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Foolishness of the 4% rule
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Deleted_User said:MoJoeGo said:Deleted_User said:MoJoeGo said:jamesd said:kuratowski said:As described above this is a pure strawman. How many people would just blindly pick a number the day they retire and then draw that much down forever, refusing to take any other precautions such as 3 years' cash buffer, and stubbornly refuse to adjust despite their portfolio shrinking....I'm pretty keen on retiring early, so I have been working on the basis of 3%, i.e. to cover a longer time period than 4% was designed for. This is despite being on track for full new state pension, and having a deferred DB pension amount to about half SP, together these two would cover my basic needs, so I like to believe my plans are pretty cautious.
At 3% you're planning on either worse than historic UK performance or living more than 45 years or using less than optimal investments, since 45 years US calculated 4% rule starts at 4.1% with 65% equities. Deducting the usual 0.3 for the UK that's 3.8%. Deducting a third* of say 0.6% in total costs cuts it to 3.6% for 45 years.
*you don't deduct 100% of the costs on the initial balance because the balance and hence the costs decrease during the almost but not quite failing worst case. The right number turns out to be around a third of costs but there is variation. I pretty uniformly use a third or 30% because it's close enough, correct for the common 30 year US case and the error margin is lost in the market unpredictability noise.
Seriously though, that would still give 18k between us at 3%, and whilst it would be frugal, we'd not exactly be on the breadline. Perhaps downsize, assuming the house was still worth more than when it was built in 1730...0 -
bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.1
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MoJoeGo said:Deleted_User said:MoJoeGo said:Deleted_User said:MoJoeGo said:jamesd said:kuratowski said:As described above this is a pure strawman. How many people would just blindly pick a number the day they retire and then draw that much down forever, refusing to take any other precautions such as 3 years' cash buffer, and stubbornly refuse to adjust despite their portfolio shrinking....I'm pretty keen on retiring early, so I have been working on the basis of 3%, i.e. to cover a longer time period than 4% was designed for. This is despite being on track for full new state pension, and having a deferred DB pension amount to about half SP, together these two would cover my basic needs, so I like to believe my plans are pretty cautious.
At 3% you're planning on either worse than historic UK performance or living more than 45 years or using less than optimal investments, since 45 years US calculated 4% rule starts at 4.1% with 65% equities. Deducting the usual 0.3 for the UK that's 3.8%. Deducting a third* of say 0.6% in total costs cuts it to 3.6% for 45 years.
*you don't deduct 100% of the costs on the initial balance because the balance and hence the costs decrease during the almost but not quite failing worst case. The right number turns out to be around a third of costs but there is variation. I pretty uniformly use a third or 30% because it's close enough, correct for the common 30 year US case and the error margin is lost in the market unpredictability noise.
Seriously though, that would still give 18k between us at 3%, and whilst it would be frugal, we'd not exactly be on the breadline. Perhaps downsize, assuming the house was still worth more than when it was built in 1730...If you want a constant withdrawal, buy an annuity. Or a partial annuity - to cover your basic needs. Then you can be more aggressive with your liquid portfolio and use it for discretionary spending.0 -
Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.“So we beat on, boats against the current, borne back ceaselessly into the past.”1
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bostonerimus said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.
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Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.
Never understand why some people think these things should be UK-specific. The UK is generally held to be less than 4-6% of global GDP....I would suggest it unwise to be blinkered to only consider UK topics where investing is concerned. IMHO, of course: other views are value.
Of course one could drop the 4% to 3.5%, as some commentators suggest.
Equally, one could read how Bergen felt it too low anyway, and could raise itPlan for tomorrow, enjoy today!0 -
cfw1994 said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.
Never understand why some people think these things should be UK-specific. The UK is generally held to be less than 4-6% of global GDP....I would suggest it unwise to be blinkered to only consider UK topics where investing is concerned. IMHO, of course: other views are value.
(PS. As an investor you'd be unwise to invest solely on the basis of global GDP. As you'd find yourself highly exposed to China and other less desirable markets).0 -
Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.“So we beat on, boats against the current, borne back ceaselessly into the past.”1
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cfw1994 said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.
Never understand why some people think these things should be UK-specific. The UK is generally held to be less than 4-6% of global GDP....I would suggest it unwise to be blinkered to only consider UK topics where investing is concerned. IMHO, of course: other views are value.
Of course one could drop the 4% to 3.5%, as some commentators suggest.
Equally, one could read how Bergen felt it too low anyway, and could raise it“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus said:cfw1994 said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Thrugelmir said:bostonerimus said:Deleted_User said:bostonerimus said:Ibrahim5 said:You would have to have a different figure for people who use IFAs because the IFA takes out a large proportion of the investment returns for their fees.
Never understand why some people think these things should be UK-specific. The UK is generally held to be less than 4-6% of global GDP....I would suggest it unwise to be blinkered to only consider UK topics where investing is concerned. IMHO, of course: other views are value.
Of course one could drop the 4% to 3.5%, as some commentators suggest.
Equally, one could read how Bergen felt it too low anyway, and could raise itI think....3
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