I’ve posted Entry #363 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Some Moderate Thoughts About Safe Withdrawal Rates.
Juicy Excerpt: So lowering the stock allocation and increasing the TIPS allocation can increase the safe-withdrawal-rate dramatically. Many investors would not feel comfortable going with a 100 percent TIPS allocation even in the circumstances that applied in early 2000. But even a shift to a 50 percent TIPS allocation would have pushed the safe withdrawal rate up to 3 percent real. (and pushed the reasonably safe withdrawal rate up to 3.4 percent real). Investors are often shocked to hear that the safe withdrawal rate can drop to as low as 1.6 real (this truly is a hard-to-believe number when you consider that stocks earn an average long-term return of 6.5 percent real). It can come as a comfort for them to learn that they have the reasonably appealing option of increasing their TIPS allocation by 30 percent and thereby increasing their safe withdrawal rate by 1.4 percentage points (or by 1.8 percentage points if they are can live with a 20 percent chance that the retirement will fail).
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