Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
How do you adjust the withdrawal rate based on someone’s age?
The convention in the studies is to go 30 years out. The assumption is that the person will retire at 65. Having the retirement survive for 30 years gets him to age 95. Not too many live beyond that age.
It is of course possible to examine what would happen at all sorts of other ages. I think it can be useful to do that. When Greaney said that a 4 percent withdrawal is “100 percent safe,” he was directing his words at a community of people planning early retirements. I believe that Greaney left his corporate employment at age 39. If he lived to age 95, he would need a plan to survive for 56 years. That’s a lot more than 30 years.
In practical terms, that’s not as much of a problem as it appears to be on first consideration. When retirements fail, they fail because of a stock price crash in the first 10 years. A retirement that is constructed to survive 30 years is likely going to survive 56 years. If you don’t take a big early hit, you are probably going to be fine.
That’s why taking valuations into consideration is so important. The valuation level that applies on the day the retirement begins tells you how much risk there is that you will take on a big hit in the first 10 years. That’s almost the entire story of retirement safety. You don’t want to overlook that.
The safe withdrawal rate concept is great. It reveals all sorts of things that are counterintuitive, things that people would miss if they did not explore safe withdrawal rates. One of the reasons why I fell in love with Greaney’s site when I discovered it is that he put so much focus on safe withdrawal rates.
Of course, it’s important to get the numbers right. That’s where Greaney and I part company. He does not take valuations into consideration. I believe that it is 100 percent imperative to take valuations into consideration. It is my strongly held view that valuations are the most important factor in retirement safety. Because of how they affect that vulnerable period — the first 10 years of the retirement.
Rob
What is more important: a) your opinion of the search, or b) outcomes?
Is it more important for you to try and get someone to believe all of your hocomania or is it more important for you to fix your current financial predicament?
Lifetime outcomes are what matter to me. I of course get it that irrational exuberance can temporarily cause investors to believe that their stock investments are performing better than they really are. But the deception hurts them in the end. We all would be better off if honest posting re the peer-reviewed research were permitted at every site,
Our only defense against irrational exuberance is valuation-based market timing, It is absolutely key. Valuation-based market timing is price discipline. No market can function without price discipline. Today’s market has become dysfunctional because of the widespread promotion of Buy-and-Hold strategies. Today’s CAPE level shows that as clearly as anything can be shown.
Do you consider today’s CAPE value an outcome? I do. It’s a horrible, horrible outcome made possible by the widespread promotion of the “idea” that valuation-based market timing is not always 100 percent required for every investor.
My sincere take.
Rob
We are looking at the long term outcomes of those that practiced timing and they (like you) have not done well. We look at the long term outcomes of those that practiced buy and hold and see that they have turned out well. Just look at all of us in the community. Name just one person with a good outcome with VII? You can’t. Name one person who has ever failed with buy and hold? You can’t.
The Bennett/Pfau research shows that Valuation-Informed Indexing has been providing far superior results to Buy-and-Hold (no market timing now!) for 150 years running. It’s not possible for the rational human mind to imagine any circumstances in which practicing price discipline when buying stocks would not be a huge positive. If you were aware of any research showing that valuation-based market timing is not always 100 percent required for every investor, you would have advanced it a long time ago. As Wade concluded after researching the matter very carefully, no such research exists. As he put it, “Yes, Virginia, Valuation-Informed Indexing works!”
Rob
The best you have is some nerd who no longer talks to you who apparently said that “Yes, Virginia, Valuation-Informed Indexing works!”. Big whoop. If it worked your results would show it. Your detractors are millionaires, you are not.
It makes me happy that you are a millionaire, Sensible. That’s fine.
I believe that Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns is legitimate research. So I feel that I need to say that when sharing thoughts with my friends on discussion boards and blogs. The Bennett/Pfau research shows that Valuation-Informed Indexing has always worked in the past. I believe that it will continue to work in the future.
My best wishes.
Rob
Pfau does not say what you say. We can all talk to him. We can all read his books. We have heard him say in his podcast that marketing timing failed. You are broke. You are divorced. Everything points to complete failure.
Nobody can speak to Wade in an environment in which he feels free to say what he truly believes until every site is opened to honest posting and no one feels intimidated. Wade spoke to me in many. many emails over the course of the 16 months in which we were preparing our research showing that “Yes, Virginia, Valuation-Informed Indexing works!” I have posted many of those emails here at the site and there will be numerous chapters in my book about the research that Wade and I prepared together.
It’s possible that he has changed his mind on one or two details. I have never heard him say that but it’s possible. But it’s not possible that on the day he was threatened he changes his mind on everything he said with such conviction over the course of 16 months. That’s just not a credible story.
The short version of the story is that Wade described the Greaney retirement study as “dangerous.”He never would have said that had I not worked up the courage to point out the error in it. I offer no apologies. There were people at the Motley Fool board who used that study to plan their retirement. Can you imagine what is going to happen to people who do that in the event that stocks continue to perform in the future somewhat as they always have in the past?
We’ll see.
Rob
The only place Pfau is not free to speak is on your website as you control all the content and ban things that you don’t think are favorable for you.
Okay, Anonymous.
Rob
Somehow you want us to ignore everything that Wade Pfau has said to us personally as well as in his books, etc and only listen to you with respect to what YOU think he has said.
My suggestion is that you drop all of the abusive stuff and do everything possible to make people representing all possible viewpoints 100 percent comfortable saying precisely what they believe about the how-to implications of Shiller’s research. We should all want to hear from Shiller and Pfau and Bill Bernstein and scores and scores of others. The goal should be to have everyone on the planet enjoy an amazing and profitable learning experience.
Rob