FRH #2 Certanity and future Safe Withdrawals

Financial Independence/Retire Early -- Learn How!
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Post by ataloss » Wed Aug 20, 2003 3:04 am

I had to update after discovering that hocus can easily calculate the swr for 2000, don't know if this applies to 2003 :wink:

Most of us understand that swr numbers are estimates of future withdrawal rates that are deemed to be safe. Neither certainty or probabilistic statements including numbers are applicable.
Everyone agrees that the specifics of future returns that will determine the maximal WR are unknowable. So, to me, the effort should be to determine the best estimate(s) of a withdrawal rate that will very likely (say 90% (though such precise knowledge of probablilities is unavailable)) survive the desired time period. In the absence of a crystal ball we use the best tools available. Different methodologies will produce different best estimates. If a methodology suffers from a serious logical flaw, then it's result should be discarded as incorrect.
Bensolar 5/30/03

There's lots of stuff we can learn by studying the past. One thing we can't learn, though, is how much the future will resemble the past.

There really is an Efficient Frontier. There really is a withdrawal rate that will allow my wife and I to spend all our money during our life times, but never go broke.

But these things are unknown and unknowable, going forward. Such things are only knowable looking backward.
I don't understand why anybuddy would argue that some SWR is "95% safe" ...
Gummy 6/5/03

Clearly he is using a fancy approach to predict the results over a 30 year period. That's wonderful. Good luck to him.

One question. Does he have a crystal ball?

No. See, there's the flaw in your arguement. No formula, fancy approach or author you seem to take as gospel can know what the returns would be.
Peteyperson 7/18
Page 236 4 pillars
But at the end of the day, you have to realize that it is impossible to completely eliminate risk. I'm amused when financial planners and academics talk about methods that predict a 40 year success rate of, say 95%. If you think about it, this implies that our financial institutions will remain intact for the next millennium , Considering the history of human civilization, this is a pretty heroic assumption.
William Bernstein

About Monte Carlo and "current valuations":
Monte Carlo requires that you stick in some numbers (like Mean Returns, Volatility, etc.).
You incorporate "current valuations" by changing these inputs, no?
Everybuddy will have their own ideas concerning appropriate inputs.
Is that what we're debating?
Gummy 6/5/03

So you might think everyone would agree that it isn't possible to have a single unarguable definite swr that applies to the future: You would think wrong:

The quest for an unarguable swr is doomed
Only because we do not have access to perfect data. If we had perfect data, we could calculate the SWR perfectly. It is a mathematical construct. You take all the numbers for all the factors that influence the question, you add them up, and you have the answer. It is an objective exercise.
Hocus 7/18/03

Hocus apparently oblivious to the fact that perfect data about future events isn't readily available.

This isn't isolated. Hocus on the necessary attributes of a swr tool:

I am saying that the tool should be set up so that it provides objective results. I am saying that to define what an SWR is so loosely that it can produce anything under the sun as a result is not a good idea because the tool becomes just one more way to engage in subjective evaluations of risk.
Hocus 5/27
SWR analysis, when it is true to what the data says, is different.
What the data says is not a matter of opinion. Data analysis involves
numbers. Data is hard, objective. You add up all the numbers that bear on the question being examined and you get a right answer to the question posed. That I find more helpful than someone's opinion of whether some investing idea is "good" or not.
Hocus 7/12
The nice thing about the SWR is that it is a mathematical construct. Once you identify the factors that affect the SWR and acquire the data needed to determine the effect of the various factors, you just add up the numbers and you are done. There is no place in the calculation stage of SWR analysis for subjectivity; it is a purely objective analysis.

Hocus 4/1/03

and this astonishing one:
I am saying that I have no ability to know the future. Thus, I cannot tell you what actual rate of return will apply to someone who retired in the year 2000. But I can easily calculate the SWR that applies for a retirement beginning in the year 2000. I don't need to predict the future to do that. When you calculate the SWR for a retirement beginning in the year 2000, you get a number that is not even in the same ballpark as the one that intercst reports in his study. His findings as to the SWR that applied in 2000 are way, way off the mark.

hocus 5/24/03

but hocus had no numerical answer to this question from raddr:
So my question to you is: what is the SWR right now?
on 8/17/03

At the other extreme would be to say that you want to consider the effect of every possible factor that affects the safety of your withdrawal percentage.<sub>1</sub> That would be very hard to do.<sub>2</sub> . You would need to assess the possibility of political instability and things like that, the so-called asteroid-type events..<sub>3</sub>

If you succeeded at this sort of analysis, you would have a result that could be put to many powerful uses. But arriving at this number would take a great deal of effort. <sub>2</sub> Useful data on many of the questions at issue would be hard to come by..<sub>2</sub>

The middle-ground approach would be to aim for a level of clarity that provides guidance only for matters under your control..<sub>4</sub> You could say, "I don't really care to even factor in the possibility of political instability because there is nothing that I can do about it anyway." I believe that there is language in which William Bernstein says that incorporating into an analysis all of the factors that bring you from 95 percent safety up to 100 percent safety is probably not worth the effort..<sub>5</sub> So you might well decide to go with 95 percent safety, and still maintain that you have a perfectly valid tool for the use to which you intend to put it--making allocation decisions consistent with what the historical record says is safe.
5/22/03 hocus


1. Hocus has declined to provide the list of "all factors."￾
2. Slight overstatement :wink:
3. As if you could control future investment returns
4. Investment returns?
5. Bernstein is not talking about 95% future safety see quote above

I would point out that hocus hasn't obviously renounced any of these misstatements. He assures me I would not have to guess on this matter:
If I accept any "corrections," I'll let you know, ataloss. You won't have to guess.
Hocus 7/19

I have made extensive hocussian quotations since he has objected to my attempts to convey his meaning.

I like the way that I say things better than the way that you report to the board the way I say things. I tend to be more careful about the wording, so I hope that board members will use my words to learn what I think on this subject rather than yours.
hocus 7/19/03

(sorry the subscripts failed) :oops:
Have fun.


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Post by ataloss » Mon Sep 22, 2003 3:41 pm

I thought this thread was interesting in view of the hocussian issue of varying safe withdrawal rates depending on individual investor circumstances
Have fun.


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