Sunday, April 22, 2012

A Closer Look at the Assumptions Behind Safe Withdrawal Rates (SWRs)

Table 2.4  A Closer Look at the Assumptions Behind Safe Withdrawal Rates (SWRs)    Assumption Changing the Assumption Causes SWRs to be… 1 U.S. historical data is sufficiently representative Lower 2 Investors earn index returns: no fees or underperformance Lower 3 Financial portfolio is tax-deferred Lower 4 No desire to leave a bequest or safety margin Lower 5 Planning horizon for 4% rule is 30 years Could go either way 6 Retirees always spend a constant inflation-adjusted amount Higher 7 Only a few asset classes are available Higher 8 Retirees do not adjust withdrawals based on market returns Higher 9 Retirees maintain a fixed asset allocation throughout retirement Higher 10 Goal of retirement is to minimize failure probabilities Higher


  1. Wade, I would like to see more explanation for your thoughts on some of these. Some of the causalities aren't obvious to me. Also, #10 could make a post in and of itself. For instance, it's my understanding that focusing on probability of failure leads to more aggressive asset allocation vs. considering probability AND CONSEQUENCES of failure.


    1. Thanks Dan,

      I am planning to explain more about all of these. Some I've already explained. About #10, please see here:

      and also the links from there.