Comments on: The 4% rule and other fallacies of retirement planning

By: jim

jim — Thu, 28 Apr 2011 16:19:06 +0000

Hell, I’m retiring this year and I don’t know how much I should, or will take out. 3%, 4%, 6% who knows. Should I take it all out at once and put it in a coffe can or should I take it out in bits each month, and let the rest stay put and hopefully gain some interest. Ask a planner and all I get is a look like a deer in head lights. I guess the best answer is just jump in with both feet and see what happens, hold onto my wallet and take away my wifes credit cards.

By: Tim

Tim — Thu, 28 Apr 2011 15:12:59 +0000

We don’t set a plan at age 65 and blindly follow it as if nothing has changed for 30 years. That’s just stupid. (And that’s what a retirement calculator assumes.)

A good planner knows you update the plan every 6-12 months so it is every changing. You would never be in 2020 using a 2010 plan, you would be in 2020 using a 2020 plan. Your not trying to predict the future, your trying to plan for worst case scenario to know if you should retire in the first place.

By: Michael

Michael — Thu, 15 Apr 2010 23:15:10 +0000

The thing that gets me about retirement planners is that the vast majority of your income generated is in the last few years before retirement, which can be 20 or 30 years away. How do we know if the four year period between 2035 and 2039 the market is going to return 8% per year? We have no idea.

By: Curious Cat Investing and Economics Carnival #7 at Curious Cat Investing and Economics Blog

Tue, 16 Mar 2010 16:00:52 +0000

[...] The 4% rule and other fallacies of retirement planning – “I might try a 5% withdrawal rate, which according to the Trinity study, would give me an 80% chance of not outliving my money. As time goes on, I’ll adjust up or down depending on what life and the market throws at me.” [...]

By: K Smith

K Smith — Fri, 26 Feb 2010 18:08:13 +0000

I think relying on retirement calculators the wrong way to go.

These calculators are based on historic market activity generated by conditions that no longer exist. Because of the massive amount of government debt, mountains of looming local, state, and federal pension payouts, and promised federal entitlements that we cannot afford to pay, relying on historic market activity is a bad basis for decisions on cashing out your portfolio.

The critical question today at retirement is not how much should I cash out each year – it is what form should my portfolio take. Investing today is like walking into a casino, with worse odds of coming out ahead. At least in a casino you can play blackjack – with simple card counting the odds are you will beat the house. In today’s investing world, the rules of all the old dollar denominated games have changed, and the odds heavily favor the house. The games that appear to have the best odds of beating the house require Chinese yuan, or Australian or Canadian dollars.

If the value of your portfolio continues to shrink, spending time attempting to preserve what you have left is a far better use of your time than thinking about how much to cash out.

By: Ken

Ken — Fri, 26 Feb 2010 11:17:20 +0000

I think that needs at retirement can vary greatly from one person to the next. People can make adjustments and live on much less if that’s what they truly want. I do think it’s important for folks to ask themselves the right questions as they progress toward retirement. One good question is: What kind of lifestlye do I want to live in retirement? Good post.

By: Rob Bennett

Rob Bennett — Wed, 24 Feb 2010 20:55:09 +0000

The Old School Safe Withdrawal Rate (SWR) studies don't account for the valuation level that applies on the day the retirement begins, Pop. Thus, these studies get all the numbers wildly wrong. We are likely going to see millions of people who suffer failed retirements in days to come as a result of the demonstrably false claims put forward in these studies. I have an analytically valid New School SWR calculator ("The Retirement Risk Evaluator") at my site. This calculator does include an adjustment for valuations. It shows that the SWR can drop to as low as 2 percent when valuations are where they were from 1996 through 2008 and can rise to as high as 9 percent when valuations are where they were in the early 1980s and are likely to be again sometime within the next few years. The fact that these studies have not been corrected for eight years after we discovered the errors in them at the Retire Early board at Motley Fool is a scandal. It reflects poorly on the entire investing advice industry. Dallas Morning News Columnist Scott Burns acknowledged that the only reason why the media has not publicized the errors made in these studies is that the accurate numbers constitute "information most people don't want to hear" during an insane bull market. Rob

By: 2 Cents

2 Cents — Wed, 24 Feb 2010 13:46:16 +0000

Retirement planning asks you to estimate a lot of unknowns and variables and to predict the future. How can we possibly know at 20 or even 40 how much money we will be able to earn or save over our lifetime? How can we accurately predict the return on our investments or the effects of inflation? No wonder governments and corporations are shifting the responsibility of retirement planning to us – it’s really hard!

Difficulties aside, we all need a plan. I like the idea of building flexibility into it and revisiting the numbers often.