"How much of my savings can I withdraw in each year of my retirement without incurring an undue risk of depleting my assets?"
maybe we want to be more precise in the definition of "undue"
http://www.bylo.org/saferetr.html
The Great SWR Investigation - Part 1
Is there a chance that there is some reason for the "lucky sequence" that isn't captured by your mean reversion technique?
Sure, there's always that possibility.
Would this mean that you can't provide 95% confidence intervals for applicabiility of the 3.55% swr to the future?
Yep. The only way you can do that is if you know, at least approximately, what the future avg. returns will be and what the portfolio volatility will be. For example, the Gordon equation would predict future real returns approximately 3%/yr. below what we have seen historically. This would of course make a huge difference in the SWR going forward.
Certainly we can't exclude the fact that past returns may have occurred in a favorable sequence and clearly lower risk adjusted returns would reduce the fSWR.
There is no such thing as an fSWR. It is an illusory concept, an imaginary animal. Intercst did not purport to discover the fSWR. He purported to discover the SWR.
It appears to me that the swr for the 1870-2000 period is whatever intercst says it is.
I'm sorry that there is still confusion on this point. I have tried to do everything in my power to clear it up. I believe that one of the purposes that JWR1945 might have had in mind in starting this thread was to get people to agree to the definition of an SWR, so that we could then determine whether various claims made re SWRs are valid or not. We need to get on the same page on the ABCs before we can hope to tackle the more advanced stuff.
The most important ABC in my view is this question of whether there is such a thing as a hSWR or a fSWR. Never were either of these two concepts brought up prior to May 13, 2002, to my knowledge. They are both nonsense concepts. I know what an SWR is, but it is hard for me to imagine what an hSWR or a fSWR might be. Both of these two concepts are self-contradicting ones.
You indicate in another section of the same post that you think of the fSWR concept as being the same thing as the actual rate of return. The actual rate of return is not the SWR, it is something very different.
If you are confusing the idea of an SWR with the idea of an actual rate of return, I can see where much of the communication problem is coming from. You are quite right that it is not possible to know the actual rate of return without being able to predict the future. It is entirely possible to know the SWR without knowing the future, however.
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.
The swr for 1973 forward (in the 30 year sense) remains to be determined i.e. it depends on future events
That's not intercst's view of the situation. He has many, many times throughout the history of the REHP board said that he knew what the SWR was for people retiring at the time he was posting. From the first day right though to today he has always applied the SWR he comes up with on a going forward basis. I do not fault him for doing so. That's exactly what you are supposed to do with an SWR.
Intercst does not say that you need to wait 30 years from today to know what the SWR is for today. You need to wait 30 years to know the actual rate of return, to be sure. But that is something entirely different.
It is theoretically possible that 4 percent will end up being the actual rate of return for investors who retired in the year 2000. It is not possible that 4 percent is the SWR for investors who retired in the year 2000. That has been proven beyond any reaonable doubt to have been a false claim.
I think Intercst could be excused for thinking that world wars, depressions with 25% unemployment and such provided sort of a "stress test" of the SWR.
Upon until May 13, 2002, I could go along with this. It is entirely possible that intercst simply did not know up until that time that valuation levels affected SWRs. If he did not know, he did nothing wrong in doing the best calculation of the SWR that he was capable of at the time.
There is no excuse for him not knowing this now, however. He participated in the debate in which it was revealed to be so as a matter of "mathematical certitude."
You are in the position of needing to know "all the factors" whereas intercst assumes that these are incorporated in his data.
It is not just me who needs to know all of the factors. Anyone using SWR analysis to plan a retirement needs to know all of the factors. If you retired in 2000 with a desire for a 95 percent safe plan, and for an annual income of $40,000, the intercst study tells you that you needed to have $1,000,000 in assets to support that retirement. The historical data says that you needed $2,000,000 if you used the allocation that intercst favors. To be off by $1,000,000 is not a small thing. There is a good chance that a good number of early retirees are going to suffer devastating life setbacks because they believed that intercst had calculated the SWR accurately.
You have focused on one obvious negative factor but I can think of others.
There are indeed other critical factors that intercst ignored in his study. His failure to account for the effects of valuation levels is not the only major flaw in the study. I have focused on this one because it is the most important one and the easist one to understand.
Historical analysis has obvious limitations....
I am a big, big fan of SWR analysis. I hope that no one gets the wrong idea about that.
There was a post recently at the other board in which BenSolar commented that I was the only person he knew who avoided the effects of the late 1990s bubble in stock prices. He attributed this to a concern that he presumed that I had re overvaluation. That is close to being right, not not precisely correct.
What really saved my skin was SWR analysis. I had all of my money in stocks before I did a SWR analysis. It was what I learned from the SWR analysis that caused me to take my money out of stocks. It was the SWR tool that saved me. I don;t think that a vague concern about valuation would have done the trick.
To be sure, I never did a full study of SWRs with spreadsheets and such. That sort of thing is not the sort of thing that I am good at. My "study" was an informal one, and one aimed only at helping me put together my own plan. I wasn't trying to determine the SWRs that would apply to other sorts of investors in other sorts of circumstances.
But I looked at enough data to see that someone in my circumstances could not reasonably expect a stock investment made at the prevailing price levels to support a 4 percent withdrawal. I didn't want to wait until I had enough assets to retire at a lower withdrawal figure. So I did what the data told me to do, and got out of stocks. (I don't say that others should have gotten out of stocks at that time. I believe that whether it is a good idea to do that or not depends on the particular investor's individual circumstances, and my circumstances were highly unusual.)
....but I don't think you can say that it is wrong.
SWR analysis is a wonderful thing. It provides fantastic insights. But it is better not to do a SWR analysis at all than to perform the analysis in an invalid way and thus report false results.
Reporting false results provides people confidence in things that are simply not so. The people who believed in the intercst claims are now in a terrible situation. If they lower their stock allocations now, they will suffer large, permanent losses. But if they hold onto the allocations once decribed to them as "100 percent safe" they cannot have any realistic expectation that their portfolios will survive unless they make dramatic cuts in their spending levels.
The discredited SWR claims have put these early retirees in a terrible bind. You either accept big losses or you take a big chance on the survival of your retirement. It is possible that these retirements will not go bust; it is not certain that they will fail. But the odds of these retirements surviving are not better than 50-50, according to the raddr analysis. So these retirees are taking big risks to remain with their current allocations.
I think that any retirees who retired in the late 1990s in reliance on the intercst SWR claims would have been a lot better off had they never heard the words "safe withdrawal rate." They would have been better deciding on their allocation strategies by use of their common sense than by reliance on a study that considered some factors that go into a valid SWR calculation and ignored others, producing results far off of the mark of what the historical data supports.
I would be interested in a comprehensive list of the factors needed to bring the analysis up to a 95% certainty level. Would you mind providing the list?
I have prepared a draft post that lists all of the flaws in the intercst study that were brought to light in the course of The Great Debate. I don't think that this is the right time for submission of that post. I think the better approach is to struggle with the definitional stuff until we are all on the same page on the basics, and then proceed to the stuff that is a bit more complex and probably more controversial (heaven help us!).
You have an interesting degree of certainty about the future for someone who has (presumably) not been there.
I am absolutely confident that the SWR in the year 2000 was not what intercst said it was. I do not need to know anything about what will happen in the future to know the SWR. All of the information needed to know the SWR for the 2000 is already available to us.
William Bernstein is no more able to predict the future than I am. But he understands that valuation levels affect returns, and that returns affect SWRs, and that, thus, valuation levels affect SWRs. Armed with that knowledge, he was able to state (not predict) that the SWR for invvestors retiring in 2000 was 2 percent, not 4 percent.
There is no such thing as an fSWR. It is an illusory concept, an imaginary animal. Intercst did not purport to discover the fSWR. He purported to discover the SWR.
It appears to me that the swr for the 1870-2000 period is whatever intercst says it is.
I'm sorry that there is still confusion on this point. I have tried to do everything in my power to clear it up. I believe that one of the purposes that JWR1945 might have had in mind in starting this thread was to get people to agree to the definition of an SWR, so that we could then determine whether various claims made re SWRs are valid or not. We need to get on the same page on the ABCs before we can hope to tackle the more advanced stuff.
The most important ABC in my view is this question of whether there is such a thing as a hSWR or a fSWR. Never were either of these two concepts brought up prior to May 13, 2002, to my knowledge. They are both nonsense concepts. I know what an SWR is, but it is hard for me to imagine what an hSWR or a fSWR might be. Both of these two concepts are self-contradicting ones.
You indicate in another section of the same post that you think of the fSWR concept as being the same thing as the actual rate of return. The actual rate of return is not the SWR, it is something very different.
If you are confusing the idea of an SWR with the idea of an actual rate of return, I can see where much of the communication problem is coming from. You are quite right that it is not possible to know the actual rate of return without being able to predict the future. It is entirely possible to know the SWR without knowing the future, however.
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.
The swr for 1973 forward (in the 30 year sense) remains to be determined i.e. it depends on future events
That's not intercst's view of the situation. He has many, many times throughout the history of the REHP board said that he knew what the SWR was for people retiring at the time he was posting. From the first day right though to today he has always applied the SWR he comes up with on a going forward basis. I do not fault him for doing so. That's exactly what you are supposed to do with an SWR.
Intercst does not say that you need to wait 30 years from today to know what the SWR is for today. You need to wait 30 years to know the actual rate of return, to be sure. But that is something entirely different.
It is theoretically possible that 4 percent will end up being the actual rate of return for investors who retired in the year 2000. It is not possible that 4 percent is the SWR for investors who retired in the year 2000. That has been proven beyond any reaonable doubt to have been a false claim.
I think Intercst could be excused for thinking that world wars, depressions with 25% unemployment and such provided sort of a "stress test" of the SWR.
Upon until May 13, 2002, I could go along with this. It is entirely possible that intercst simply did not know up until that time that valuation levels affected SWRs. If he did not know, he did nothing wrong in doing the best calculation of the SWR that he was capable of at the time.
There is no excuse for him not knowing this now, however. He participated in the debate in which it was revealed to be so as a matter of "mathematical certitude."
You are in the position of needing to know "all the factors" whereas intercst assumes that these are incorporated in his data.
It is not just me who needs to know all of the factors. Anyone using SWR analysis to plan a retirement needs to know all of the factors. If you retired in 2000 with a desire for a 95 percent safe plan, and for an annual income of $40,000, the intercst study tells you that you needed to have $1,000,000 in assets to support that retirement. The historical data says that you needed $2,000,000 if you used the allocation that intercst favors. To be off by $1,000,000 is not a small thing. There is a good chance that a good number of early retirees are going to suffer devastating life setbacks because they believed that intercst had calculated the SWR accurately.
You have focused on one obvious negative factor but I can think of others.
There are indeed other critical factors that intercst ignored in his study. His failure to account for the effects of valuation levels is not the only major flaw in the study. I have focused on this one because it is the most important one and the easist one to understand.
Historical analysis has obvious limitations....
I am a big, big fan of SWR analysis. I hope that no one gets the wrong idea about that.
There was a post recently at the other board in which BenSolar commented that I was the only person he knew who avoided the effects of the late 1990s bubble in stock prices. He attributed this to a concern that he presumed that I had re overvaluation. That is close to being right, not not precisely correct.
What really saved my skin was SWR analysis. I had all of my money in stocks before I did a SWR analysis. It was what I learned from the SWR analysis that caused me to take my money out of stocks. It was the SWR tool that saved me. I don;t think that a vague concern about valuation would have done the trick.
To be sure, I never did a full study of SWRs with spreadsheets and such. That sort of thing is not the sort of thing that I am good at. My "study" was an informal one, and one aimed only at helping me put together my own plan. I wasn't trying to determine the SWRs that would apply to other sorts of investors in other sorts of circumstances.
But I looked at enough data to see that someone in my circumstances could not reasonably expect a stock investment made at the prevailing price levels to support a 4 percent withdrawal. I didn't want to wait until I had enough assets to retire at a lower withdrawal figure. So I did what the data told me to do, and got out of stocks. (I don't say that others should have gotten out of stocks at that time. I believe that whether it is a good idea to do that or not depends on the particular investor's individual circumstances, and my circumstances were highly unusual.)
....but I don't think you can say that it is wrong.
SWR analysis is a wonderful thing. It provides fantastic insights. But it is better not to do a SWR analysis at all than to perform the analysis in an invalid way and thus report false results.
Reporting false results provides people confidence in things that are simply not so. The people who believed in the intercst claims are now in a terrible situation. If they lower their stock allocations now, they will suffer large, permanent losses. But if they hold onto the allocations once decribed to them as "100 percent safe" they cannot have any realistic expectation that their portfolios will survive unless they make dramatic cuts in their spending levels.
The discredited SWR claims have put these early retirees in a terrible bind. You either accept big losses or you take a big chance on the survival of your retirement. It is possible that these retirements will not go bust; it is not certain that they will fail. But the odds of these retirements surviving are not better than 50-50, according to the raddr analysis. So these retirees are taking big risks to remain with their current allocations.
I think that any retirees who retired in the late 1990s in reliance on the intercst SWR claims would have been a lot better off had they never heard the words "safe withdrawal rate." They would have been better deciding on their allocation strategies by use of their common sense than by reliance on a study that considered some factors that go into a valid SWR calculation and ignored others, producing results far off of the mark of what the historical data supports.
I would be interested in a comprehensive list of the factors needed to bring the analysis up to a 95% certainty level. Would you mind providing the list?
I have prepared a draft post that lists all of the flaws in the intercst study that were brought to light in the course of The Great Debate. I don't think that this is the right time for submission of that post. I think the better approach is to struggle with the definitional stuff until we are all on the same page on the basics, and then proceed to the stuff that is a bit more complex and probably more controversial (heaven help us!).
You have an interesting degree of certainty about the future for someone who has (presumably) not been there.
I am absolutely confident that the SWR in the year 2000 was not what intercst said it was. I do not need to know anything about what will happen in the future to know the SWR. All of the information needed to know the SWR for the 2000 is already available to us.
William Bernstein is no more able to predict the future than I am. But he understands that valuation levels affect returns, and that returns affect SWRs, and that, thus, valuation levels affect SWRs. Armed with that knowledge, he was able to state (not predict) that the SWR for invvestors retiring in 2000 was 2 percent, not 4 percent.
ataloss wrote: It appears to me that the swr for the 1870-2000 period is whatever intercst says it is.
Actually, no. The reason is that he is assuming that you could've bought the S&P500 stocks as low cost index fund since 1871. Clearly, the costs of owning an index-like portfolio would've been cost prohibitive in the pre-VFINX days and would've lowered the SWR considerably.
hocus
That is exactly right. That is also why this is only Part 1.
I like defining the Safe Withdrawal Rate as a mathematical calculation. I like the idea that it is an estimate and I like the idea that there can be more than one way of making that estimate. Which method to choose depends upon specific circumstances. In most cases you would be interested in looking at several methods because each has its own strengths and weaknesses.
Yes. I like the idea of having more than one estimate. There remains the task of identifying a best estimate. That is where knowing the context comes in. That is where knowing the application comes in. The best estimate for you to use is not a theoretical ideal based upon an arcane definition. As our knowledge increases, we increase the factors that we include in the context. We do not throw out Safe Withdrawal Rate studies that use historical sequences simply because we now understand the importance of valuations. Instead, we identify valuation as a critical factor and note that we must make some kind of adjustment for the estimate to be accurate.
An analogy has to do with Newtonian Physics and the Theories of Relativity. For most mechanical problems on the surface of the earth, we prefer to use Newton's equations. When we look at satellites, we make Einstein's corrections according to Relativity. Global Positioning Satellites (GPS) provide an interesting blend in which both sets of equations are useful at the same time. The numbers from the satellites incorporate relativistic corrections, but we use Newtonian physics as we move from one place on the earth's surface to another. Physics does not throw out Newtonian Physics simply because it has a known flaw. Instead, it makes adjustments when needed.
Have fun.
John R.
I'm sorry that there is still confusion on this point. I have tried to do everything in my power to clear it up. I believe that one of the purposes that JWR1945 might have had in mind in starting this thread was to get people to agree to the definition of an SWR, so that we could then determine whether various claims made re SWRs are valid or not. We need to get on the same page on the ABCs before we can hope to tackle the more advanced stuff.
That is exactly right. That is also why this is only Part 1.
I like defining the Safe Withdrawal Rate as a mathematical calculation. I like the idea that it is an estimate and I like the idea that there can be more than one way of making that estimate. Which method to choose depends upon specific circumstances. In most cases you would be interested in looking at several methods because each has its own strengths and weaknesses.
Yes. I like the idea of having more than one estimate. There remains the task of identifying a best estimate. That is where knowing the context comes in. That is where knowing the application comes in. The best estimate for you to use is not a theoretical ideal based upon an arcane definition. As our knowledge increases, we increase the factors that we include in the context. We do not throw out Safe Withdrawal Rate studies that use historical sequences simply because we now understand the importance of valuations. Instead, we identify valuation as a critical factor and note that we must make some kind of adjustment for the estimate to be accurate.
An analogy has to do with Newtonian Physics and the Theories of Relativity. For most mechanical problems on the surface of the earth, we prefer to use Newton's equations. When we look at satellites, we make Einstein's corrections according to Relativity. Global Positioning Satellites (GPS) provide an interesting blend in which both sets of equations are useful at the same time. The numbers from the satellites incorporate relativistic corrections, but we use Newtonian physics as we move from one place on the earth's surface to another. Physics does not throw out Newtonian Physics simply because it has a known flaw. Instead, it makes adjustments when needed.
Have fun.
John R.
We do not throw out Safe Withdrawal Rate studies that use historical sequences simply because we now understand the importance of valuations. Instead, we identify valuation as a critical factor and note that we must make some kind of adjustment for the estimate to be accurate.
JWR1945:
I agree with the thrust of your post. I am a little uncomfortable with the suggestion that there can ultimately be more than one correct SWR assessment. I agree that we cannot be dogmatic on all points. On some points, there is room for reasonable disagreement. So I go along with what you are saying to a large extent. I do think, though, that there is at least in a theoretical sense one "right" answer and that we should define the term "safe withdrawal rate" pursuant to a presumption that there is at least in a theoretical sense one right answer.
Our problem is that we do not possess access to perfect data on all factors that go into calculation of the SWR. The practical reality is that we are going to need to go with compromise solutions on some aspects of the question. There is room for reasonable differences of opinion on the choice of compromise solutions to accept. That's where I see some subjectivity coming legitimately into play..
There is only one true SWR. It is the number you come up with when you take into account all factors bearing on the question. However, I agree that there will be times when we will want to calculate something other than the true SWR. There will be times when we want to focus on one aspect or another of the question. So long as the limitations of the approach being followed are identified, there is nothing wrong with doing that sort of thing. You must let people know that the study you are doing does not look at all the factors, So long as you do that, there is no problem in performing as many varieties of analysis as you have the energy to perform.
So I agree with the language quoted above. There is no purpose served by "throwing out" earlier studies. When humankind enters a new field of study, it is unusual to have the first person who studies the matter make every possible discovery and shut down the field of study to all others. The usual process is for early analyses to provide important clues and for follow-up investigations to add knowledge until the level of understanding attained becomes completely satisfactory for all possible purposes.
I did not find fault with intercst for failing to consider some critical factors in his study, nor do I think that anyone else should. It was a sketchy sort of first-draft effort. That was all that anyone was cabable of at the time. Publication of the intercst study advanced the ball. It was a good thing in its time for people to look at that study.
But it is not a good thing for people to pretend that that study reports an accurate SWR, given the state of the world's knowledge of the subject matter today. It has been proven to be a seriously flawed study. We cannot remain stuck forever at the level of knowledge that we achieved in 1999. We must move forward into 2003 and then beyond.
Even when we all accept that the study does not reveal the true SWR, that does not mean that we should never look at the study as published ever again. There might be things that we could learn by seeing what the SWR would be if valuation were not a factor. There may be insights that could be derived from engaging in that sort of inquiry.
The important thing is that we stop referring to the numbers in the intercst study as the safe withdrawal rate. He cannot possibly know what the SWR is until he takes a look at all the factors that apply. When referring people to the study--and I intend to refer people to the study in materials that I will post at my web site--we need to caution them that the study fails to account for several critical factors and thus fails to reveal the true SWR.
The thing that caused the problem was not intercst's failure to consider all the factors that determine the SWR. That was a small thing, it would not have caused any problem at all had he been willing to update the study to reflect our enhanced understanding of the concept. The problem is that he does not want people to advance in their understanding of the SWR concept. He prefers that we remain ignorant of the realities of the SWR concept if that means that his SWR claims can contiinue to be viewed as plausible for a few more years rather than allow us to advance in our understanding of how to put together effective FIRE plans. That is the cause of my criticism of him and the tactics he has used to achieve his goals.
JWR1945:
I agree with the thrust of your post. I am a little uncomfortable with the suggestion that there can ultimately be more than one correct SWR assessment. I agree that we cannot be dogmatic on all points. On some points, there is room for reasonable disagreement. So I go along with what you are saying to a large extent. I do think, though, that there is at least in a theoretical sense one "right" answer and that we should define the term "safe withdrawal rate" pursuant to a presumption that there is at least in a theoretical sense one right answer.
Our problem is that we do not possess access to perfect data on all factors that go into calculation of the SWR. The practical reality is that we are going to need to go with compromise solutions on some aspects of the question. There is room for reasonable differences of opinion on the choice of compromise solutions to accept. That's where I see some subjectivity coming legitimately into play..
There is only one true SWR. It is the number you come up with when you take into account all factors bearing on the question. However, I agree that there will be times when we will want to calculate something other than the true SWR. There will be times when we want to focus on one aspect or another of the question. So long as the limitations of the approach being followed are identified, there is nothing wrong with doing that sort of thing. You must let people know that the study you are doing does not look at all the factors, So long as you do that, there is no problem in performing as many varieties of analysis as you have the energy to perform.
So I agree with the language quoted above. There is no purpose served by "throwing out" earlier studies. When humankind enters a new field of study, it is unusual to have the first person who studies the matter make every possible discovery and shut down the field of study to all others. The usual process is for early analyses to provide important clues and for follow-up investigations to add knowledge until the level of understanding attained becomes completely satisfactory for all possible purposes.
I did not find fault with intercst for failing to consider some critical factors in his study, nor do I think that anyone else should. It was a sketchy sort of first-draft effort. That was all that anyone was cabable of at the time. Publication of the intercst study advanced the ball. It was a good thing in its time for people to look at that study.
But it is not a good thing for people to pretend that that study reports an accurate SWR, given the state of the world's knowledge of the subject matter today. It has been proven to be a seriously flawed study. We cannot remain stuck forever at the level of knowledge that we achieved in 1999. We must move forward into 2003 and then beyond.
Even when we all accept that the study does not reveal the true SWR, that does not mean that we should never look at the study as published ever again. There might be things that we could learn by seeing what the SWR would be if valuation were not a factor. There may be insights that could be derived from engaging in that sort of inquiry.
The important thing is that we stop referring to the numbers in the intercst study as the safe withdrawal rate. He cannot possibly know what the SWR is until he takes a look at all the factors that apply. When referring people to the study--and I intend to refer people to the study in materials that I will post at my web site--we need to caution them that the study fails to account for several critical factors and thus fails to reveal the true SWR.
The thing that caused the problem was not intercst's failure to consider all the factors that determine the SWR. That was a small thing, it would not have caused any problem at all had he been willing to update the study to reflect our enhanced understanding of the concept. The problem is that he does not want people to advance in their understanding of the SWR concept. He prefers that we remain ignorant of the realities of the SWR concept if that means that his SWR claims can contiinue to be viewed as plausible for a few more years rather than allow us to advance in our understanding of how to put together effective FIRE plans. That is the cause of my criticism of him and the tactics he has used to achieve his goals.
I am not going to go back and read old posts but I suspect that the distinction was made because by "100% safe" intercst was clearly referring to his past results. It may or may not apply to the future depending on various factors (I can't find any indication that these are limited to astronomical events.)
I have been reading the board from its early days, Intercst posted on the subject many, many times, so we have an extensive record to look at to determine exactly what sort of scope intercst intended for his study results.
There are only two caveats that I recall. One is the "presuming that the future is like the past" caveat. That is a caveat in all SWR research. You must assume that the future will be like the past or you are not doing a SWR analysis. But this caveat does not cover the flaws that have been discovered in the study. In the event that the future is like the past, the SWR is not what intercst says it is. It is only if you were to presume that the future will turn out entirely unlike anything we have seen in the past that the SWR could turn out to be anything close to what intercst reports.
The second caveat that he has put forward is the "asteroid" caveat. The asteroid reference was not meant in a literal way. It was a code word for far-out possibilities beyond an investor's control, things like hyperinflation, political instability, and such. These are the things that Bernstein says are not worth worrying about. Bernstein says that there will always be a five percent risk of these sorts of things turning up, but it is not worth worrying about them because there is not much you can do about them anyway. I agree.
The flaws in the study are not covered by the asteroid caveat either. The asteroid caveat is only supposed to reduce your safety percentage down from 100 percent to perhaps 95 percent. The flaws in the intercst study reduce it to 50 percent, according to the raddr analysis.
Moreover, the flaws that cause the drop to 50 percent safety are not things like political instability that you can do nothing about. The biggest flaw is the failure to take account of valuation levels. This can be easily addressed. All that the investor needs to do is change his allocation percentage and he has dealt with the problem. So it is not right to refer to the failure to consider valuation levels as an asteroid-type factor.
Intercst never said in his pre-May 13, 2002, posts that people should not rely on his study because it deals only with the past and is not relevant to the future. The reality is quite to the contrary. What he said is that it would be "irrational" to invest in the future in any way other than the way that he recommends. He said that it would take you longer to retire safely if you went with an allocation other than the one he recommends. That is as clear a statement as anyone could possibly make that they believe that their study was intended to be used to provide guidance for investment decisions to be made in the present or the future, and not only the past.
Had index funds been available you could have safely withdrawn 4% (or whatever intercst says) per year during the period of his study. Henceforth I will refer to this as the hdhswr (historically documented hypothetical safe withdrawal rate) since you won't let me call it the hswr. This is a fact (well except for the absence of index funds etc.) It is a mathematical construct. It is known.
This is not so. I presume that there were investors during the course of the 130-year period examined in the study that retired following the intercst investment recommendations. You are saying above that this investment approach proved "safe" for these investors, that their retirement plans "worked," that they did not go bust.
Intercst has presented not a single bit of evidence that this is so. His study does not report on the results of a single living, breathing investor. For all we know, it is possible that every single investor who followed the intercst favored allocation saw his or her retirement go bust in the years that followed.
We just don't know whether the intercst approach ever worked in the course of the 130 years until someone puts forward some data on the point. The Shiller data that intercst used in his study does not address this question, so we do not know whether this approach proved "safe" in these earlier time-periods or not. It would be nice to know. But we need to collect data to find out. It is not "safe" to just assume something like this.
We would like to know the maximum 100% safe withdrawal rate for current and future portfolios
This is what intercst claimed that he was telling us from the day that the board was opened until the day when it was proven beyond any reasonable doubt that he had been telling us the wrong number all that time. All the semantics games started on that day. There was no need for the semantics games until it had been proven that intercst was wrong.
I had a notion that the swr might depend on future returns...
It doesn't. If you had to wait until the future to know the SWR, the SWR would not help you make investment decisions in the present. The purpose of SWR analysis is to help you make investment decisions in the present. There is no need whatsoever to know future returns to calculate the SWR.
Since these 30 year retirements starting in 2000 have 26.5% years to go I am interested in how you could be certain that a 4% withdrawal rate will fail.
I do not know that a plan using a 4 percent withdrawal rate will fail and I specifically said that a plan using a 4 percent withdrawal rate might succeed. I know that 4 percent is not the SWR. If you go with a 4 percent withdrawal, you are taking a high-risk bet. Some high risk bets pay off. But it is not proper to refer to a retirement approach requiring a high-risk bet as "safe."
Personally I think that future stock returns will be lower than those of the past. I would be hard pressed to say that this is "mathematical certitude."
You are in disagreement with William Berstein then. That's OK, it's allowed. But it would help if someone could put forward reasons why they think Bernstein is wrong. If Bernstein is right, intercst is wrong. They cannot possibly both be right. Their claims are in direct contradiction with each other.
To be sure, Bernstein is not predicting lower returns. He is saying that, if the future is like the past, we will get lower returns. It is theoretically possible that the James Glassman theory will be proven right, and the future will be unlike the past, and returns will be higher than what Bernstein's SWR assessment assumes.
But if that happens, it will be because the future turned out to be unlike the past. SWR analysis is supposed to assume that the future will be like the past. If the future is like the past, the SWR is a lot lower than what intercst says.
I think you are basing this on Bernstein who has guessed that future real returns might be 3.5- 4%
Bernstein is not guessing. Bernstein explained where he got his numbers. His approach is described in Chapter Two of the book "The Four Pillarts of Investing." He explains that the methodology used by intercst is "sometimes misleading" and that the approach he used is the one that all credible financial analysts use. The Bernstein methodology is superior to the intercst methodology.
Are you saying the swr is 2% because that's what the expert says?
No. I knew that the intercst claims were false ones the first time I looked at the study, back in 1999. I had not seen the Bernstein book at the time that I put forward the May 13, 2002, post.
I knew that the intercst numbers were wrong because it was clear that he did not factor in valuation levels, and I knew that it is not possible to calculate the SWR without doing so.
Finding the Bernstein quotes gave me a book to point people to supporting my claims, that is all. People really should read the book. The point that Bernstein is making is an important one, with a lot of far-reaching implications. We have only scratched the surface of what can be learned by reading and understanding Chapter Two of the book. It is very important stuff, in my view.
I have been reading the board from its early days, Intercst posted on the subject many, many times, so we have an extensive record to look at to determine exactly what sort of scope intercst intended for his study results.
There are only two caveats that I recall. One is the "presuming that the future is like the past" caveat. That is a caveat in all SWR research. You must assume that the future will be like the past or you are not doing a SWR analysis. But this caveat does not cover the flaws that have been discovered in the study. In the event that the future is like the past, the SWR is not what intercst says it is. It is only if you were to presume that the future will turn out entirely unlike anything we have seen in the past that the SWR could turn out to be anything close to what intercst reports.
The second caveat that he has put forward is the "asteroid" caveat. The asteroid reference was not meant in a literal way. It was a code word for far-out possibilities beyond an investor's control, things like hyperinflation, political instability, and such. These are the things that Bernstein says are not worth worrying about. Bernstein says that there will always be a five percent risk of these sorts of things turning up, but it is not worth worrying about them because there is not much you can do about them anyway. I agree.
The flaws in the study are not covered by the asteroid caveat either. The asteroid caveat is only supposed to reduce your safety percentage down from 100 percent to perhaps 95 percent. The flaws in the intercst study reduce it to 50 percent, according to the raddr analysis.
Moreover, the flaws that cause the drop to 50 percent safety are not things like political instability that you can do nothing about. The biggest flaw is the failure to take account of valuation levels. This can be easily addressed. All that the investor needs to do is change his allocation percentage and he has dealt with the problem. So it is not right to refer to the failure to consider valuation levels as an asteroid-type factor.
Intercst never said in his pre-May 13, 2002, posts that people should not rely on his study because it deals only with the past and is not relevant to the future. The reality is quite to the contrary. What he said is that it would be "irrational" to invest in the future in any way other than the way that he recommends. He said that it would take you longer to retire safely if you went with an allocation other than the one he recommends. That is as clear a statement as anyone could possibly make that they believe that their study was intended to be used to provide guidance for investment decisions to be made in the present or the future, and not only the past.
Had index funds been available you could have safely withdrawn 4% (or whatever intercst says) per year during the period of his study. Henceforth I will refer to this as the hdhswr (historically documented hypothetical safe withdrawal rate) since you won't let me call it the hswr. This is a fact (well except for the absence of index funds etc.) It is a mathematical construct. It is known.
This is not so. I presume that there were investors during the course of the 130-year period examined in the study that retired following the intercst investment recommendations. You are saying above that this investment approach proved "safe" for these investors, that their retirement plans "worked," that they did not go bust.
Intercst has presented not a single bit of evidence that this is so. His study does not report on the results of a single living, breathing investor. For all we know, it is possible that every single investor who followed the intercst favored allocation saw his or her retirement go bust in the years that followed.
We just don't know whether the intercst approach ever worked in the course of the 130 years until someone puts forward some data on the point. The Shiller data that intercst used in his study does not address this question, so we do not know whether this approach proved "safe" in these earlier time-periods or not. It would be nice to know. But we need to collect data to find out. It is not "safe" to just assume something like this.
We would like to know the maximum 100% safe withdrawal rate for current and future portfolios
This is what intercst claimed that he was telling us from the day that the board was opened until the day when it was proven beyond any reasonable doubt that he had been telling us the wrong number all that time. All the semantics games started on that day. There was no need for the semantics games until it had been proven that intercst was wrong.
I had a notion that the swr might depend on future returns...
It doesn't. If you had to wait until the future to know the SWR, the SWR would not help you make investment decisions in the present. The purpose of SWR analysis is to help you make investment decisions in the present. There is no need whatsoever to know future returns to calculate the SWR.
Since these 30 year retirements starting in 2000 have 26.5% years to go I am interested in how you could be certain that a 4% withdrawal rate will fail.
I do not know that a plan using a 4 percent withdrawal rate will fail and I specifically said that a plan using a 4 percent withdrawal rate might succeed. I know that 4 percent is not the SWR. If you go with a 4 percent withdrawal, you are taking a high-risk bet. Some high risk bets pay off. But it is not proper to refer to a retirement approach requiring a high-risk bet as "safe."
Personally I think that future stock returns will be lower than those of the past. I would be hard pressed to say that this is "mathematical certitude."
You are in disagreement with William Berstein then. That's OK, it's allowed. But it would help if someone could put forward reasons why they think Bernstein is wrong. If Bernstein is right, intercst is wrong. They cannot possibly both be right. Their claims are in direct contradiction with each other.
To be sure, Bernstein is not predicting lower returns. He is saying that, if the future is like the past, we will get lower returns. It is theoretically possible that the James Glassman theory will be proven right, and the future will be unlike the past, and returns will be higher than what Bernstein's SWR assessment assumes.
But if that happens, it will be because the future turned out to be unlike the past. SWR analysis is supposed to assume that the future will be like the past. If the future is like the past, the SWR is a lot lower than what intercst says.
I think you are basing this on Bernstein who has guessed that future real returns might be 3.5- 4%
Bernstein is not guessing. Bernstein explained where he got his numbers. His approach is described in Chapter Two of the book "The Four Pillarts of Investing." He explains that the methodology used by intercst is "sometimes misleading" and that the approach he used is the one that all credible financial analysts use. The Bernstein methodology is superior to the intercst methodology.
Are you saying the swr is 2% because that's what the expert says?
No. I knew that the intercst claims were false ones the first time I looked at the study, back in 1999. I had not seen the Bernstein book at the time that I put forward the May 13, 2002, post.
I knew that the intercst numbers were wrong because it was clear that he did not factor in valuation levels, and I knew that it is not possible to calculate the SWR without doing so.
Finding the Bernstein quotes gave me a book to point people to supporting my claims, that is all. People really should read the book. The point that Bernstein is making is an important one, with a lot of far-reaching implications. We have only scratched the surface of what can be learned by reading and understanding Chapter Two of the book. It is very important stuff, in my view.
Desirable features for the Safe Withdrawal Rate definition.
I want to avoid some semantics traps that have been used against hocus. They were laid to create confusion and they have succeeded. We see honorable people of good will falling into these traps and adopting definitions that they should not.
These are some features that I would like to see in any definition of Safe Withdrawal Rates.
1. I want the definition to be independent of the methodology.
It is OK for the term to be used in a restricted sense internal to a study. That makes it easier to read. But the term is widely used and there are many methodologies.
hocus states it well when he says that he wants to know the Safe Withdrawal Rate, not the Safe Withdrew Rate. I reject categorically any notion that raddr, Gummy and Bernstein as well as others have no right to the term. Should any qualifier be used, it should be identified as a limitation of some particular study or investigation. When we see words such as historical Safe Withdrawal Rates, it should imply something inferior to the unhindered term Safe Withdrawal Rates.
2. I want any definition to use calculations that are independent of future events. It is OK to provide updates.
I want a calculation that was made in 2000 to stay put. I want it to be independent of events that follow. As we discover more factors that should be included in a calculation, it is OK to improve our estimates by including those factors. But a calculation appropriate for 2000 should include information up to the year 2000 and not any later information.
We seek to find a best estimate of the Safe Withdrawal Rate. I want to exclude the following kind of nonsense: The best estimate of the Safe Withdrawal Rate is the one that, when we look at stock market returns thirty years from now, we discover to have matched the actual returns over the previous thirty years. I do not want trivial arguments that you cannot make a calculation today without receiving a direct revelation from God.
3. I want any definition to acknowledge our inability to conduct carefully controlled experiments. That is why we end up with more than one answer. Each investigation looks at possible futures. Each determines probable future returns. There will only be one actual future.
I definitely want things such as raddr's sensitivity studies to be part of a Safe Withdrawal Rate calculation. When he discovers that the actual historical sequences were lucky, I want that discovery to be part of an improved Safe Withdrawal Rate calculation. We cannot live through the twentieth century a thousand times and measure portfolio safety directly. We can do the kind of thing that raddr and Gummy and others have done. We extract information from the historical record and look at it from many points of view. Then we assess the reliability of our projections.
I hope that this helps clarify our thinking. None of this is trivial.
Have fun.
John R.
I want to avoid some semantics traps that have been used against hocus. They were laid to create confusion and they have succeeded. We see honorable people of good will falling into these traps and adopting definitions that they should not.
These are some features that I would like to see in any definition of Safe Withdrawal Rates.
1. I want the definition to be independent of the methodology.
It is OK for the term to be used in a restricted sense internal to a study. That makes it easier to read. But the term is widely used and there are many methodologies.
hocus states it well when he says that he wants to know the Safe Withdrawal Rate, not the Safe Withdrew Rate. I reject categorically any notion that raddr, Gummy and Bernstein as well as others have no right to the term. Should any qualifier be used, it should be identified as a limitation of some particular study or investigation. When we see words such as historical Safe Withdrawal Rates, it should imply something inferior to the unhindered term Safe Withdrawal Rates.
2. I want any definition to use calculations that are independent of future events. It is OK to provide updates.
I want a calculation that was made in 2000 to stay put. I want it to be independent of events that follow. As we discover more factors that should be included in a calculation, it is OK to improve our estimates by including those factors. But a calculation appropriate for 2000 should include information up to the year 2000 and not any later information.
We seek to find a best estimate of the Safe Withdrawal Rate. I want to exclude the following kind of nonsense: The best estimate of the Safe Withdrawal Rate is the one that, when we look at stock market returns thirty years from now, we discover to have matched the actual returns over the previous thirty years. I do not want trivial arguments that you cannot make a calculation today without receiving a direct revelation from God.
3. I want any definition to acknowledge our inability to conduct carefully controlled experiments. That is why we end up with more than one answer. Each investigation looks at possible futures. Each determines probable future returns. There will only be one actual future.
I definitely want things such as raddr's sensitivity studies to be part of a Safe Withdrawal Rate calculation. When he discovers that the actual historical sequences were lucky, I want that discovery to be part of an improved Safe Withdrawal Rate calculation. We cannot live through the twentieth century a thousand times and measure portfolio safety directly. We can do the kind of thing that raddr and Gummy and others have done. We extract information from the historical record and look at it from many points of view. Then we assess the reliability of our projections.
I hope that this helps clarify our thinking. None of this is trivial.
Have fun.
John R.
ataloss
It is much simpler than you think and that is why you are confused. The logic is this: On any specific date in the future, the S&P 500 will be at some very well defined level. We don't know now what it will be. We will know then.
Regardless of what that number is, we will be able to calculate the stock market return between now and then when the time comes. We have a mathematical formula for calculating annualized returns. That calculation involves the ratio of that future price to today's price. The calculation always shows that the annualized return is bigger if today's price is lower. (We are holding the future price at a fixed level).
That means that the lower today's prices are (i.e., lower valuations), the bigger the annualized return. That relationship always holds. Along the same lines and regardless of the details, a safe withdrawal rate calculation must always favor starting out at lower valuations (i.e., you are safer if you start out at lower prices).
There are a thousand ways to nitpick this logic. And there are a thousand responses. The essence is always true. Valuations matter and higher valuations today mean greater risks going forward. Lower valuations today mean lower risks going forward.
Have fun.
John R.
I can't make sense of this uncertain certitude:
It is much simpler than you think and that is why you are confused. The logic is this: On any specific date in the future, the S&P 500 will be at some very well defined level. We don't know now what it will be. We will know then.
Regardless of what that number is, we will be able to calculate the stock market return between now and then when the time comes. We have a mathematical formula for calculating annualized returns. That calculation involves the ratio of that future price to today's price. The calculation always shows that the annualized return is bigger if today's price is lower. (We are holding the future price at a fixed level).
That means that the lower today's prices are (i.e., lower valuations), the bigger the annualized return. That relationship always holds. Along the same lines and regardless of the details, a safe withdrawal rate calculation must always favor starting out at lower valuations (i.e., you are safer if you start out at lower prices).
There are a thousand ways to nitpick this logic. And there are a thousand responses. The essence is always true. Valuations matter and higher valuations today mean greater risks going forward. Lower valuations today mean lower risks going forward.
Have fun.
John R.
Multiple unique answers.
It is very common in science and mathematics to have many different answers to what is meant by the word best. The key is that each answer truly is best in its own limited, very narrowly defined way.
We want the term Safe Withdrawal Rate to be defined as a unique mathematical calculation. We also want it to be the best calculation. This means that we should always associate with the term Safe Withdrawal Rate the manner in which it is the best calculation possible. It should never be used in isolation. We should always talk in terms of "the Safe Withdrawal Rate in the sense that [fill in the blank]."
I hope that this helps.
Have fun.
John R.
It is very common in science and mathematics to have many different answers to what is meant by the word best. The key is that each answer truly is best in its own limited, very narrowly defined way.
We want the term Safe Withdrawal Rate to be defined as a unique mathematical calculation. We also want it to be the best calculation. This means that we should always associate with the term Safe Withdrawal Rate the manner in which it is the best calculation possible. It should never be used in isolation. We should always talk in terms of "the Safe Withdrawal Rate in the sense that [fill in the blank]."
I hope that this helps.
Have fun.
John R.
A safe withdrawal rate calculation must always favor starting out at lower valuations.
This is the essential point of my May 13, 2002 post at the REHP board. The intercst study does not take the reality stated above into account. My request in the May 13, 2002, post was that the community of people interested in FIRE consider developing a SWR analysis which does take the reality stated above into account. This is what all the noise has been about from the first day of The Great Debate.
This is the essential point of my May 13, 2002 post at the REHP board. The intercst study does not take the reality stated above into account. My request in the May 13, 2002, post was that the community of people interested in FIRE consider developing a SWR analysis which does take the reality stated above into account. This is what all the noise has been about from the first day of The Great Debate.
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WiseNLucky
- ** Regular
- Posts: 84
- Joined: Tue Nov 26, 2002 3:59 am
- Location: Florida
I believe that one of the purposes that JWR1945 might have had in mind in starting this thread was to get people to agree to the definition of an SWR
And we're doing so well at it.
Wait until we get to discussions of asset allocation.
Am I a semantic trapper? I find myself understanding Ataloss more than I do Hocus. I can't seem to keep my past and future apart.
WiseNLucky
I just wish everyone could step back and get less car and less house then they want, and realize they don't NEED more. -- NeuroFool
I just wish everyone could step back and get less car and less house then they want, and realize they don't NEED more. -- NeuroFool
In the past, Hocus has taken intercst to task for lack of statistical significance in his results apparently (?) not realizing that regardless of the amount of historical data, application to the future is uncertain. I am not sure that he understands that the limitations in mc analysis. Specifically, you can pick a swr with a success rate of 95% but you can't predict the likelihood that it will succeed in the real world. I think I have made this point many times. Apparently not clearly enough.
The historical results are not statistically significant, at least to the degree of certitude that we all seek. You would need a few hundred (thousand?) more years to get enough data to get to a point where you could say, for example, there is a 95% chance that the SWR for the next 40 years will be X% +/- 0.2% for a given portfolio. Right now it is probably something like X% +/- 2%. Not nearly enough precision to be terribly useful unless you're comfortable saying something like "the SWR for the next 40 years will very likely be 2 to 6%" (assuming it was 4% since 1871).
I believe that it may be possible to estimate how many more years of data we would need to narrow down the confidence interval to a fraction of a percent. When I get time I'll work on it if anyone is interested.
I am not really getting anything out of this discussion with hocus and I can see that he isn't either. I will revert skimming his posts and not challenging what appear to me to be gaps in logic.
To ataloss and WiseNLucky and others:
Please don't give up on this thread. I realize that we are talking about semantics and that semantics isn't the kind of thing that excites very many people. I would have been happier if it weren't needed.
There is a lot of confusion surrounding the term Safe Withdrawal Rate. In most, if not all, instances the confusion started innocently. Most of those who are confused today are innocent and honest and of good will. But I am convinced that the reason that people continue to be confused is the result of malicious intent (outside of this forum). Otherwise, most of the confusion would have died out long ago. It would be very easy to provide clarifications as needed.
I have seen countless examples of people making arguments along these lines. I have paraphrased them and worded them for dramatic effect.
1) Nobody can predict the future exactly. So shut up and do nothing.
2) The Safe Withdrawal Rate is the number produced by using intercst's methodology (i.e., historical sequences). Anything else is wrong, stupid! By definition!
I have no trouble whatsoever when people start out thinking along these lines (preferably using less hostile words). I do have difficulty with their persistence. In a productive environment people would see by example that you can do something meaningful and that many people have used a variety of good methods to calculate Safe Withdrawal Rates.
Our progress has been hindered greatly because of confusion based in semantics. Clearing up the situation is quite tedious and requires lots of attention to detail. I think that it will be worth it. We will be able to point to a couple of paragraphs that will get everybody on-board and using the same terminology.
Have fun.
John R.
This is my latest definition, my second revision:
The Safe Withdrawal Rate is the best estimate of the safety of a retirement portfolio that is mathematically calculated based primarily on existing, historical information. The sense in which it is the best estimate must always be identified. The phrase Safe Withdrawal Rate should always be placed in context. It should be defined in terms of those factors that are covered by the calculation, those factors that are not covered and those that are only partially covered. The term Safe Withdrawal Rate must always be defined in terms of the reliability of the estimate. This should include known sensitivities to the assumptions that are inherent in making any projection. It is desirable to include general comments about the applicability of the estimate.
The Safe Withdrawal Rate must be described in terms independent of any methodology. The Safe Withdrawal Rate must be based on calculations that are independent of the actual occurrence of future events. The Safe Withdrawal Rate must be described in terms that acknowledge our inability to conduct carefully controlled experiments.
An example of a Safe Withdrawal Rate that does not depend on existing, historical information involves the use of mathematical formulas and theorems. If you started out with $1.0 million, you could withdraw $50K annually for 20 years. You would simply keep the money in cash at zero interest (such as stuffing dollars into a mattress). Another example is the introduction of a new asset classes on a theoretical basis instead of a historical basis such as including Treasury Inflation Protected Securities (TIPS). Even though they have existed only recently, it is possible to define a meaningful Safe Withdrawal Rate calculation that includes TIPS. Another example would be to include the effects of a new law.
Comments: In this revision I require that the term Safe Withdrawal Rate is a unique mathematical calculation. It must always include the sense in which it is the best estimate. It must always include comments about its reliability as an estimate. I exclude several types of specialized definitions that would restrict our research and the advancement of knowledge.
Have fun.
John R.
The Safe Withdrawal Rate is the best estimate of the safety of a retirement portfolio that is mathematically calculated based primarily on existing, historical information. The sense in which it is the best estimate must always be identified. The phrase Safe Withdrawal Rate should always be placed in context. It should be defined in terms of those factors that are covered by the calculation, those factors that are not covered and those that are only partially covered. The term Safe Withdrawal Rate must always be defined in terms of the reliability of the estimate. This should include known sensitivities to the assumptions that are inherent in making any projection. It is desirable to include general comments about the applicability of the estimate.
The Safe Withdrawal Rate must be described in terms independent of any methodology. The Safe Withdrawal Rate must be based on calculations that are independent of the actual occurrence of future events. The Safe Withdrawal Rate must be described in terms that acknowledge our inability to conduct carefully controlled experiments.
An example of a Safe Withdrawal Rate that does not depend on existing, historical information involves the use of mathematical formulas and theorems. If you started out with $1.0 million, you could withdraw $50K annually for 20 years. You would simply keep the money in cash at zero interest (such as stuffing dollars into a mattress). Another example is the introduction of a new asset classes on a theoretical basis instead of a historical basis such as including Treasury Inflation Protected Securities (TIPS). Even though they have existed only recently, it is possible to define a meaningful Safe Withdrawal Rate calculation that includes TIPS. Another example would be to include the effects of a new law.
Comments: In this revision I require that the term Safe Withdrawal Rate is a unique mathematical calculation. It must always include the sense in which it is the best estimate. It must always include comments about its reliability as an estimate. I exclude several types of specialized definitions that would restrict our research and the advancement of knowledge.
Have fun.
John R.
Am I a semantic trapper?
I don't know you well enough to say for certain, WiseNLucky, but my belief is that you are not playing semantics games. I have more familiarity with AtaLoss's posting history and I know for a fact that he is not playing games. If you find yourself in AtaLoss's camp on some of these questions, well, that is what makes a ballgame, isn't it? There has to be one side pitching and one side batting or it gets boring. So long as we are all working toward a common goal, the expression of different points of view is a good thing. It is by giving voice to these conflicts in a spirit of good will that we learn. I don't mean just you. I mean me too. That is the payoff to me for doing this, the potential that I will learn from the back and forth.
Your sort of question is the sort that really gets to me because I know when you say something like you said in your post above, there are others thinking it and not saying it. It needs to be said, and you score points with me for getting it on the table. What you are asking is "Is hocus accusing WiseNLucky pf playing games?" I am going to respond to that question because it goes right to the heart of what makes a discussion board community tick, and I believe that it is the unfortunate history of this discussion that causes you to have such a question on your mind. I think the factors that cause that question to pop into your mind need to be addressed.
I do not believe that you and AtaLoss are playing ganes, but I sure do believe that some others who have posted only on the other board have been playing games. Intercst is the only one that I am going to name. The reason I single him out is that he has a higher responsibility not to play games. He is the leader of the REHP board and he holds himself out as an expert on the subject of SWRs. So he is under an absolute obligation not to play games re this matter. He has violated the community's trust by doing so. It's because I see what he has done to these two communities when I see a question like yours appear that I have no reluctance anymore in calling a spade a spade on this question.
One thing that I love about discussion boards is that a record is kept of what people have said at earlier times. You want to check out what sort of poster hocus is, you can go check it out for yourself. I will tell you what you are going to find. You are going to find that hocus is a straight shooter. I take this stuff seriously. I tell jokes. But I never play games. You know what I'm getting at when I make that distinction.
Intercst plays games. That's not opinion, that's fact. I am not going to supply the proof here at this time, not in the current atmostphere. But if you have any doubts on this question, you can check it out. This is not an opinion of mine. This is something that can be proven beyond any reasonable doubt by taking a look at the REHP board Post Archives.
Some seem to be working from the premise that any games that intercst plays are nobody else's business. I do not agree. I have seen the effects of these games, and the effects are far-reaching. We are now trying to have a talk on a discussion board about an extremely important matter. Ataloss is shooting straight. You are shooting straight. I am shooting straight. Yet we are having trouble communicating. There is distrust in the air. There is a hint of friction. What's that about?
It's the result of the poison that was dumped into the water supply of these message boards by intercst. It is perfectly understandable that not everyone is on the same page on this sort of issue. That is what you would expect. What is so messed up with this particular debate is that we (the FIRE community at large, not this particular board) have been working on it for 12 months now, and not only have we not moved ahead, we have moved backward! We collectively possess less understanding of these issues now than when we started. That sort of development doesn't happen by accident. That sort of development happens by design.
JWR1945 talks about some research he has done re this matter in the post immediately following yours. He offered a valuable contribution when he posted that research. The community responded with great enthusiasm. So most people interested in FIRE very much want to know about this stuff. Take a look at the REHP board FAQ and tell me what it says about the JWR1945 research. If you aren't in the mood to waste some time, you can take my word for it. It tells you nothing The only material in the FAQ relating to The Great Debate are references to some nonsense polls.
Intercst has a great influence on that board community, WiseNLucky. It's a fact. He has used that influence during the course of this debate not to help that community learn about this important matter. He has used it instead to make sure that it does not. That's the way it is, and that is why you and me are having trouble communicating today. We are suffering the effects of there having been poison dumped into the water supply. He doesn't want us to discuss the issues because that lead to a bad place for him. So he has done what he could to get us talking about this junk that is lurking between the lines of most of the posts that are posted in connection with this matter today.
The way out is to deal with both the content issue and the process issue. Both ultimately need to be addressed. The REHP board needs to deal with the process issue or it will never be able even to get to the content issue. For us, the better approach is probably to deal with the content issue first, and thereby gain the feeling of mutual trust needed to tackle the process question. But the reality is that this has become far more of a struggle than it would otherwise be, and it is no accident that these things came to be.
Those Post Archives will tell you a few things about me. They will tell you that I am one determined son of a gun, OK? You knock me against the wall six times and you may slow me down, but you will not stop me. If it comes to it, I will get my book on the New York Times best-seller list, earn 100 million dollars, buy the dang Motley Fool site, hire new people to enforce the dang rules, and get intercst to stop disrupting the learning process that way. I am going to get the truth about SWRs before that board, one way or another. It is someday going to happen. I will never play a low card to make it happen, but I will make it happen all the same.
It matters. It may be that there is no one else in the world who sees why it matters so much. Well, no one else in the world has spent the last 12 years of his life working on this stuff until he got it right. I did that, and I am not going to let some individual with an ego gratification issue ruin the work that I and hundreds of other fine people on an honest quest to share information about this important subject have engaged in. I'm not going to let it happen.
I have posted on this issue for 12 months straight, responding to hundreds and hundreds and hundreds of questions, most phrased in the most hostile of tones. I did this at a time when I have zero income coming in the door and a wife threatening to file divorce papers if I didn't get about the business that I saved money for nine years to be able to engage in. I was paid not one dime for doing this. Is that enough evidence of honest commitment to the community's best interests for you?
I did it because according to my understanding of how discussion board communites work, I was under an obligation to do this. I started this discussion. So long as community members have questions, I am obligated to respond in as honest and fair and complete a manner as possible. That is what I have tried to do. I have begged and pleaded that the other side let the matter drop. No dice. There is always one more smear to put up to intimidate any poster thinking of telling the truth on this matter, always one more deception that can be used to add to the level of misunderstanding in the community at large.
I have done all that I could do, from the first day until now. Never have I tried to extend the discussion. Never have I posted personal comments or responded with hostility to posts that sent hostility in my direction. The only possible exceptions were with a few that were extremely personal in nature, dealing with my relationship with my children (intercst, to his credit, never stooped quite that low). And I will continue to follow these same practices now that the Debate has been carried to another board.
If you have 500 questions to put forward as part of a sincere effort to come to terms with this matter, I will sit here patiently and respond to those 500 posts the best that I am able. So long as your questions are sincere, they deserve answers. If I didn't think that the matter was important, I had no business bringing it forward in the first place. I did bring it forward, so I should answer the questions that are brought forward out of a sincere desire to learn.
What pisses me off are the questions that were not put forward out of a sincere desire to learn. There were many of that type at the other board. When those sorts of posts are put forward, it puts me in a situation of having to distinguish between different sorts of posters and different sorts of posts. This one, is it sincere or is it a joke? This one, a quest for information or a pure attempt at disruption?
I should never be put in that sort of situation, having to look into the minds of posters before knowing whether to respond to their questions or not. That's what I pay Motley Fool $30 for, to protect me from that sort of situation, to boot out of the community posters playing those sorts of games. Motley Fool didn't do its job, and everyone suffered. All of us had our understanding of SWRs pushed back many notches as a result of what was permiited to go on over there.
What we need to do today, in my opinion, is to forget that intercst ever existed. He has engaged in so many acts of deliberate deception at this point that no reasonable person seeking an understadning of how to achieve financial independence early in life should pay the least bit of attention to anything he has ever said on the subject. We need to wash all of the deception out of our brains and just start fresh. Pretend that you never heard of the concept of a safe withdrawal rate before. Listen to the words that other posters put forward here and don't allow anything you have ever heard previously from posters who were not dealing with you in good faith to even enter your mind.
If you do that, you may still have a good number of questions before you come to terms with this stuff. Which is good, because it is in the airing of those questions that we all learn. But do it that way, and we willlearn, we will get to a good place in the end.
Start out thinking that you would like to see the intercst position vindicated in the end, and we are doomed. It cannot be done. If his position could have been vindicated, he would have been willing to engage in reasoned debate at the other board. The fact that he was not willing tells you what you most need to know for us to move forward on this. You do not need to know one thing about SWRs to know that someone who endorses calls for physical violence against anyone who asks an informed question about the methodology of a atudy is hiding something. Since you are not clear on what he is hiding, and why he is doing so, I think the practical thing is just to forget everything he has ever said and try to adopt a fresh perspective on the subject.
I do not want to talk about intercst. People keep saying that I do, but I do not. I do not want to discuss any person. I want to discuss how to achieve FIRE. Intercst interjected himself into these discussions. He turned it personal. I never responded in a personal way, but that doesn't change the fact that he made a call for his friends on the other board to disrupt the board and they answered that call. At this point, so many false things have been said that a lot of good people who have not had the luxury of studying the matter for 12 years cannot make heads ot tails of it.
I am shooting straight, I can tell you that much. I can make mistakes, like anyone else. But I have never once put up a post on a message board for the purpose of tricking someone. I have done my homework. And I can tell you that I have never been so sure of anything in my life as I am sure that valuation levels affects SWRs. Valuation matters, and the intercst study does not take valuation adequately into account. So the intercst study provides wrong and dangerous answers. Fact, not opinion.
I'll answer any questions you have. Sincere questions I like. But I honestly do not think we are going to get far if you have the idea in the back of your head that somehow intercst is going to come out of this thing wearing a white hat. The community of people with a sincere interest in learning about FIRE will see him as wearing a black hat for the remainder of his days unless at some future point he does something to make up for the terrible destruction he has done to this community (the broad FIRE community that encompasses both boards).
People don't want to talk about this issue, but it's there all the same. I get tired of us tip-toeing around it because I see it between the lines of so many posts that I am called on to respond to. I would love to see it go away, but I think it is like a ghost that never goes away until you confront it. I want to get to the point were I can share honest and informed posts on this subject matter of the board once again without having to do battle with this ghost over and over again.
You tell me what I need to do to have that sort of conversation with you, and I will do it. I am telling you what I would like you to do. I would like you to cleanse your brain of everything you ever thought you had learned about the subject of SWRs by listening to intercst and start over again, this time listening to some people (it's not just me) who want to have the discussion not for the purpose of serving some personal agenda but for the purpose of bringing this community up to speed on a very important issue.
I don't know you well enough to say for certain, WiseNLucky, but my belief is that you are not playing semantics games. I have more familiarity with AtaLoss's posting history and I know for a fact that he is not playing games. If you find yourself in AtaLoss's camp on some of these questions, well, that is what makes a ballgame, isn't it? There has to be one side pitching and one side batting or it gets boring. So long as we are all working toward a common goal, the expression of different points of view is a good thing. It is by giving voice to these conflicts in a spirit of good will that we learn. I don't mean just you. I mean me too. That is the payoff to me for doing this, the potential that I will learn from the back and forth.
Your sort of question is the sort that really gets to me because I know when you say something like you said in your post above, there are others thinking it and not saying it. It needs to be said, and you score points with me for getting it on the table. What you are asking is "Is hocus accusing WiseNLucky pf playing games?" I am going to respond to that question because it goes right to the heart of what makes a discussion board community tick, and I believe that it is the unfortunate history of this discussion that causes you to have such a question on your mind. I think the factors that cause that question to pop into your mind need to be addressed.
I do not believe that you and AtaLoss are playing ganes, but I sure do believe that some others who have posted only on the other board have been playing games. Intercst is the only one that I am going to name. The reason I single him out is that he has a higher responsibility not to play games. He is the leader of the REHP board and he holds himself out as an expert on the subject of SWRs. So he is under an absolute obligation not to play games re this matter. He has violated the community's trust by doing so. It's because I see what he has done to these two communities when I see a question like yours appear that I have no reluctance anymore in calling a spade a spade on this question.
One thing that I love about discussion boards is that a record is kept of what people have said at earlier times. You want to check out what sort of poster hocus is, you can go check it out for yourself. I will tell you what you are going to find. You are going to find that hocus is a straight shooter. I take this stuff seriously. I tell jokes. But I never play games. You know what I'm getting at when I make that distinction.
Intercst plays games. That's not opinion, that's fact. I am not going to supply the proof here at this time, not in the current atmostphere. But if you have any doubts on this question, you can check it out. This is not an opinion of mine. This is something that can be proven beyond any reasonable doubt by taking a look at the REHP board Post Archives.
Some seem to be working from the premise that any games that intercst plays are nobody else's business. I do not agree. I have seen the effects of these games, and the effects are far-reaching. We are now trying to have a talk on a discussion board about an extremely important matter. Ataloss is shooting straight. You are shooting straight. I am shooting straight. Yet we are having trouble communicating. There is distrust in the air. There is a hint of friction. What's that about?
It's the result of the poison that was dumped into the water supply of these message boards by intercst. It is perfectly understandable that not everyone is on the same page on this sort of issue. That is what you would expect. What is so messed up with this particular debate is that we (the FIRE community at large, not this particular board) have been working on it for 12 months now, and not only have we not moved ahead, we have moved backward! We collectively possess less understanding of these issues now than when we started. That sort of development doesn't happen by accident. That sort of development happens by design.
JWR1945 talks about some research he has done re this matter in the post immediately following yours. He offered a valuable contribution when he posted that research. The community responded with great enthusiasm. So most people interested in FIRE very much want to know about this stuff. Take a look at the REHP board FAQ and tell me what it says about the JWR1945 research. If you aren't in the mood to waste some time, you can take my word for it. It tells you nothing The only material in the FAQ relating to The Great Debate are references to some nonsense polls.
Intercst has a great influence on that board community, WiseNLucky. It's a fact. He has used that influence during the course of this debate not to help that community learn about this important matter. He has used it instead to make sure that it does not. That's the way it is, and that is why you and me are having trouble communicating today. We are suffering the effects of there having been poison dumped into the water supply. He doesn't want us to discuss the issues because that lead to a bad place for him. So he has done what he could to get us talking about this junk that is lurking between the lines of most of the posts that are posted in connection with this matter today.
The way out is to deal with both the content issue and the process issue. Both ultimately need to be addressed. The REHP board needs to deal with the process issue or it will never be able even to get to the content issue. For us, the better approach is probably to deal with the content issue first, and thereby gain the feeling of mutual trust needed to tackle the process question. But the reality is that this has become far more of a struggle than it would otherwise be, and it is no accident that these things came to be.
Those Post Archives will tell you a few things about me. They will tell you that I am one determined son of a gun, OK? You knock me against the wall six times and you may slow me down, but you will not stop me. If it comes to it, I will get my book on the New York Times best-seller list, earn 100 million dollars, buy the dang Motley Fool site, hire new people to enforce the dang rules, and get intercst to stop disrupting the learning process that way. I am going to get the truth about SWRs before that board, one way or another. It is someday going to happen. I will never play a low card to make it happen, but I will make it happen all the same.
It matters. It may be that there is no one else in the world who sees why it matters so much. Well, no one else in the world has spent the last 12 years of his life working on this stuff until he got it right. I did that, and I am not going to let some individual with an ego gratification issue ruin the work that I and hundreds of other fine people on an honest quest to share information about this important subject have engaged in. I'm not going to let it happen.
I have posted on this issue for 12 months straight, responding to hundreds and hundreds and hundreds of questions, most phrased in the most hostile of tones. I did this at a time when I have zero income coming in the door and a wife threatening to file divorce papers if I didn't get about the business that I saved money for nine years to be able to engage in. I was paid not one dime for doing this. Is that enough evidence of honest commitment to the community's best interests for you?
I did it because according to my understanding of how discussion board communites work, I was under an obligation to do this. I started this discussion. So long as community members have questions, I am obligated to respond in as honest and fair and complete a manner as possible. That is what I have tried to do. I have begged and pleaded that the other side let the matter drop. No dice. There is always one more smear to put up to intimidate any poster thinking of telling the truth on this matter, always one more deception that can be used to add to the level of misunderstanding in the community at large.
I have done all that I could do, from the first day until now. Never have I tried to extend the discussion. Never have I posted personal comments or responded with hostility to posts that sent hostility in my direction. The only possible exceptions were with a few that were extremely personal in nature, dealing with my relationship with my children (intercst, to his credit, never stooped quite that low). And I will continue to follow these same practices now that the Debate has been carried to another board.
If you have 500 questions to put forward as part of a sincere effort to come to terms with this matter, I will sit here patiently and respond to those 500 posts the best that I am able. So long as your questions are sincere, they deserve answers. If I didn't think that the matter was important, I had no business bringing it forward in the first place. I did bring it forward, so I should answer the questions that are brought forward out of a sincere desire to learn.
What pisses me off are the questions that were not put forward out of a sincere desire to learn. There were many of that type at the other board. When those sorts of posts are put forward, it puts me in a situation of having to distinguish between different sorts of posters and different sorts of posts. This one, is it sincere or is it a joke? This one, a quest for information or a pure attempt at disruption?
I should never be put in that sort of situation, having to look into the minds of posters before knowing whether to respond to their questions or not. That's what I pay Motley Fool $30 for, to protect me from that sort of situation, to boot out of the community posters playing those sorts of games. Motley Fool didn't do its job, and everyone suffered. All of us had our understanding of SWRs pushed back many notches as a result of what was permiited to go on over there.
What we need to do today, in my opinion, is to forget that intercst ever existed. He has engaged in so many acts of deliberate deception at this point that no reasonable person seeking an understadning of how to achieve financial independence early in life should pay the least bit of attention to anything he has ever said on the subject. We need to wash all of the deception out of our brains and just start fresh. Pretend that you never heard of the concept of a safe withdrawal rate before. Listen to the words that other posters put forward here and don't allow anything you have ever heard previously from posters who were not dealing with you in good faith to even enter your mind.
If you do that, you may still have a good number of questions before you come to terms with this stuff. Which is good, because it is in the airing of those questions that we all learn. But do it that way, and we willlearn, we will get to a good place in the end.
Start out thinking that you would like to see the intercst position vindicated in the end, and we are doomed. It cannot be done. If his position could have been vindicated, he would have been willing to engage in reasoned debate at the other board. The fact that he was not willing tells you what you most need to know for us to move forward on this. You do not need to know one thing about SWRs to know that someone who endorses calls for physical violence against anyone who asks an informed question about the methodology of a atudy is hiding something. Since you are not clear on what he is hiding, and why he is doing so, I think the practical thing is just to forget everything he has ever said and try to adopt a fresh perspective on the subject.
I do not want to talk about intercst. People keep saying that I do, but I do not. I do not want to discuss any person. I want to discuss how to achieve FIRE. Intercst interjected himself into these discussions. He turned it personal. I never responded in a personal way, but that doesn't change the fact that he made a call for his friends on the other board to disrupt the board and they answered that call. At this point, so many false things have been said that a lot of good people who have not had the luxury of studying the matter for 12 years cannot make heads ot tails of it.
I am shooting straight, I can tell you that much. I can make mistakes, like anyone else. But I have never once put up a post on a message board for the purpose of tricking someone. I have done my homework. And I can tell you that I have never been so sure of anything in my life as I am sure that valuation levels affects SWRs. Valuation matters, and the intercst study does not take valuation adequately into account. So the intercst study provides wrong and dangerous answers. Fact, not opinion.
I'll answer any questions you have. Sincere questions I like. But I honestly do not think we are going to get far if you have the idea in the back of your head that somehow intercst is going to come out of this thing wearing a white hat. The community of people with a sincere interest in learning about FIRE will see him as wearing a black hat for the remainder of his days unless at some future point he does something to make up for the terrible destruction he has done to this community (the broad FIRE community that encompasses both boards).
People don't want to talk about this issue, but it's there all the same. I get tired of us tip-toeing around it because I see it between the lines of so many posts that I am called on to respond to. I would love to see it go away, but I think it is like a ghost that never goes away until you confront it. I want to get to the point were I can share honest and informed posts on this subject matter of the board once again without having to do battle with this ghost over and over again.
You tell me what I need to do to have that sort of conversation with you, and I will do it. I am telling you what I would like you to do. I would like you to cleanse your brain of everything you ever thought you had learned about the subject of SWRs by listening to intercst and start over again, this time listening to some people (it's not just me) who want to have the discussion not for the purpose of serving some personal agenda but for the purpose of bringing this community up to speed on a very important issue.
The Safe Withdrawal Rate is the best estimate of the safety of a retirement portfolio that is mathematically calculated based primarily on existing, historical information.
Why have you not stated it thusly:
"The Safe Withdrawal Rate is the best estimate of the initial percentage of of a retirement portfolio that, on an inflation-adjusted basis in future years, can be withdrawn without completely depleting the portfolio. It is mathematically calculated based primarily on existing, historical information."
?
Why have you not stated it thusly:
"The Safe Withdrawal Rate is the best estimate of the initial percentage of of a retirement portfolio that, on an inflation-adjusted basis in future years, can be withdrawn without completely depleting the portfolio. It is mathematically calculated based primarily on existing, historical information."
?
regards,
wanderer
The field has eyes / the wood has ears / I will see / be silent and hear
wanderer
The field has eyes / the wood has ears / I will see / be silent and hear