I took up my own challenge on that and now I thought I'd throw it out there. Here, based on all the flawed assumptions inherited from the last post, is the visualization of where the 4% rule shows up on my chart, all else being equal. Please admire me people for not writing "ceteris paribus:"
I haven't bothered to sync up my own portfolio (return and vol) assumptions with Bengen but they are close enough for my point. And the point is that "4%" always existed within a broader probabilistic guessing game and while it worked out for that one study (alone) it still seems a little thinly thought out to me.
The chart above shows that 4% over 30 years is just "one thing" among a probabilistic "infinity of things." It might actually still be a good "bet" for a 65 year old with short longevity expectations. But it is a bet. And the thing about bets, especially if you've ever done track betting, is that there are not only probabilities (my chart) but also odds or what I'll call consequences. Payoffs I guess they call it. The consequences of the world to the left of the red line that extends up and to the right from "30 years" can be severe. Then, when you consider that that 30 number is not even knowable, and also when you consider that my return and vol assumptions in the sim may be a little sanguine (i.e., it'd move the mass a little bit to the left), then they, the consequences, feel like they get even dicier, to continue the gambling metaphor. The chart above represents only the probabilities, btw. The odds, on the other hand, are ours alone, and for each of us in our own way.
You, my friend, can stick your head in the sand and just go with a fixed 4% rule. Or, you can even wake up and also look at the probabilities like so many ret-fin papers suggest we do. Me? Uh, well, I'll do that as well but I will also be keeping a weather eye on the shifting numbers on the odds-board because that is what will hurt me if I don't watch out. ...or help my kids if I do.
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