Wise wise wise...

Fixing A Broken Retirement Withdrawal Plan
William Bengen

"This case illustrated an inflationary episode of unprecedented severity (at least for the U.S.) coupled with poor investment returns. Had no remedial measures been taken, the portfolio would have been exhausted in just 17 years. This underscores the need for early and decisive adjustments when a high-inflation regime appears. In my opinion, high inflation, not stock markets, is the gravest threat to the viability of retirement plans. This nightmare scenario of high inflation and low returns would have required an initial withdrawal rate of 3.6% to sustain the portfolio over 30 years. Had it been real, it would have redefined “SAFEMAX” (currently 4.5%) for the high-inflation regime." [my emphasis]

comments:

- I have often disdained people that suggest greater than 4% withdrawal rates for 65 and younger

- Some retirement writers are often spectacularly cavalier about 4% or even higher spend rates

- I have shown that simulated retirements that start in 1969 can suck (high inflation and crappy returns)

- I have come up with my own conservative spending rate formulas for early retirees

- I have simulated high inflation regimes that will destroy retirements

- I have pointed out, I think, that sequence of returns risk can be dwarfed by inflation effects...

So I am gratified now to see that Bill Bengen, of all people, throws out something less than 4% here.  Note that he is still talking here about a fixed period of <= 30 years.   So, what would a safe rate be if one is 50 with 50 years to go?!?  So, I guess I am feeling pretty good about my RH40 formula [age / (40 - age/3)] as an age based proxy for spending. In the case of a 65 year old it yields a 3.5% spend rate which is pretty close to Bills new estimate.  Kitces's comments on this are on the money:

...nonetheless, given that the longer the retiree waits to make adjustments, the more extreme they have to be, active monitoring to make mid-course adjustments is arguably the more appealing path.

Active monitoring, which was always the answer, shows up again!