“Anytime Someone Discusses Whether Something Is Safe, He Is Talking About the Future.”

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

“Bernstein was saying that Greaney’s claim that a 4 percent withdrawal is always “100 percent safe” was in error.”

“is”

Greaney’s study, and all the others, were very clear that they were looking at what survived in the past.

https://retireearlyhomepage.com/restud1.html

“The maximum 100% survivable withdrawal rate is the highest annual withdrawal rate where all terminal values are positive for the pay out periods examined.”

“for the pay out periods examined”

Bernsteins comment was about the future.

You are the only person I have encountered who can’t understand the difference.

“When the starting point valuation level is what it was in January 2000, the withdrawal rate that worked in a worst-case scenario was 2 percent”

Show me the numbers on that. Has a 4% withdrawal rate from 2000 portfolio run out of money?

No, a retirement plan that was initiated in 2000 and called for a 4 percent annual withdrawal did not run out of money. But it was at great risk of running out of money. The risk is not quite as great today but a retirement plan calling for a 4 percent withdrawal is far from “100 percent safe” at today’s valuation levels.

The valuation level that applies on the day the retirement begins is the most important factor affecting the risk of the retirement. Everyone needs to know that. That needs to be discussed at every site at which investment discussions are held.

The people at the Motley Fool board who were using the Greaney study to construct their retirement plans had no idea how much risk they were taking on by doing so. All of our discussions showed that. That was why there were thousands of people who expressed a desire that honest posting be permitted, that all of the abusive stuff and the criminal stuff be brought to a full and complete stop. That was why Wade Pfau said that the Greaney study is “dangerous.” People need to know the downside of the approach that Greaney used. That’s my sincere take.

Anytime someone discusses whether something is safe, he is talking about the future. All that you can say by looking only at the past is that something survived. Greaney reported the Historical Surviving Withdrawal Rate accurately. But he did not report the SAFE withdrawal rate accurately. To determine whether something is safe, you need to look at the factors affecting safety. The most important factor affecting safety is the valuation level that applies on the day the retirement begins. Greaney’s study does not contain a valuation adjustment. So he couldn’t possibly get the numbers right.

I am not the only person who had concerns about the Greaney study. LOTS of people had concerns. Not a majority. But a significant minority. Those people were silenced through the use of abusive tactics. I am saying that we should retire the abusive tactics at every site and let every community member (including the big-name experts) say what he or she truly believes re these matters. I see that as a win/win/win/win/win. We should stop having a debate about having a debate and move to the debate proper.

Rob