Updated Situation for 2000 Retirees

Now that 12 years have passed since the retirement date for 2000 retirees, we can obtain a progress report about how they fare relative to other historical retirees. This entry builds on my article, "Will 2000-Era Retirees Experience the Worst Retirement Outcomes in U.S. History? A Progress Report after 10 Years," from The Journal of Investing, as well as William Bengen's article "How Much is Enough" in the May 2012 issue of Financial Advisor linked to and described here. 

The numbers are shown in Table 3.3. Ranked in terms of real remaining wealth 12 years after retirement, the 2000 retiree comes in 15^th place with 67.6% of their retirement date wealth remaining after 12 years. This is for a 4% withdrawal rate, 50/50 asset allocation, and all of the other assumptions described in my entry on William Bengen’s SAFEMAX.

On the surface, the situation does not look dire for 2000 retirees. The 14 retirees with less remaining real wealth after 12 years all subsequently experienced success over 30 years with the 4% rule. The current withdrawal rate (which is the real withdrawal amount of 4 divided by the remaining real wealth of 67.6) for the 2000 retiree is 5.92%, whereas with the 1937 retiree the current withdrawal rate was already 8.51%.

Table 3.3 Retirements Ranked By Lowest Remaining Real Wealth 12 Years After Retirement For 4% Withdrawal Rate, 50/50 Asset Allocation, Inflation-Adjusted Withdrawals, No Fees Using SBBI Data, 1926-2011, S&P 500 and Intermediate-Term Government Bonds
		12 Years Later (For example, for the 2000 retiree these are the numbers at the start of 2012)							30 Years Later
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		Remain. Real Wealth (%)	Maximum Sustainable Withdrawal Rate
1	1937	47.0	8.51	78.8	10.25	6.18	2.31		26.7	4.36
2	1973	48.1	8.31	114.7	10.00	4.41	11.38		42.9	4.45
3	1969	48.4	8.26	104.6	9.26	4.66	12.57		23.4	4.20
4	1968	49.8	8.03	99.5	8.85	5.14	10.80		19.0	4.19
5	1966	52.7	7.59	96.3	9.24	5.22	7.96		3.3	4.04
6	1972	53.8	7.44	127.8	9.89	4.28	11.67		68.2	4.64
7	1970	54.0	7.41	123.5	7.39	5.68	14.59		102.8	4.84
8	1971	56.5	7.08	133.5	8.76	4.77	10.46		95.0	4.81
9	1967	57.9	6.91	109.2	9.26	5.12	9.10		38.3	4.42
10	1965	61.7	6.49	109.5	11.44	3.95	7.21		8.3	4.12
11	1939	62.6	6.39	105.6	11.90	7.02	2.57		60.5	4.76
12	1940	63.9	6.26	114.6	12.53	5.83	2.68		56.6	4.81
13	1964	64.8	6.17	108.9	11.19	3.80	7.74		27.0	4.35
14	1936	66.2	6.04	103.0	10.42	5.66	2.44		75.0	4.91
15	2000	67.6	5.92	88.0	21.21	2.06	1.97		?	?
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.

Did the 2000 retiree already past the test to be well on the way to success with the 4% rule as well? Perhaps, but I do not think that great confidence is called for yet. I checked the historical maximum sustainable withdrawal rates over 18-year periods, and there were 8 retirements with withdrawal rates below the 5.92% needed by the 2000 retiree. These include 5.35% for 1969 retirees, 5.41% for 1968 retirees, 5.42% for 1973 retirees, 5.42% for 1966 retirees, 5.59% for 1937 retirees, 5.65% for 1965 retirees, 5.7% for 1972 retirees, and 5.82% for 1967 retirees.

While a lot of those retirees also appear in the above table as well for 12 year retirements, it is also worthwhile to note the current market conditions 12 years after retirement. For the 14 retirees ranked in worst-shape than the 2000 retiree after 12 years, harsh market conditions had already tended to bring market valuations to rather low levels. The highest PE10 after 12 years was the 12.53 value experienced by the 1940 retiree. Compared to a PE10 of 21.21 at the start of 2012, 2000 retirees may not be able to expect higher forward looking stock market returns. As well, dividend yields are lower than experienced in the past. Bond yields are also at the lowest levels in U.S. history, and this is the best predictor of future bond returns. 

The 4% rule may work for 2000 retirees. Then again, it may not. Certainly the next few years will be critical and those retirees should remain cautious and monitor their current withdrawal rate.

Update: Welcome Readers from the Oblivious Investor blog. Shortly after writing this, an astute reader at the Early Retirement Forum wondered whether these results are too favorable for 2000 retirees because I use bonds. He thought retirees in 2000 might have been looking at an allocation such as 75% stocks and 25% cash. He also wanted to see fees included. I considered a few more scenarios like this at "Grim News: Another Look at the 2000 Retiree"