I’ve posted Entry #83 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Retirees Should Not Be Afraid to Invest Heavily in Stocks.
Juicy Excerpt: The safe withdrawal rate wasn’t anything close to what the “experts” were saying it was back in the days when I was being hit over the head with bricks for reporting the number accurately. But valuations have fallen since then. The safe withdrawal rate is close to 4 percent today. My calculator shows that the withdrawal rate that has a 95 percent chance of surviving 30 years for a retirement beginning at today’s valuation level is 3.75 percent. If you were willing to go with a retirement that is only reasonably safe (an 80 percent chance of working out) and you were retiring today, you could go with a withdrawal rate of 4.35 percent.
It’s obviously true that a portfolio going with a low stock allocation is generally safer than a portfolio going with a high stock allocation. So, yes, we can solve the problem of our having caused millions of failed retirements by encouraging retirees to go with low stock allocations. That solution doesn’t come free of cost, however. Investors who go with low stock allocations when that is not a good idea lower their returns by doing so. Telling people to go with unnecessarily low stock allocations delays their retirements.
The purpose of retirement research should not be to delay retirements any more than it should be to cause failed retirements. The idea should be to report the numbers accurately. Reporting the numbers accurately permits aspiring retirees to retire as soon as is possible consistent with their desire to enjoy safe retirements.