The 4% Rule Use To Be THEE Rule But Now.....

StarSong said:
Frequently reminding myself of the Depression era mantra "use it up, wear it out, make it do, or do without" helped pull me through financial rough patches. As did the practice of honestly assessing the difference between my wants and needs.

Don't get me wrong, I have great compassion for the truly poor and their increasingly dire situation.st
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Star this sentence says it all "As did the practice of honestly assessing the difference between my wants and needs. " First of all, if more people would be honest with themselves about their money then not cave in every time to their wants and stick to the needs, they'd be a lot less likely to accrue huge debt. I've read about millionaires and even billionaires who do that...it's probably part of the reason they are so rich. :D
 
There are a multitude of factors, recently, that are driving the markets into such a "roller coaster" ride. Covid, Inflation, Shortages, this Russia/Ukraine standoff, and now all the rumors about what the FED might do. The start of 2022 has really been extreme in the up and down swings.

I like to follow the CBOE VIX as an indicator of where the markets are heading. In Good times, that index hovers in the 15 range, and the last couple of months of 2021, the markets rose substantially, as the VIX fell into that range. However, in recent weeks, the VIX has nearly doubled, well into the upper 20's, and that has pretty much wiped out any gains from late last year.
 
OneEyedDiva said:
Star this sentence says it all "As did the practice of honestly assessing the difference between my wants and needs. " First of all, if more people would be honest with themselves about their money then not cave in every time to their wants and stick to the needs, they'd be a lot less likely to accrue huge debt. I've read about millionaires and even billionaires who do that...it's probably part of the reason they are so rich. :D
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So true. My mother often commented that in 1961 members of the media were aghast that multi-millionaire Rose Kennedy didn't buy a new dress for her son's inauguration, but instead wore something already hanging in her closet.

When finances have been very tight, I've been very disciplined about buying needs-only then relaxed as my situation improved.

Case in point, over the past year DH & I replaced both TVs in our house. They worked just fine and had been bought only 7-8 years earlier. Unfortunately, they were earlier generation technology and therefore not "smart" enough to work easily and seamlessly with streaming content. (We passed along those TVs to a couple of grateful friends-of-friends for whom they were an upgrade so it worked out just fine.)

Had money been scarcer we either wouldn't have needed smart TVs because we wouldn't be paying for streaming, or we would have suffered with the hassle of remote-control roulette to tune into the channels we wanted.
 
Don M. said:
There are a multitude of factors, recently, that are driving the markets into such a "roller coaster" ride. Covid, Inflation, Shortages, and now this Russia/Ukraine standoff. The start of 2022 has really been extreme in the up and down swings.

I like to follow the CBOE VIX as an indicator of where the markets are heading. In Good times, that index hovers in the 15 range, and the last couple of months of 2021, the markets rose substantially, as the VIX fell into that range. However, in recent weeks, the VIX has nearly doubled, well into the upper 20's, and that has pretty much wiped out any gains from late last year.
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So far over the one year a total market fund and the S&P are still up about 10% and down ytd only 7.50%, nor have we seen much of a flight into the safety assets
 
mathjak107 said:
So far over the one year a total market fund and the S&P are still up about 10% and down ytd only 7.50%, nor have we seen much of a flight into the safety assets
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Yes, unless a person has a "crystal ball", the best approach seems to be staying invested, fairly diverse, and be prepared to ride out any drastic swings in the markets.
 
Alligatorob said:
Cash since I made the discovery.

It did real well up until recently, I need to figure of what happened. Guess it was the wrong "growth" stocks...
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So you locked in that 16% loss? And now you have to figure out when to get back in. Missing just the first few up days kills your overall return. Did you read the book "How to make a million dollars by starting with 10 million"?
 
garyt1957 said:
Did you read the book "How to make a million dollars by starting with 10 million"?
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No, but I could probably have written it, LOL. Back in the late 80s I invested in the Japanese stock market, just before the crash. When I finally dumped it years later it had not recovered. Tried to stick with US investments since then.

Most of my stock choices have been bad so I use an advisor, not paid on commission. So far he has done better than I was able to. He suggested taking it out, and Friday we decided to put it back into some other funds, ones he believes are safer. We'll see, like I say he has done better than I, hope it all works out. Course I could survive on Social Security, so its all gravy to me.
 
garyt1957 said:
Then you don't understand the 4% rule. Downturns in the market are baked into the 4% rule, that's why it's so low.
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But proponents of the 4% rule says start with that percentage but it should be adjusted up or down to fit what the market it doing, so that one would take less than 4% when markets are down.

@Alligatorob When you say stocks do you mean private stocks or are you including mutual funds?
 
OneEyedDiva said:
But proponents of the 4% rule says start with that percentage but it should be adjusted up or down to fit what the market it doing, so that one would take less than 4% when markets are down.

@Alligatorob When you say stocks do you mean private stocks or are you including mutual funds?
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if they say that then they are not proponents.

the 4% swr is actually called the constant spending power method .

Constant Spending Power: Future spending will be about the same as entered above, adjusted for inflation. This keeps the approximate spending power constant during the term of your retirement.

the Biggest problem the constant spending power method has is hitting 30 years with to much money unspent and enjoyed as using 40-60% equities has resulted in dying with more than you started 90% of the 121 rolling 30 year retirement periods we have had .

67% of them resulted in dying with more than 2x what you started with and 50% of them had you end with more than 3x .

less than 10% of the time was a pay cut needed which are the same odds as ending with 6x more than you started.

so a method of taking raises other than inflation adjustments is a good idea …

one such method has you looking at your balance every three years ….if you are still 50% higher then the day you started , take a 10% increase plus inflation adjusting .

but the 4% swr constant dollar method which is what we erroneously call the 4% rule is not designed to be adjusted with markets


there are other methods that use a yearly balance like bob clyatts 95/5 method .

i use that one myself .

each year you take 4% of the years balance ..if it is a down year you take the higher of 4% of the balance or 5% less then you previously took .

so the constant spending method normally needs no adjustment based on market performance.

another method is
Bernicke's Reality Retirement Plan: Start with the constant spending power model, but use Bernicke's "Reality Retirement Plan

Ty Bernicke's Reality Retirement Planning: A New Paradigm for an Old Science describes extensive research showing that most people see significant reductions in spending with age (not related to reduced assets or income). If selected, this option will reduce your inflation-adjusted yearly spending by 2-3% per year starting at age 56, and then stabilizing at age 76 to keep up with inflation.
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StarSong said:
Mom could have lived to 102 and would still have had more than enough. If she'd run out of her own resources there were numerous safety nets strung beneath her - her children, grandchildren, friends, other family, and the government would have pitched in. Trust me, Mom wasn't going to wind up soloing under a bridge pushing a grocery cart with a few meager possessions.

Like most American children born in the early 1950s, I watched hundreds of hours of cowboy movies and TV shows. I can't tell you how much sleep I lost, first being terrified of, then planning escapes from: quicksand, flesh eating ants, being buried alive, and bandana wearing, six-shooter slinging, kidnapper bandits who tied up and hauled away their victims. They appeared to be commonplace occurrences.

As an adult I try to calmly examine whether it's reasonable to worry about something. Could I possibly run out of resources before my life ends? Of course. The question though is not one of possibility but rather of probability - and that's what determines how much of my life's energy I'll allow something to consume.

No longer victimized by a rampant childhood imagination, I've learned to temper my fears by accumulating data, separating what's very likely from what's very unlikely, taking appropriate action to mitigate the worst threats, and then letting it go.

The accumulation of money isn't one of my hobbies. I know some folks for whom it is a hobby... if you fit that description no disrespect is intended.
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Dittox2, here, Star. You got it!
 
OneEyedDiva said:
But proponents of the 4% rule says start with that percentage but it should be adjusted up or down to fit what the market it doing, so that one would take less than 4% when markets are down.

@Alligatorob When you say stocks do you mean private stocks or are you including mutual funds?
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That's not how the 4% rule works. You take 4% the first year and increase it by the rate of inflation the next year ,on and on. You never reduce your draw no matter what the market does.
 
garyt1957 said:
That's not how the 4% rule works. You take 4% the first year and increase it by the rate of inflation the next year ,on and on. You never reduce your draw no matter what the market does.
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With one exception .

kitces crunched the numbers and found in order for 4% inflation adjusted to hold , you need to have at least a 2% real return average over the first 15 years of a 30 year retirement..

all the failures were because they did not maintain at least that average early on .

so what that means is if 5 years in you are below , a red flag should go up .

8-10 years in if you are still below an alarm should go off and a pay cut would be in order .

once the failure periods , 1907 ,1929 ,1937 ,1965 and 1966 went beyond 15 years the money spent down was excessive and even some of the best bull markets in history couldnt save them.

it isn’t that 4% cant fail , it has …it is that a 90% or higher success rate with 40-60% equities is considered pretty good odds since when combined with the fact most of us won’t last 30 years in retirement it drives up the success rate even higher.

remember too 4% is based on a balanced portfolio….. fixed income without enough equities has already failed at 4% so many times it is considered unsafe
 
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garyt1957 said:
That's not how the 4% rule works. You take 4% the first year and increase it by the rate of inflation the next year ,on and on. You never reduce your draw no matter what the market does.
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Not according to what I've read and I've read several article about it over the years from different sources. Just sayin'....... Anyway, it doesn't affect me because I don't need to take withdrawals from my retirement nest egg.
 
OneEyedDiva said:
Not according to what I've read and I've read several article about it over the years from different sources. Just sayin'.......
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As with most articles you see , the writers are misinformed..most stuff is just click bait by writers and not actual researchers in the retirement planning field ..

there is no question they are wrong ..

that is the whole reason the premise of a safe withdrawal rate. It was to create a safe ,secure CONSISTENT income stream ..so it can be like any other pension source you can count on in good and bad times.

the odds of failing are on par with the odds of ones private pension failing from a healthy company
 
mathjak107 said:
As with most articles you see , the writers are misinformed..most stuff is just click bait by writers and not actual researchers in the retirement planning field ..

there is no question they are wrong ..

that is the whole reason the premise of a safe withdrawal rate. It was to create a safe ,secure CONSISTENT income stream ..so it can be like any other pension source you can count on in good and bad times.

the odds of failing are on par with the odds of ones private pension failing from a healthy company
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I agree that these article can be subjective but many were by so called respected financial analysts and those working for major brokerages. So they were all wrong? I used to subscribe to Money and Kiplingers so were reading financial articles before I ever even dreamed of owning a computer, so click bait was not an issue. Now I get Schwab's investment magazine via email.
 
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Yes they are wrong ….most don’t stay up on top of research ..they learned old school ways and are now running on misinformation or what used to be thought ..

I found that first hand looking for a planner for myself .

you can look at the research from famous researcher michael kitces if you want the facts

in fact you can start here .

very enlightening

the first article is about just how hard the 4% swr is to fail and what it would take .

the second is a look at how it stood up to the likes of 2000 and 2008

https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

https://www.kitces.com/blog/how-has...he-tech-bubble-and-the-2008-financial-crisis/
 
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