“It Doesn’t Mean the New School is Absolutely Right and the Old School Should Be Summarily Dismissed”

An earlier blog entry described the background of my recent correspondence with Michael Kitces on safe withdrawal rates (SWRs). Set forth below is the text of an e-mail that Michael sent to me on October 23, followed by one that I sent to him on October 24.

Rob,

Just a quick email… yes, I agree pretty strongly with John’s comments below.

I’m extremely aware of the single-case sensitivity of the Old School studies, since by definition the actual safe withdrawal rate in the end hinges on a single time period that produces that worst case scenario data point. The only point I’ve been trying to make all along is that just because the New School extrapolates, and the Old School extrapolates, it doesn’t automatically mean the New School is absolutely right and the Old School should be summarily dismissed. They both have their flaws and risks with projections, and thus they both have relevance and need to be considered. Particularly since BOTH of them are particularly prone to extrapolation risk with P/E10 ratios significantly above 30, which of course is exactly the uncertain environment we’re trying to assess.

I’m not saying that New School is wrong. I’m just saying that I don’t think it’s appropriate to state that the New School has proven the Old School wrong to the point that the Old School should be utterly and completely dismissed. Especially since, when P/E ratios are NOT above 30, the data from the New School generally SUPPORTS the Old School results.

Respectfully,

– Michael

Michael:

Thanks for sharing your thoughts. I’ll share this with John.

I hope your trip is going well.

Rob