Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Uh oh. You are even wrong on the SWR with CAPE. But as you said, you really aren’t a math guy and given there is a lot of math involved, just using your fingers and toes won’t cut it.
https://earlyretirementnow.com/2022/10/12/dynamic-withdrawal-rates-based-on-the-shiller-cape-swr-series-part-54/
Thanks for the link.
There’a lot going on in that article. I am going to have to take some time with it before I feel that I can comment on it in any depth. I keep a file of ideas for my column at the Value Walk site. I have added to the list the idea of writing a column on the approach set forth in that article.
The article appears to me to be reasonable and intelligent and serious. I think it’s great that people are starting to look at different ways to calculate the safe withdrawal rate.That’s how we learn, by exploring new possibilities and by talking things over. I don’t see in that article any of the dogmatism that is characteristc of the Greaney Goons and the Lindaurheads. I may or may not agree with all of the points that this guy makes. But I feel confident that I will learn more about the subject by grappling with them. He is helping people.
The key point of my famous May 13, 2002, post was to reject Greaney’s dogmatism. Greaney said that a 4 percent withdrawal rate is “100 percent safe” regardless of the valuation level that applies at the time of the retirement. Thus guy does not agree with that. He says that it is possible even for a retitrement beginning at today’s valuation levels to get the withdrawal rate up to 4 percent (or higher) by being willing to spend the portfolio value down over time or by adding some other sources of capital (pensions, etc.) to the mix. The calculator (“The Retirement Risk Evaluator”) that I co-authored with John Walter Russell makes the same general point. We show that higher withdrawal rates are possible for those who are willing to see their portfolio depleted by 20 percent or 50 percent or 100 percent at the end of the 30-year time-period being examined). It’s very valuable for aspiring retirees to make the sorts of comparisons that become possible when this sort of analysis is done. So I applaud this aspect of what this fellow has done.
I haven’t studied this article. So I cannot offer a detailed assessment of it. But I find it very encouraging. My first impression is that this work has considerable value and can lead us to some very good places down the line. Please recall that my May 13, 2002, did not even make a statement that the Greaney retirement study was in error. I asked a question. The question was: Should we be taking valuations into consideration when calculating safe withdrawal rates? This guy is responding with an emphatic “yes” to that question. He is offering a very non-dogmatic take. The primary aim of my work was to lead us all away from the dogmatism of the 4 percent rule. It’s the “rule” part of that term that has done the real damage.
Please also recall that even the 4 percent rule was an important advance at one time. There was a day when Peter Lynch was saying that it was safe to take a 7 percent withdrawal from a stock portfolio because stocks produce average returns of nearly 7 percent. The Trinity tusy (the study on which Greaney’s study is based) showed the error on Lynch’s thinking. That was a very, very big advance. My suggestion that valuations be taken into consideration was just another advance on top of that one and this guy is suggesting possible futher advances for the future. People going through the kind of thought exercise I see in evidence here is exactly what we need to learn more and more about how stock investing works and about how to effectively construct retirement plans.
A catch-phrase that I have often used is: Let a thousand flowers bloom! That’s what it’s all about. We should be discussing this guy’s work at every discussion board and blog on the internet, as we should be discussing the Retirement Risk Evaluator at every discussion board and blog on the internet, as we should be discussing the 4 percent rule and the Trinity study and the Greaney study at evert discussion board and blog on the internet. My intitial reaction (I will give more of a reaction in my Value Walk piece somewhere down the line — I have a lot of items on my future columns list at the moment) is that this is very good stuff.
My best and warmest wishes to you.
Rob
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