Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“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 <b>not</b> going to be able to calculate a <b>future</b> 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
Can you calculate the SWR for the $500 million you haven’t received yet?
I can tell you that the safe withdrawal rate for the $500 million will be higher in a world in which honest posting re the peer-reviewed research is permitted at every internet site, without a single exception. That world is a world in which our economic system is more stable because the investment advice field is not all about turning a quick buck, it’s about reining in one’s emotions a bit when needed.
We all benefit from knowing how stock investing works in the real world. It’s a win/win/win/win/win.
Rob
Has it been a win/win/win/win for your wife and kids?
Not in the short term. But, in the long term, it could end up being a HUGE win for them.
Say that the CAPE value falls to 17 (fair-value) and then continues dropping. In earlier Buy-and-Hold Crises, it has fallen to 8. Now, that’s completely irrational. Once prices have fallen to fair-value levels, they have fallen far enough. But, to persuade people that they should not fall farther, we are going to need to talk about that last 41 years of peer-reviewed research. I have been doing that for 20 years now. So I will possess a level of credibility re these matters that no one else will possess. If my work can stop the CAPE level from dropping to 8, that could keep our economy from falling into a Second Great Depression. That will be a huge win for my family.
That’s not even looking at the $500 million settlement that I will be receiving and of course using to help my family.
Permitting honest posting re the peer-reviewed research helps EVERYONE. It’s not possible for the rational human mind to imagine any way in which that could be a negative. That’s why we have enacted laws against the sort of tactics that you Goons have employed.
My best wishes, etc.
Rob
“ Not in the short term. But, in the long term, it could end up being a HUGE win for them.”
That sounds just like the people that play the lottery, hoping that they will eventually win and no longer have money problems.
Sure. Except I’m the one saying that I think it is entirely possible that stocks will continue to perform in the future at least somewhat as they have for the past 150 years and you’re the one saying that it is “100 percent safe” to presume that starting today stocks will begin to perform in ways that they never have at any earlier time in history.
Science!
Rob
You are contradicting yourself. You said that the market has not been acting the same as in the past and that is why all your previous crash predictions failed.
And despite all your talking points, your predictions failed and you haven’t earned a dime.
It’s taken longer for prices to fall this time than it ever has before. That much is so.
But I still believe that they will fall. If that happens. we will all agree that we should have been working all along to keep the irrational exuberance under control.
We don’t know everything. But we know a whole lot more than the Buy-and-Holders pretend we know. Shiller’s Nobel-prize-winning research represents an amazing advance. We all should be doing everything we can to share everything we know about it far and wide.
That’s my sincere take, in any event.
Rob
“ It’s taken longer for prices to fall this time than it ever has before.”
Which means the market hasn’t performed as it has before. All you had to say is “I was wrong”.
I believe that we should share what we know while acknowleding the things that we don’t know. I don’t view the fact that we do not know everything as an excuse to go pure Get Rich Quick/Buy-and-Hold. Too many people stand to get hurt if we take that path.
Rob
And despite all your talking points, your predictions failed and you haven’t earned a dime.
My “talking point” is that the same ethical standards that apply in every field other than the investment advice field should apply in the investment advice field as well. Those who follow the peer-reviewed research learned in 1981 that the Buy-and-Holders were wrong to think that market timing might not alwys be 100 percent required.
I haven’t earned a dime because of the abusive and in some cases criminal behavior of the members of the Buy-and-Hold Goon Squads. I have been honest in saying that the retirement study posted at John Greaney’s web site lacks a valuation adjustment. If Buy-and-Hold/Get Rich Quickn were a real thing, every Buy-and-Holder on the planet would celebrate me for my honesty and insist that the Buy-and-Hold retirement studies be promptly corrected.
I think that the good stuff will happen in the days following the next Buy-and-Hold Crsiis. Because people will see that we have no choice but to correct mistakes made in earlier days and move foward. But we’ll see, you know?
My best wishes to you, in any event.
Rob
You haven’t earned a dime because you have not offered anything of value. The market determines your worth, not you. Further, it hurts your credibility and forces people away when you are dishonest and make up stories about criminal acts, etc. it is all just a poorly run show, just so you can escape real work.
Okay, Anonymous.
I do wish you all good things, in any event.
Rob