists and the politicians should not be forgetting those people.
Again, thank you for posting your helpful and constructive and positive and life-affirming comments. I hope they help us all get about the business of taking the work that hundreds of us have been doing together over the past nine years to some wonderful and enriching places. I remain confident that, working together, we can take what we have learned and, by sharing it widely, bring on the greatest period of economic growth that we have ever seen. I certainly hope that that turns out to be the case.
Please keep fighting the good fight, my brave friend.