” For a Retiree to Have Only $1 Remaining in His Portfolio After 30 Years Does Not Show That His Plan Was “100 Percent Safe.” It Shows That It Was Insanely Risky.”

Set forth below is the text of a comment that I recently posted to the discussion thread for another post at this site:

Can you show us a single 30 year period in which a 4% withdrawal rate did not work?

Of course not.

What I can show is that there is 39 years of peer-reviewed research showing that valuations affect what is safe and that, if valuations are considered in the calculation, the safe withdrawal rate for those who retired in early 2000 is revealed to be 1.6 percent, not 4.0 percent. We should have been telling that to people who were putting together retirement plans at the time. A failed retirement is a serious life setback.

If someone drives drunk three times and gets in an accident each time but is still alive, is it reasonable to conclude that driving drunk is “100 percent safe” (Greaney’s phrase). I say “no.” That’s the situation we have with the 4 percent rule. We have three complete bull/bear cycle on records and 150 years of historical return data. A 4 percent withdrawal is super, super, super safe at times when valuations are at reasonable levels or at low levels. A withdrawal all the way up to 9 percent is safe when stocks are priced as they were in 1982. But 4 percent barely squeaked by for retirees who employed it for retirements that began when stocks were priced as they were just prior to the onset of the 1929 crash and the Great Depression that followed from it. For a retiree to have only $1 remaining in his portfolio after 30 years does not show that his plan was “100 percent safe.” It shows that it was insanely risky. And of course the risk of a 4 percent withdrawal was much greater in 2000 than it was in 1929 since the CAPE value was much, much higher.

In the days before you Goons threatened to get Wade Pfau fired from his job if he continued doing honest work in this field, he endorsed my drunk driving analog. Would he do so today? Probably not. He is afraid of what the Buy-and-Holders would do to him if he returned to speaking honestly re these matters. I think that that is unfortunate in the extreme. Extortion is a crime in the United States. It is a felony. That means prison time. I believe that the same laws that apply in discussions of every other subject discussed in the United States should apply in discussions of stock investing as well. Call me madcap.

The fact that “defenders” of Buy-and-Hold feel that they need to engage in criminal acts to keep discussion of the last 39 years of peer-reviewed research in this field suppressed shows how desperate the case for Buy-and-Hold has become as the mountain of evidence showing that long-term market timing is always 100 percent required for every stock investor has grown larger and larger.

My best wishes.

Mountain Builder Rob