tag:blogger.com,1999:blog-6167053228142922997.post5218428343063196979..comments2023-10-30T11:57:40.433-04:00Comments on Wade Pfau's Retirement Researcher Blog: New research article: The 4% Rule is Not Safe in a Low-Yield WorldAnonymoushttp://www.blogger.com/profile/04168922717655562721noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6167053228142922997.post-15920493643244504752013-04-26T12:29:11.123-04:002013-04-26T12:29:11.123-04:00I'm glad that you published something about th...I'm glad that you published something about the 4% rule.Anonymoushttps://www.blogger.com/profile/08474551845661031816noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-35664009432439865202013-03-18T09:06:55.671-04:002013-03-18T09:06:55.671-04:00Wade, do offer advertising at all on your site? Th...Wade, do offer advertising at all on your site? Thanks.Simon Jhttp://123annuityrates.co.uknoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-91531397933019674852013-01-21T05:24:21.597-05:002013-01-21T05:24:21.597-05:00Thanks Kathy.
The other article is this one:
htt...Thanks Kathy.<br /><br />The other article is this one:<br /><br />http://www.fpanet.org/journal/CurrentIssue/TableofContents/CanWePredicttheSustainableWithdrawalsNewRetirees/<br /><br />However, I've come to worry about the reliability of that approach in recent years since it requires making predictions outside the range of historical experience. There seems to be a particular problem with the dividend yield.<br /><br />I've come to think the approach outlined here will be more reliable.<br /><br />Best wishes, WadeAnonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-71350922155610248812013-01-20T12:43:21.537-05:002013-01-20T12:43:21.537-05:00Wade - thanks as always for continuing to share yo...Wade - thanks as always for continuing to share your research with us. Most planners I know are still using historical rates of return to estimate future returns and the 4% "rule".<br /><br />This article mentions your calculator for estimated future returns based on yield and stock performance. Could you point me to that original article and the calculator?<br /><br />Thank you!Kathy Dollardhttp://www.nashobafinancialplanning.comnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-77456306654789501792013-01-19T16:47:47.918-05:002013-01-19T16:47:47.918-05:00Hi,
For your first question, the answer is yes. Y...<br />Hi,<br /><br />For your first question, the answer is yes. You can read about that here:<br /><br /><a href="http://wpfau.blogspot.jp/2012/09/an-efficient-frontier-for-retirement.html" rel="nofollow">http://wpfau.blogspot.jp/2012/09/an-efficient-frontier-for-retirement.html</a><br /><br />Regarding your second question, that allocation is part of the frontier and so it is acceptable. There are lots of other possibilities too. The one you would choose depends on your personal circumstances.<br /><br />One thing to keep in mind is that these are the theoretical results. But if you do SPIAs and stocks, it means that when you are looking just at your financial portfolio, it will be 100% stocks. If that makes you uncomfortable, and you worry that you might sell your stocks after a market downturn, then it would be reasonable to move away from the efficient frontier and include some bonds too. That is less efficient, but the efficient frontier assumes you will not do any panic selling after a market downturn.Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-3043976861856526992013-01-19T11:38:11.179-05:002013-01-19T11:38:11.179-05:00Have you done any recent studies regarding the use...Have you done any recent studies regarding the use of SPIAs (instead of bonds) with stocks? Would you still use 30/70 SPIA/Stocks for retirement?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-79466044465007039342013-01-18T19:27:41.496-05:002013-01-18T19:27:41.496-05:00Rick, thanks. To clarify, I think you mean that it...Rick, thanks. To clarify, I think you mean that it will be exceedingly expensive to build one's retirement around 100% TIPS. Is that right?Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-58264806850182427392013-01-18T19:26:55.291-05:002013-01-18T19:26:55.291-05:00Forrest, 8.6% is the historical average inflation-...<br />Forrest, 8.6% is the historical average inflation-adjusted large-cap stock return since 1926 from the Ibbotson data. It does seem lofty, doesn't it? The point there was to illustrate how failure rates are still rather high even if these lofty historical averages return in 5-10 years.Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-60645676817340653932013-01-18T15:53:31.887-05:002013-01-18T15:53:31.887-05:00This data doesn't fit will Zvi Bodie's 100...This data doesn't fit will Zvi Bodie's 100% TIPS portfolio. Rick Ferrihttps://www.blogger.com/profile/02875722518949909857noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-40949236788008854002013-01-18T14:52:06.967-05:002013-01-18T14:52:06.967-05:00Wade, in table 2 above, bottom two rows, how did y...Wade, in table 2 above, bottom two rows, how did you arrive with a 8.6% real stock return? that seems rather "lofty." Can you elaborate?Forrestnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-49021796599316147962013-01-16T20:47:00.311-05:002013-01-16T20:47:00.311-05:00Thank you very much everyone!
Anonymous 1 about t...Thank you very much everyone!<br /><br />Anonymous 1 about the 2.8% withdrawal rate: what article are you referring to? From my January 2012 article, I used simulations based on historical data, and 2.8% has a slightly more than 1% failure rate over 40 years with a 20% stock allocation. But the point of this new research is to further point out that using historical averages isn't appropriate these days. Table 3 in this article shows a much lower sustainable withdrawal rate for those circumstances.<br /><br />Anonymous 2: exactly! Though the 4% rule allows you to consume principal. But annuity companies can pool risk as those who die soon subsidize payments to those who live long. Thus they can pay based on assuming one will live to their life expectancy. Those planning on their own need to plan for living much longer. That means a lower withdrawal rate. Arguing against annuities because payouts are low compared to the 4% rule is mixing apples and oranges. <br /><br />About historical data, the best example I know about is here:<br /><br /><a href="www.ifid.ca/payout.htm" rel="nofollow">www.ifid.ca/payout.htm</a><br /><br />Do note that this is Canadian data. I don't know about historical data in the US.Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-86503961447454533042013-01-16T18:42:35.416-05:002013-01-16T18:42:35.416-05:00The last time I checked, a 65-year-old couple coul...The last time I checked, a 65-year-old couple could not get 4% on an inflation-adjusted annuity, and that of course includes consuming the principal. So it's not surprising that one can't be confident of 4% without consuming the principal. One can probably improve the chances a bit with a somewhat different asset allocation (I presume that the insurance company selling the annuity allocates almost 100% to TIPS), but that's far from a sure thing. The same couple could get close to 4% on an annuity with a 3% yearly increase, but of course that means assuming substantial inflation risk. By the way, do you know a good source for historical annuity payouts? There is limited information on simple fixed annuities at immediateannuites.com, but I'd hoped for something longer term and more versatile in its coverage.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-69985289931746158202013-01-16T15:44:41.168-05:002013-01-16T15:44:41.168-05:00Very scary because too few people understand the &...Very scary because too few people understand the "new" reality brought about by low interest rates. Thanks for the great research and the important information you are disseminating.Ken Faulkenberry - Arbor Investment Plannerhttp://arborinvestmentplanner.comnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-41816816659019778622013-01-16T13:10:27.362-05:002013-01-16T13:10:27.362-05:00Excellent work, Wade! Whenever I find myself with ...Excellent work, Wade! Whenever I find myself with specific questions you consistently deliver the answers. I was just in conversation with a client yesterday over this exact issue. Unfortunately, I didn't have the research to back up my assertions. Now I have that research thanks to yours, Michael's, and David's excellent work. Thank you!Todd R. Tresidderhttp://financialmentor.comnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-73043519757735535962013-01-16T12:23:44.176-05:002013-01-16T12:23:44.176-05:00Wade
From your prior article am I to gather that f...Wade<br />From your prior article am I to gather that for a 40 year withdrawal period, a 20% equity allocation and withdrawals linked to the CPI that a 2.8% withdrawal rate has a failure rate of 5% or less?<br />Many thanks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-37580643039202784092013-01-16T09:57:35.604-05:002013-01-16T09:57:35.604-05:00Thanks for the recent research Wade. It may not be...Thanks for the recent research Wade. It may not be good news, but we need to hear it. The analysis of retirement under current economic conditions is invaluable, as is knowing that a return to better bond rates in 5-10 years won't alone be enough to save us. It seems that diversifying retirement income strategies away from just systematic withdrawals is essential.Darrow @ CanIRetireYet?http://www.caniretireyet.com/noreply@blogger.com