Grim News: Another Look at the 2000 Retiree

On Monday, I provided a fresh look at the situation 12 years later for someone who retired at the start of the year 2000.

I looked at the results for someone using a 4% withdrawal rate with inflation-adjusted withdrawal amounts who rebalances annually to an allocation of 50% stocks and 50% intermediate-term government bonds. The news was not as grim as I expected.

At the Early Retirement Forum, Running Man suggests that I cherry-picked my asset allocation to make things look better for the 2000 retiree. While it was not intentional, he may be right. Essentially, bonds have performed very well since 2000. He suggests that in 2000 a more common asset allocation would have been 75% stocks and 25% cash. He also says not to forget about fees.  Now I will show results for a few more scenarios, and things are now looking much worse for 2000 retirees than I reported first.

About fees, I will consider a 1% annual fee. This can be interpreted as investors underforming the index returns by 1%. I mean, the fee is not offset by additional returns from the fund manager.

There are four tables below. The first is for 75% stocks/25% bills and a 1% fee. The 2000 retiree is in the worst shape of anyone after 12 years, with a current withdrawal rate already about 12.5%. These are not conditions that will allow for a sustainable 30 year retirement unless a market boom begins very soon.

The second table is still 75/25, but removes the fee. The current withdrawal rate falls a bit to 10.22%, but it is still dangerously high.

In the 3rd table, I look at 50% stocks and 50% cash.  No bonds. No fee. Now the 2000 retiree is in a bit better shape than the 1937 retiree. The current withdrawal rate is 8.7%. But this is still uncomfortably high for someone only 12 years into retirement.

Finally, in the 4th table I add the 1% fee back to 50% stocks and 50% cash. The CWR is 10.48%.

So it does look like the bull market for bonds could be a saving grace for 2000 retirees, but only for those retirees who actually held bond mutual funds and enjoyed the capital gains from selling some bond holdings during that time.  Those focusing on stocks and cash will be in much worst shape.

Table 3.3a Retirements Ranked By Lowest Remaining Real Wealth 12 Years After Retirement For 4% Withdrawal Rate, 75% S&P 500 & 25% 90-Day T-Bills, Inflation-Adjusted Withdrawals, 1% Annual Fee Using SBBI Data, 1926-2011, S&P 500 and Intermediate-Term Government Bonds
		12 Years Later (i.e. these numbers are from the start of 2012 for a 2000 retiree)
Rank	Ret. Year	Remain. Real Wealth (%)	Current Withdrawal Rate	Remain. Nominal Wealth (%)	Cyclically-Adjusted Price Earnings Ratio (PE10)	Dividend Yield	10-Year Gov't Bond Yield
1	2000	32.0	12.49	41.7	21.21	2.06	1.97
2	1937	35.0	11.44	58.6	10.25	6.18	2.31
3	1973	36.3	11.02	86.5	10.00	4.41	11.38
4	1969	37.5	10.68	80.9	9.26	4.66	12.57
5	1968	37.8	10.58	75.5	8.85	5.14	10.80
6	1966	39.8	10.04	72.8	9.24	5.22	7.96
7	1970	42.4	9.45	96.9	7.39	5.68	14.59
8	1999	43.1	9.29	56.8	22.97	1.79	3.39
9	1972	45.3	8.83	107.6	9.89	4.28	11.67
10	1971	46.7	8.57	110.4	8.76	4.77	10.46
11	1967	48.0	8.33	90.7	9.26	5.12	9.10
12	1929	50.0	8.01	40.7	13.90	6.35	1.95
13	1965	50.8	7.87	90.3	11.44	3.95	7.21
14	1930	51.4	7.78	42.2	10.10	7.84	2.46
15	1964	56.1	7.13	94.3	11.19	3.80	7.74
Note: Data for PE10, Dividend Yield, and 10-Year Government Bond Yield are the values for the January occurring 12 years later. This data is from Robert Shiller's homepage.
Table 3.3a Retirements Ranked By Lowest Remaining Real Wealth 12 Years After Retirement For 4% Withdrawal Rate, 75% S&P 500 & 25% 90-Day T-Bills, Inflation-Adjusted Withdrawals, No Fee Using SBBI Data, 1926-2011, S&P 500 and Intermediate-Term Government Bonds
		12 Years Later (i.e. these numbers are from the start of 2012 for a 2000 retiree)
Rank	Ret. Year	Remain. Real Wealth (%)	Current Withdrawal Rate	Remain. Nominal Wealth (%)	Cyclically-Adjusted Price Earnings Ratio (PE10)	Dividend Yield	10-Year Gov't Bond Yield
1	2000	39.1	10.22	51.0	21.21	2.06	1.97
2	1937	42.4	9.44	71.0	10.25	6.18	2.31
3	1973	44.6	8.96	106.4	10.00	4.41	11.38
4	1968	45.7	8.75	91.3	8.85	5.14	10.80
5	1969	45.7	8.75	98.8	9.26	4.66	12.57
6	1966	47.7	8.38	87.2	9.24	5.22	7.96
7	1970	50.8	7.87	116.3	7.39	5.68	14.59
8	1999	51.6	7.75	68.0	22.97	1.79	3.39
9	1972	54.8	7.30	130.2	9.89	4.28	11.67
10	1971	56.0	7.14	132.3	8.76	4.77	10.46
11	1967	57.0	7.02	107.6	9.26	5.12	9.10
12	1929	59.6	6.72	48.5	13.90	6.35	1.95
13	1965	60.4	6.62	107.3	11.44	3.95	7.21
14	1930	60.8	6.58	49.9	10.10	7.84	2.46
15	1964	66.0	6.06	110.9	11.19	3.80	7.74
Note: Data for PE10, Dividend Yield, and 10-Year Government Bond Yield are the values for the January occurring 12 years later. This data is from Robert Shiller's homepage.
Table 3.3a Retirements Ranked By Lowest Remaining Real Wealth 12 Years After Retirement For 4% Withdrawal Rate, 50% S&P 500 & 50% 90-Day T-Bills, Inflation-Adjusted Withdrawals, No Fee Using SBBI Data, 1926-2011, S&P 500 and Intermediate-Term Government Bonds
		12 Years Later (i.e. these numbers are from the start of 2012 for a 2000 retiree)
Rank	Ret. Year	Remain. Real Wealth (%)	Current Withdrawal Rate	Remain. Nominal Wealth (%)	Cyclically-Adjusted Price Earnings Ratio (PE10)	Dividend Yield	10-Year Gov't Bond Yield
1	1937	38.7	10.34	64.8	10.25	6.18	2.31
2	2000	46.0	8.70	59.9	21.21	2.06	1.97
3	1969	49.7	8.05	107.4	9.26	4.66	12.57
4	1968	49.9	8.02	99.7	8.85	5.14	10.80
5	1973	50.7	7.89	120.8	10.00	4.41	11.38
6	1966	52.0	7.69	95.0	9.24	5.22	7.96
7	1970	53.1	7.53	121.6	7.39	5.68	14.59
8	1939	54.3	7.37	91.5	11.90	7.02	2.57
9	1936	55.1	7.26	85.7	10.42	5.66	2.44
10	1999	55.6	7.19	73.3	22.97	1.79	3.39
11	1972	56.6	7.07	134.4	9.89	4.28	11.67
12	1971	56.6	7.06	133.9	8.76	4.77	10.46
13	1940	57.8	6.92	103.6	12.53	5.83	2.68
14	1967	58.0	6.90	109.4	9.26	5.12	9.10
15	1965	61.3	6.53	108.9	11.44	3.95	7.21
Note: Data for PE10, Dividend Yield, and 10-Year Government Bond Yield are the values for the January occurring 12 years later. This data is from Robert Shiller's homepage.
Table 3.3a Retirements Ranked By Lowest Remaining Real Wealth 12 Years After Retirement For 4% Withdrawal Rate, 50% S&P 500 & 50% 90-Day T-Bills, Inflation-Adjusted Withdrawals, 1% Fees Using SBBI Data, 1926-2011, S&P 500 and Intermediate-Term Government Bonds
		12 Years Later (i.e. these numbers are from the start of 2012 for a 2000 retiree)
Rank	Ret. Year	Remain. Real Wealth (%)	Current Withdrawal Rate	Remain. Nominal Wealth (%)	Cyclically-Adjusted Price Earnings Ratio (PE10)	Dividend Yield	10-Year Gov't Bond Yield
1	1937	31.9	12.53	53.5	10.25	6.18	2.31
2	2000	38.2	10.48	49.7	21.21	2.06	1.97
3	1969	41.1	9.72	88.9	9.26	4.66	12.57
4	1968	41.6	9.63	83.0	8.85	5.14	10.80
5	1973	41.8	9.58	99.6	10.00	4.41	11.38
6	1966	43.6	9.18	79.7	9.24	5.22	7.96
7	1970	44.4	9.01	101.6	7.39	5.68	14.59
8	1939	45.1	8.87	76.0	11.90	7.02	2.57
9	1936	46.4	8.62	72.2	10.42	5.66	2.44
10	1999	46.7	8.57	61.5	22.97	1.79	3.39
11	1972	47.0	8.51	111.7	9.89	4.28	11.67
12	1971	47.3	8.45	111.9	8.76	4.77	10.46
13	1940	48.1	8.32	86.2	12.53	5.83	2.68
14	1967	48.9	8.19	92.2	9.26	5.12	9.10
15	1965	51.7	7.74	91.8	11.44	3.95	7.21
Note: Data for PE10, Dividend Yield, and 10-Year Government Bond Yield are the values for the January occurring 12 years later. This data is from Robert Shiller's homepage.