“A Properly Calculated Safe Withdrawal Rate Is a Highly Conservative Number. Adjustments Should Not Be Required.”

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

Those year 2000 retirees probably made some adjustments, Evidence. I’m not sure why Rob is so stubborn.

I’m stubborn about getting the numbers right in retirement studies, that woulc be fair to say. I offer no apologies for it.

If the analysis is done properly, there should be no need to make adjustments. The point of safe withdrawal rate analysis is to identify the withdrawal rate that is virtually certain to work presuming that we don’t see anything worse than the worst returns sequence we have seen in U.S. history. Nothing is 100 percent safe (Greaney’s claims to that effect notwithstanding). But a properly calculated safe withdrawal rate is a highly conservative number. Adjustments should not be required.

If someone wanted to make adjustments as the retirement proceeded, he could take a withdrswal rate higher than the safe withdrawal rate. The higher you go above the safe withdrswal rate, the more likely it is that you will need to make adjustments. There’s still no reason to use improperly calculated numbers. The properly calculated numbers give yuu a good idea of what the chances are that you will have to make adjustments and how large those adjustments are likely to be.

Improperly calculated numbers don’t tell you much of value at all. The properly calculated safe withdrawal rate is a number between 1.6 percent and 9.0 percent, depending on the valuation level that applies. What do the studies that produce the 4 percent mumber tell you re the need to take adjustments beyond what you could gather from common sense. Take a 4 percent withdrawal for a retirement where the accurately calculated number is 9.0 percent and you are very, very safe. Take 4 percent for a retirement with a 1.6 safe withdrawal rate and there’s a good chance that you will need to make adjustments. Isn’t that something you could have figured out on your own?

Accurately calculated numbers provided actionable insights. I am a big believer in permitting the discussion of accurate safe withdrawal rate numbers. I think that the accurately and honestly calculated stuff is the future.

Rob