Safe withdrawal rates query

Thrugelmir

lisyloo said:

Thrugelmir said:

lisyloo said:

i understand that swr is around 4% (some people say it should be less but I’m talking ball park at the moment).
Our investments have done 9% over a long period so we tend to work on an expectation of 6%.

so the question is why the gap?

Are you comparing apples with oranges?
What are you defining as a long period? 
How many years have you been managing your own investments? 

We don’t manage our own investments. We have an IFA that we’re very happy with.
i am sure his advice will be closer to the consensus 4% and he will take a holistic view of our other assets and lack of requirement to leave anything e.g. we could equity release.
Yes I’m sure it’s incorrect, it’s having a better understanding of why is the aim.

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

Terron

Thrugelmir said:

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

The original research was done by three professors from Trinity University.  Hence it is called the Trinity Study. So I don't know who you mean.
The used data from Ibbotson Associates that covered 1925 to 1995. They and others have extended it using more recent data. The latest I have seen cover 1871 to 2021. The data and program for that is freely available on Github.  
The 4% rule does come from US data. Other countries have been looked at and generally a lower number comes out.
There are many valid objections to the original study, but the data not being published is not one, nor is it not being peer reviewed.
The idea that the future might be worst that the past is a valid one, but involves a lot of mights.

ex-pat_scot

Terron said:

Thrugelmir said:

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

The original research was done by three professors from Trinity University.  Hence it is called the Trinity Study. So I don't know who you mean.
The used data from Ibbotson Associates that covered 1925 to 1995. They and others have extended it using more recent data. The latest I have seen cover 1871 to 2021. The data and program for that is freely available on Github.  
The 4% rule does come from US data. Other countries have been looked at and generally a lower number comes out.
There are many valid objections to the original study, but the data not being published is not one, nor is it not being peer reviewed.
The idea that the future might be worst that the past is a valid one, but involves a lot of mights.

Whilst the SWR varies by territory, that is on the basis of investments in the home stock market.
For a global diversified portfolio, which works at 4%, then why not use that, if your underlying investments are similarly diversified?
I also take comfort from a couple of other matters:
1. the state pension(s) will provide an underpin of index-linked retirement income if indeed the SWR "fails" in 1% (or whatever margin you choose) scenario
2. you can rather adapt the actual withdrawal rate if market returns are depressed for a time, and also return to some sort of paid employment as another mitigation

BritishInvestor

lisyloo said:

Thrugelmir said:

lisyloo said:

i understand that swr is around 4% (some people say it should be less but I’m talking ball park at the moment).
Our investments have done 9% over a long period so we tend to work on an expectation of 6%.

so the question is why the gap?

Are you comparing apples with oranges?
What are you defining as a long period? 
How many years have you been managing your own investments? 

We don’t manage our own investments. We have an IFA that we’re very happy with.
i am sure his advice will be closer to the consensus 4% and he will take a holistic view of our other assets and lack of requirement to leave anything e.g. we could equity release.
Yes I’m sure it’s incorrect, it’s having a better understanding of why is the aim.

You'd need to adjust your SWR for costs - typically 0.5% reduction per 1% cost. Typical all in IFA fees are 2%.

coyrls

ex-pat_scot said:

Terron said:

Thrugelmir said:

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

The original research was done by three professors from Trinity University.  Hence it is called the Trinity Study. So I don't know who you mean.
The used data from Ibbotson Associates that covered 1925 to 1995. They and others have extended it using more recent data. The latest I have seen cover 1871 to 2021. The data and program for that is freely available on Github.  
The 4% rule does come from US data. Other countries have been looked at and generally a lower number comes out.
There are many valid objections to the original study, but the data not being published is not one, nor is it not being peer reviewed.
The idea that the future might be worst that the past is a valid one, but involves a lot of mights.

Whilst the SWR varies by territory, that is on the basis of investments in the home stock market.
For a global diversified portfolio, which works at 4%, then why not use that, if your underlying investments are similarly diversified?

Other factors apart from home vs global markets are home inflation rates and home currency strength/weakness.

michaels

Plus the SWR is a 'survivor analysis' approach.  In some cases fairly early in retirement the pot has shrunk to less than 10 times the annual withdrawal but then a big bull market has 'save the day'.  For an individual, seeing your pot fall to 9 times your annual withdrawal amount after 12 years is more than likely to make you change tactics and draw-down less than to simply assume that 'history will repeat' and that because the withdrawal rate was safe historically it will therefore be safe this time.

The point being that the SWR is a historical construct that in many cases could not be followed in reality, so is overly optimistic.

BritishInvestor

Terron said:

Thrugelmir said:

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

The original research was done by three professors from Trinity University.  Hence it is called the Trinity Study. So I don't know who you mean.
The used data from Ibbotson Associates that covered 1925 to 1995. They and others have extended it using more recent data. The latest I have seen cover 1871 to 2021. The data and program for that is freely available on Github.  
The 4% rule does come from US data. Other countries have been looked at and generally a lower number comes out.
There are many valid objections to the original study, but the data not being published is not one, nor is it not being peer reviewed.
The idea that the future might be worst that the past is a valid one, but involves a lot of mights.

Bengen in 1994 I assume

https://www.retailinvestor.org/pdf/Bengen1.pdf

Trinity was 1998.

BritishInvestor

Thrugelmir said:

lisyloo said:

Thrugelmir said:

lisyloo said:

i understand that swr is around 4% (some people say it should be less but I’m talking ball park at the moment).
Our investments have done 9% over a long period so we tend to work on an expectation of 6%.

so the question is why the gap?

Are you comparing apples with oranges?
What are you defining as a long period? 
How many years have you been managing your own investments? 

We don’t manage our own investments. We have an IFA that we’re very happy with.
i am sure his advice will be closer to the consensus 4% and he will take a holistic view of our other assets and lack of requirement to leave anything e.g. we could equity release.
Yes I’m sure it’s incorrect, it’s having a better understanding of why is the aim.

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

It's not too difficult to (broadly) recreate Bengen's findings.

zagfles

BritishInvestor said:

lisyloo said:

Thrugelmir said:

lisyloo said:

i understand that swr is around 4% (some people say it should be less but I’m talking ball park at the moment).
Our investments have done 9% over a long period so we tend to work on an expectation of 6%.

so the question is why the gap?

Are you comparing apples with oranges?
What are you defining as a long period? 
How many years have you been managing your own investments? 

We don’t manage our own investments. We have an IFA that we’re very happy with.
i am sure his advice will be closer to the consensus 4% and he will take a holistic view of our other assets and lack of requirement to leave anything e.g. we could equity release.
Yes I’m sure it’s incorrect, it’s having a better understanding of why is the aim.

You'd need to adjust your SWR for costs - typically 0.5% reduction per 1% cost. Typical all in IFA fees are 2%.

If you're paying 2% in charges you really need to look at your fees as it'll have a big drag on your portfolio. You might not notice it when returns are 10-15% as they have been recently, but you will if the stockmarket stagnates or falls.

Terron

BritishInvestor said:

Terron said:

Thrugelmir said:

As has been discussed endlessly on here previously. The 4% SWR is based on US research. The data for which has never been released for peer review. As the IFA concerned charges his clients fees in excess of 1% p.a.for his firms services. Very easy to be cycnical and suspect that the concept isn't as clear cut as the headline suggests. After a multi decade era of falling interest rates the future appears to look very different. Making money by simply having money might not be as anywhere as easy. 

The original research was done by three professors from Trinity University.  Hence it is called the Trinity Study. So I don't know who you mean.
The used data from Ibbotson Associates that covered 1925 to 1995. They and others have extended it using more recent data. The latest I have seen cover 1871 to 2021. The data and program for that is freely available on Github.  
The 4% rule does come from US data. Other countries have been looked at and generally a lower number comes out.
There are many valid objections to the original study, but the data not being published is not one, nor is it not being peer reviewed.
The idea that the future might be worst that the past is a valid one, but involves a lot of mights.

Bengen in 1994 I assume

https://www.retailinvestor.org/pdf/Bengen1.pdf

Trinity was 1998.

OK, but Bergen also published what data he was using - "In all cases I will rely on actual historical performance of investments and inflation, as presented in Ibbotson Associates' Stocks,, Bonds, Bills and Inflation: 1992 Yearbook."