“We All Agree That 4 Percent Always Survived in the Past.”

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

When you refer to “what is safe” you are referring to what withdrawal rate will survive in the future.

That is not knowable.

The Greaney, Bengen and Trinity studies report what survived in the past and all agreed the 4% (roughly) was what survived in all cases in the past.

If you wish to carry out a different study, that estimates what might survive in the future, you are free to do so.

Insisting that other people alter studies to report (incorrectly) that 4% did not survive in the past is a ridiculous demand.

We all agree that 4 percent always survived in the past. That is not in dispute.

It was not always safe in the past. There were some valuation levels at which it was high risk but happened to survive.

People need to know that. If people want to use a withdrawal rate that has always survived but that is high-risk at the valuation level that applies on the day their retirement begins, I wish them the best of luck with it. But I am not going to say that something is safe just because it always survived in the past. To find out whether it is safe, you need to look at the factors affecting safety and the most important factor affecting safety is valuations.

I have never once suggested that anyone say that 4 percent did not always survive in the past. I have said that we all should be free to point out that it is not possible to calculate the safe withdrawal rates accurately without taking valuations into consideration and that it is irresponsible to say that there is one withdrawal rate that is safe at all valuation levels. Valuations affect long-term returns and the safe withdrawal rates changes with changes in valuation levels.

Rob