Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“Long-term market timing has worked every single time it has been tried. The Bennett/Pfau peer-reviewed research shows that beyond any doubt whatsoever.”
As the science fiction author, Larry Niven, said “Any damn fool can predict the past.”
That’s fair.
I cannot say for certain that stocks are going to continue to perform in the future somewhat as they always have in the past. Maybe they will. Maybe they will not.
But I sure don’t think it would hurt people to know about how they have always performed in the past. It’s an important point of information for all investors. And about 10 percent of all the board communities has expressed a desire to be able to hear what the last 40 years of peer-reviewed research says. I think they should be able to do so.
There’s certainly a chance that Get Rich Quick/Buy-and-Hold will fail yet one more time. When that happens, how will things go for those who engaged in criminal behavior to block people from hearing what the last 40 years of peer-reviewed research teaches us? My guess is: “Not so good.” Whereas, if U.S. laws and had been followed and people had been able to hear both sides of the story, people would just conclude that the Buy-and-Holders had given it their best shot and happened to get it wrong, no biggie.
It is my sincerely and strongly held view that permitting honest posting re the last 40 years of peer-reviewed research is best for everyone, Valuation-Informed Indexers and Buy-and-Holders alike. Call me madcap.
My best and warmest wishes to you and yours, Evidence.
Rob
It looks like the Financial Samurai is talki about you in his latest article:
https://www.financialsamurai.com/dynamic-safe-withdrawal-rate-in-retirement/
He states: “ Those who remain rigid will suffer the consequences: less money, fewer friends, less meaning, and lower levels of happiness. If you don’t believe me, identify the unhappiest person you know. Chances are high they are set in their ways.”
He is clearly writing about you.
I don’t think so. I have always said that we should let a thousands flowers bloom. The more people there are who contribute different ideas, the better off we all are.
That said, I do believe that people need to plan. There’s value in calculating the safe withdrawal rate accurately before one hands in one’s resignation. If a retiree wants to change his withdrawal rate at a later time, that’s his or her business. But it is important to perform the calculations accurately whether they are being performed prior to retirement or post-retirement. The last 41 years of peer-reviewed research shows that it is not possible to perform the calculations accurately without taking valuations into consideration. So I would certainly do that.
Rob
“There’s value in calculating the safe withdrawal rate accurately before one hands in one’s resignation.”
There is also value in recognizing that you are not going to be able to calculate a future safe withdrawal rate accurately.
A withdrawal rate means nothing when you have minimal savings. The biggest factor is the starting nest egg. After that, it is merely making adjustments.
“There’s value in calculating the safe withdrawal rate accurately before one hands in one’s resignation.”
There is also value in recognizing that you are not going to be able to calculate a future safe withdrawal rate accurately.
Any risk determination involves looking at what may happen in the future. That’s what the words mean.
It is not possible to know what withdrawal rate is going to SURVIVE in the future. I completely agree with that much. There’s always a range of possibilities. When the safe withdrawal rate is 1.6 percent (as it was in 2000), it is entirely possible that a withdrawal rate a good bit higher than that will survive. If a particular retiree wants to use a higher number as his personal withdrawal rate, that is of course fine. It is his choice.
But we shouldn’t be telling people that a withdrawal rate of 4 percent is “100 percent safe” at a time when the safe withdrawal rate is 1.6 percent and a 4 percent withdrawal has only a 30 percent chance of working out. Just because we do not know precisely what withdrawal rate is going to survive doesn’t justify reporting inaccurate numbers.
The safe withdrawal rate is defined as the highest withdrawal rate that would work in a worst-case scenario, the worst returns sequence that we have seen in the historical record. The error in the Buy-and-Hold studies is that they do not adjust for valuations. They report the SAME NUMBER as being safe at all valuation levels.
If the market were efficient, that would be correct. But Shiller showed that the market is NOT efficient in research that was published in 1981, that valuations affect long-term returns. When you take valuations into consideration, you see that a withdrawal rate that would work just fine at moderate valuation levels could easily produce a failed retirement for a retirement beginning at insanely high valuation levels. Whether that retirement will survive 30 years or not depends on what returns sequence happens to turn up. In many of the return sequences that we have seen in the past, it fails. In some, it succeeds. That’s not “100 percent safe.” That’s not what “100 percent safe” means.
The word games serve no good purpose, Evidence. A failed retirement is a serious life setback. We should be permitting honest posting re this subject at every site on the internet.
That’s my sincere take, in any event.
Rob
“In many of the return sequences that we have seen in the past, it fails.”
Can you point me to an instance in the past where 4% failed?
A withdrawal rate means nothing when you have minimal savings. The biggest factor is the starting nest egg. After that, it is merely making adjustments.
Then why did Greaney post a safe withdrawal rate study? Why didn’t he just say: “Save as much as possible — that’s what matters”?
Aspiring early retirees want to know when they have saved enough to be able to hand in their resignations. The question that has been on the table for 20 years now is whether we should be permitted to provide them with accurate numbers. The Greaney study is rooted in Buy-and-Hold thinking, which in turn is rooted in a belief that the market is efficient. I believe that Shiller’s Nobel-prize-winning research is legitimate research, which means that there is no one safe withdrawal rate, that the number CHANGES with changes in valuations. I asked in my famous post from the morning of May 13, 2002, whether we should be taking valuations into consideration when calculating the number and over the years there have been thousands of community members who have expressed a desire that people posting to the boards be permitted to do that?
Are you able to specify some good purpose served by banning honest posting re these matters?
Rob
“In many of the return sequences that we have seen in the past, it fails.”
Can you point me to an instance in the past where 4% failed?
No. But I can point you to cases where it came very, very close to failing. And, if you look at the return sequences that turned up in those cases, you will see that they were on the lucky side. If you obtained a slightly less lucky returns sequence, you would have had a retirement failure. People trying to put together retirement plans need to know that. We should not be telling people that an extreme high-risk withdrawal rate is “100 percent safe.”
My sincere take.
Rob
Let’s say someone saved only $400k. You would still be living in poverty with a 4% withdrawal rate. As such, the most important element is first getting a reasonable size nest egg. There was a study showing that over 70% of retirements fail due to inadequate savings.
Now, take a look at the current average size retirement account for people over the age of 50. Google it. See the problem?
Say that someone accumulated a portfolio value of $5 million. But then say that that person engaged in criminal behavior (death threats, financial fraud, acts of extortion) because he didn’t want people on the internet to learn about an error in a retirement study made by a Goon pal of his. So he goes to prison where he cannot enjoy the $5 million.
See the problem?
Rob
“But I can point you to cases where it came very, very close to failing”
Of course you can, because the whole point of the studies was to identify the worst case scenario in the historical record. Any such study that didn’t come very, very close to failing wouldn’t have been doing it’s job properly.
The worst case scenario is where you spend your last dollar on 31st December of the 30th year. If you want to have some other margin for error, feel free to conduct such a study.
What I say is that you should take valuations into consideration when doing the calculation. If you take valuations into consideration, you get very different numbers (9.0 percent when valuations are super low, 1.6 percent when valuations are super high). Given that there is 41 years of peer-reviewed research showing that valuations affect the result, we should be taking valuations into consideration when doing the calculation.
Are you able to offer any rational for NOT taking valuations into consideration, for pretending that the market is efficient 41 years after the research showing that it is not was published?
Rob