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Seems we are turning the SWR and valuation issue into rocket science (and it might just be! ). But to try to keep it simple:

I recall from the Fool board that it was suggested to simply adjust the SWR rate one would use with the over valuation (or under valuation) one believed there was in the market.

I.e. retiring today at PE 20 and noting that PE 15 is the historical average (using round nos just to get point through - you can do your own calculations you lazy buggars ) one would adjust the SWR from the traditional studies from 4% to 3%. Naturally if one believes that the future PE will be higher/lower than the historical avg. one can adjust up/down too.

Therefore the one who believes that the traditional SWR studies (and not adjusting for valuation at retirement) is fine, can use the 4% and the one believing that the over valuation is 25% can deduct 25% Etc.

Ben,

Your withdrawal rate hasn't dropped from 4% to 3%. The understanding of your total assets based on intrinsic value has dropped and so whilst the w/d rate you arrived at has remained constant, your assets have been corrected down.

The ideas I've put forward are actually a simplification of what people have been trying to do here with complex backward looking spreadsheets, complex calculations on swr and the like. To put forward a new way of looking at things, a paradigm shift if you will, requires detailed posts to explain it. Furthermore, the change in view bleeds into safe withdrawal calculations, income drawdown, asset allocation methodology and other key facets of the FIRE experience. It cannot be detailed in short 2 paragraph posts.

That said, would you mind keeping the discussion in the thread I've started so its not going on in two places at the same time which may distrupt/distract from the points being discussed?

Thanks mate,
Petey

ben wrote: Seems we are turning the SWR and valuation issue into rocket science (and it might just be! ). But to try to keep it simple:

I recall from the Fool board that it was suggested to simply adjust the SWR rate one would use with the over valuation (or under valuation) one believed there was in the market.

I.e. retiring today at PE 20 and noting that PE 15 is the historical average (using round nos just to get point through - you can do your own calculations you lazy buggars ) one would adjust the SWR from the traditional studies from 4% to 3%. Naturally if one believes that the future PE will be higher/lower than the historical avg. one can adjust up/down too.

Therefore the one who believes that the traditional SWR studies (and not adjusting for valuation at retirement) is fine, can use the 4% and the one believing that the over valuation is 25% can deduct 25% Etc.

Hi Petey,
I was actually in the midst of replying to your previous thread when I realized that I was already getting lost as to the replies in same. Too many words and too little hands on "how can I use this idea IF I want to?"
I am probably too dumb to get that you are saying the same thing as I...

Hi Ben,

I have updated my previous reply to you as it was incorrect.

The original post was to put forward a new way of thinking about the issues. This would allow all posters to discuss the matter, throw out what doesn't work, completely discard it if that's what needs be. Once this happens, a " How To Guide " would become more clear. That was not the aim of the original post however.

Having said that, my last post put up the idea of a spreadsheet where different investments would be detailed and a net average return derived. This could then be used to calculate what could be withdrawn depending on your timeframe. It is a bit like owing money on five credit cards and trying to know when you will be debt-free depending on who you pay, what interest is charged on each card as the balances go down. It's not something you can answer without a spreadsheet with the formulas in place. If the idea floats well, I'm hoping someone here who is better at mathematics will undertake such a challenge and produce something that will help all. Then you'll get your how to.

Petey

ben wrote: Hi Petey,
I was actually in the midst of replying to your previous thread when I realized that I was already getting lost as to the replies in same. Too many words and too little hands on "how can I use this idea IF I want to?"
I am probably too dumb to get that you are saying the same thing as I...

Hey Petey,
thanks for the explanation - became a BIT clearer...

Will re-read the initial thread - I am not such a fan of the " Mother of all SWR studies" in general, as only a fool would blindly pull 3/4/5% or whatever without actually looking at the market/nest egg. This goes nomatter what PE...

Looking forward to the Excel spread sheet you mention - could be fun to play with! (if nothing else ).

Best regards,

I recall from the Fool board that it was suggested to simply adjust the SWR rate one would use with the over valuation (or under valuation) one believed there was in the market.

I think this was the suggestion of the evil board general from that site. I think that this addressed the issue of stock valuation being out of the historical range. Unfortunately having belatedly discovered that valuation matters some people now think that it is the only thing that matters

Ataloss,

I think it's pretty clear that many people are beginning to consider valuation as one key issue of which there many. We are looking at the FIRE subject from multiple angles and sometimes going back to the drawing board rather than starting from someone elses reporting, assuming that meets all needs and moving forward from there. Often we're attempting to start from a blank sheet of paper and seeing where collective reasoning can take us. If it takes us right into intercst's ballpark, then cool. It if doesn't, so be it.

I think your answer was either simply an attempt at humor, shortsighted or an attempt to goad people into an arguement. I shall instead simply correct you.

Enjoy your weekend.

Petey

ataloss wrote:

I recall from the Fool board that it was suggested to simply adjust the SWR rate one would use with the over valuation (or under valuation) one believed there was in the market.

I think this was the suggestion of the evil board general from that site. I think that this addressed the issue of stock valuation being out of the historical range. Unfortunately having belatedly discovered that valuation matters some people now think that it is the only thing that matters

peteyperson, this was in fact a suggestion by intercst to hocus over a year ago on another board. I am sorry if after all those posts the discussion is back to where it started

intercst:

I'm not aware of anyone who has been successful in timing when stock prices are high or low over the long-term. If you possess this unique ability that others lack, perhaps the easiest thing to do is to adjust the safe withdrawal rate by the amount that you consider stocks to be higher than they have ever been. If stocks are 25% higher, drop the 4% withdrawal to 3%. If you feel stocks are 50% higher than they have ever been, then drop the 4% down to a 2% withdrawal.

http://boards.fool.com/Message.asp?mid=17209707

further I see no sign of anything but valuation being considered despite some talk about considering all factors

Ataloss,

I have in fact discussed matters relating to suggested asset allocation, cash buffers to prevent loss of value over sustainted dips in the market and various other issues.

If the matter had been just valuation I would have simply said I felt portfolios should be calculated down to average P/E and leave it at that.

I don't know what angle you are coming from but your vector is all wrong.

Petey

ataloss wrote: peteyperson, this was in fact a suggestion by intercst to hocus over a year ago on another board. I am sorry if after all those posts the discussion is back to where it started

intercst:

I'm not aware of anyone who has been successful in timing when stock prices are high or low over the long-term. If you possess this unique ability that others lack, perhaps the easiest thing to do is to adjust the safe withdrawal rate by the amount that you consider stocks to be higher than they have ever been. If stocks are 25% higher, drop the 4% withdrawal to 3%. If you feel stocks are 50% higher than they have ever been, then drop the 4% down to a 2% withdrawal.

http://boards.fool.com/Message.asp?mid=17209707

further I see no sign of anything but valuation being considered despite some talk about considering all factors

I don't know what angle you are coming from but your vector is all wrong.

I agree with this comment made by PeteyPerson to ataloss

The SWR matter is a matter of great consequence. I have a file of comments that were posted on the Motley Fool board back in the year 2000 in which a good number of posters expressed confidence that the conventional SWR methodology provides an accurate view of what is safe. The conventional methodology has now been proven beyond any reasonable doubt to be invalid. That meens that early retirees who used the SWR tool to plan their retirements at that time are now at great risk of suffering serious life setbacks as a result.

It is long past time for the community of people interested in helping develop knowledge of what it takes to achieve financial independence early in life to stop playing games and get serious about this matter.

If Ataloss or any other member of the FIRE community (that includes people at both boards) has any data that supports the view the changes in valuation levels do not affect SWRs, I would very much like to see it. The fact that no one has put forward any data to that effect over the course of 14 months of debate is strong evidence to me that no such data exists.

SWRs are determined by looking to data. If you do not have data to support your claims that the SWR is always 4 percent, please stop putting forward that claim. Not tomorrow. Today. Those claims are false. Those claims are dangerous. Those claims do us all great harm. The unwillingness of parties to back away from those claims despite their inability to offer data supporting them has done great damage to a once-fantastic learning resource for aspring early retirees.

Let's cut out the nonsense. Data talks. I put up a post earlier today asking that some of the numbers-oriented posters on this board get to work showing with data that changes in valuation levels always affect SWRs. Let's get to it, let's move on to the next step.

The true SWR is revealed in the data. So let's look at the data!