“I Put Up a Post Reporting on the Errors in the Old School Safe Withdrawal Rate Studies Many Years Before Any of the ‘Experts’ in This Field Had Discovered Them”

Set forth below is the text of a comment that I put to an article that my friend Academic Researcher Wade Pfau posted to the Market Watch site:

I am the person who discovered the errors in John Greaney’s safe withdrawal rate study. I put up a post reporting on them at a Motley Fool board that we posted at together on the morning of May 13, 2002, many years before any of the experts in this field were saying that it is not possible to calculate the safe withdrawal rate accurately without taking into account the valuation level that applies on the day the retirement begins.

A fantastic discussion followed in which hundreds of us learned some amazing things about how stock investing works. Unfortunately, John and some others did not want the learning experience to continue and engaged in abusive posting tactics to destroy the board. The comments of hundreds of our fellow community members who wanted this learning experience to continue are detailed in this article:


Wade is familier with this history. I have discussed different aspects of it with him in great depth on numerous occasions.

Stock investing is an intensely emotional endeavor. It is not possible to make sense of any element of the stock investing project without taking the effect of investor emotions on stock prices into account. The P/E10 metric has been shown in research to be the best tool for doing this. There was a time when we didn’t know this but that was 30 years ago. Shiller showed in research published in 1981 that valuations (emotions) must always be considered.

We will not get the SWR (or retirement planning in general) right until we work up the courage to acknowledge that investing is not strictly a numbers game. This is a numbers plus emotions game. P/E10 is the metric that permits us to take valuations into account. It is my strongly held belief that valuation-informed retirement planning strategies are the future.



  1. Evidence Based Investing says

    “Classic safe withdrawal rates studies, such as the works of William Bengen and the Trinity study , investigate sustainable withdrawal rates from rolling periods of the historical data, which give us an idea about what would have worked in the past. ”

    Looks like Wade understands the studies.

  2. Rob says

    Of course he does, Evidence. It’s his JOB to understand this stuff.

    What he didn’t understand until the Buy-and-Holders threatened to get him fired from his job is the POLITICS of our situation. If the market were efficient, as it was once widely believed to be, it would be a pretty darn good bet that the highest withdrawal rate that always worked in the past would work again over the next 30 years. That’s why studies were prepared that identified that number as the Safe Withdrawal Rate.

    Shiller’s research (And Russell’s! And Wade’s!) shows us that the market is NOT efficient, that risk VARIES with changes in valuation levels. If that’s so, there is nothing even a tiny bit safe about a 4 percent withdrawal rate for retirements beginning at the sorts of valuation levels that have applied since 1996. So the studies that were prepared pursuant to the discredited model need to be CORRECTED.

    That’s why Wade wrote to the authors of the Trinity study asking that they correct their study before it does more harm to more middle-class investors. And it is because the Buy-and-Holders want to cover up their error that they threatened to send defamatory e-mails to his employer in an effort to get him fired from his job.

    This is 100 percent wrong, Evidence. This needs to change. The data shows that it is this 10-year cover-up (it’s 30 years if you go back to when Shiller published his research) that caused the economic crisis. My job (And Wade’s! And Bogle’s! And yours!) is to bring this horrible cover-up to a full and complete stop by the close of business today.

    No one benefits from not being able to talk about how stock investing really works, Evidence. At this point, you are trying to cover up a cover-up of a cover-up. Doesn’t that sound like a stupid and futile thing to do? Couldn’t you be putting your energies to far more rewarding and promising and life-affirming pursuits? It sure seems so to me.

    I wish you all the best that this life have to give, in any event.


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