Set forth below is the text of a comment that I recently posted at the discussion thread for one of my columns at the Value Walk site:
Just to help you out, here is the link. Your “question” was actually addressed in less than 90 minutes, as pointed out by Wade. It seems the embarrassment of that has lasted all these years. Here is a helpful link:
Wade never wrote any words of that nature until you threatened to send defamatory e-mails to his employer. Words that are said as the result of intimidation tactics don’t count, Sammy. Wade said what he really believes about safe withdrawal rates and about Valuation-Informed Indexing and about me in hundreds of e-mails that he exchanged with me, many of which I have reported on at my site.
Neither the Greaney study nor any of the other Old School SWR studies have been corrected to this day, Sammy.
There have been scores of articles published in all of the top-name publications pointing out that the infamous “4 percent rule” that came from those studies is likely not going to work for millions of retirees who employed it in their plans. Those people will be suffering one of the worst life setbacks imaginable. All of that could have been avoided f the studies had been correctly promptly once the errors in them had become public knowledge (this happened on the morning of May 13, 2002).
Correcting the studies also would have led to a great learning experience. People who cannot admit the possibility that they have made a mistake can never learn anything. If you think that you already know everything, how can you ever expend effort to move forward?
The safe withdrawal rate is not always 4 percent. It is a number that varies, depending on the valuation level that applies on the day the retirement begins. In 1982, the SWR was 9.0 percent. In 2000, the SWR was 1.6 percent. For a retiree with a $1 million portfolio, that’s the difference between living on $16,000 per year and living on $90,000 per year. That’s no small difference.
The Buy-and-Holders did a great thing in trying to turn investing analysis into a science. There’s too much subjectivity in this field. People need to use numbers to plan their financial affairs. The job of an investing analyst is to supply those numbers to people.
But it is inevitable in a new science that people are going to make mistakes. In the early days of Buy-and-Hold, people thought that the market was efficient. If the market was efficient, Buy-and-Hold would be the ideal strategy. If the market was efficient, the SWR would be a constant (and that number would indeed be “4”).
But Shiller showed in his “revolutionary” (his word) research of 1981 that the market is NOT efficient. He showed that risk is not constant but variable. It follows that the safe withdrawal rate CHANGES as valuations change.
Every investor need to know this. We should be discussing this at every discussion board and blog on the internet. We should be having a national debate re the implications of Shiller’s revolutionary findings. This is huge. And it is very, very, very positive news that we can now reduce the risk of stock investing by 70 percent just by letting that national debate take place.
That’s my sincere take, in any event.
I naturally wish you all the best that this life has to offer a person, Sammy.