We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Is the 4% rule still applicable today?
Comments
-
I would summarise my overall drawdown philosophy as follows:
- Everyone should have a plan for what to do if markets drop by 50% the day after their retirement.
- "I'll just rely on the 4% rule to save me" is not a sensible plan.
- All discussions of the 4% rule always end up as an argument between the "Look at the numbers, 4% doesn't work!" camp and the "But in the real world no-one would be dumb enough to follow it blindly to the bottom!" camp.
0 -
Triumph13 said:I would summarise my overall drawdown philosophy as follows:
- Everyone should have a plan for what to do if markets drop by 50% the day after their retirement.
- "I'll just rely on the 4% rule to save me" is not a sensible plan.
- All discussions of the 4% rule always end up as an argument between the "Look at the numbers, 4% doesn't work!" camp and the "But in the real world no-one would be dumb enough to follow it blindly to the bottom!" camp.
1 -
westv said:Triumph13 said:I would summarise my overall drawdown philosophy as follows:
- Everyone should have a plan for what to do if markets drop by 50% the day after their retirement.
- "I'll just rely on the 4% rule to save me" is not a sensible plan.
- All discussions of the 4% rule always end up as an argument between the "Look at the numbers, 4% doesn't work!" camp and the "But in the real world no-one would be dumb enough to follow it blindly to the bottom!" camp.
To answer the question in the title of this thread - it is impossible to know in advance whether 4% (or any other choice of starting inflation adjusted withdrawal rate) will last the required amount of time (typically 30 years) or not.
2 -
OldScientist said:Bostonerimus1 said:
The "4% calculations" have been done many times with UK and international stock market returns and the results come with enormous caveats, but for some generic UK type asset allocation the number might be 3.5% , but if you include pension and IFA type fees that might be as low as 2%. Or if you use some variable SWR it might jump up a percent or so overall. This is all highly dependent on the parameters of any model and personal circumstances.
As a rule of thumb, fees reduce the SWR by roughly half the amount of the fee (i.e., fees of 50 bp would reduce the SWR by 25 bp). See https://www.kitces.com/blog/the-impact-of-investment-costs-on-safe-withdrawal-rates/And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
While the "4% rule of thumb" (or 3.5% or 3.25%
) should remain useful to accumulators as an indication of the scale of investment/savings pot required to fund a "decent-length" retirement (something which novices might otherwise greatly underestimate!), I suspect that for retirees amortization-based withdrawal (ABW) strategies may come to supplant the various SWR-based methods. Once you recognise that a rigid SWR approach, in the face of ever-changing circumstances, is a bit daft, such that nobody's really going to follow it, then all the various tweaks of SWR can begin to seem like polishing turds, and you'd be better adopting an approach in which continuous adjustment to the task in hand is inherent and not a bolt-on.
Perhaps the strongest active advocate for amortization-based approaches is Ben Matthew:
https://www.linkedin.com/in/bmathecon/
...with detailed articles like this:
https://www.whitecoatinvestor.com/amortization-based-withdrawal-vs-safe-withdrawal-rates
...while developing his comprehensive and well-regarded TPAW tool found here:
https://tpawplanner.com/
https://tpawplanner.com/learn
...plus, he's highly responsive to questions and requests on this dedicated 35-page Bogleheads thread:
https://www.bogleheads.org/forum/viewtopic.php?t=331368
I've been using a "simple" (slightly hardcore) amortization withdrawal approach for over twenty years, and will do so hopefully for a further 30+ years, guided by the PMT spreadsheet function plus current portfolio size (so adjusts to actual mkt performance and past spending), current asset allocation & real return forecasts (so adjusts to anticipated future returns), forecast longevity (so adjusts to the passage of time & health outlook). This makes my spending plan responsive to reality, continually evolving as things change, never running out, nor unintentionally leaving a giant fortune unspent in old age.
For less hardcore and more sophisticated ABW approaches, I'd suggest taking a look at the TPAW Planner mentioned.4 -
OldScientist said:westv said:Triumph13 said:I would summarise my overall drawdown philosophy as follows:
- Everyone should have a plan for what to do if markets drop by 50% the day after their retirement.
- "I'll just rely on the 4% rule to save me" is not a sensible plan.
- All discussions of the 4% rule always end up as an argument between the "Look at the numbers, 4% doesn't work!" camp and the "But in the real world no-one would be dumb enough to follow it blindly to the bottom!" camp.
To answer the question in the title of this thread - it is impossible to know in advance whether 4% (or any other choice of starting inflation adjusted withdrawal rate) will last the required amount of time (typically 30 years) or not.And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
seacaitch said:While the "4% rule of thumb" (or 3.5% or 3.25%
) should remain useful to accumulators as an indication of the scale of investment/savings pot required to fund a "decent-length" retirement (something which novices might otherwise greatly underestimate!), I suspect that for retirees amortization-based withdrawal (ABW) strategies may come to supplant the various SWR-based methods. Once you recognise that a rigid SWR approach, in the face of ever-changing circumstances, is a bit daft, such that nobody's really going to follow it, then all the various tweaks of SWR can begin to seem like polishing turds, and you'd be better adopting an approach in which continuous adjustment to the task in hand is inherent and not a bolt-on.
Perhaps the strongest active advocate for amortization-based approaches is Ben Matthew:
https://www.linkedin.com/in/bmathecon/
...with detailed articles like this:
https://www.whitecoatinvestor.com/amortization-based-withdrawal-vs-safe-withdrawal-rates
...while developing his comprehensive and well-regarded TPAW tool found here:
https://tpawplanner.com/
https://tpawplanner.com/learn
...plus, he's highly responsive to questions and requests on this dedicated 35-page Bogleheads thread:
https://www.bogleheads.org/forum/viewtopic.php?t=331368
I've been using a "simple" (slightly hardcore) amortization withdrawal approach for over twenty years, and will do so hopefully for a further 30+ years, guided by the PMT spreadsheet function plus current portfolio size (so adjusts to actual mkt performance and past spending), current asset allocation & real return forecasts (so adjusts to anticipated future returns), forecast longevity (so adjusts to the passage of time & health outlook). This makes my spending plan responsive to reality, continually evolving as things change, never running out, nor unintentionally leaving a giant fortune unspent in old age.
For less hardcore and more sophisticated ABW approaches, I'd suggest taking a look at the TPAW Planner mentioned.And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
Bostonerimus1 said:seacaitch said:While the "4% rule of thumb" (or 3.5% or 3.25%
) should remain useful to accumulators as an indication of the scale of investment/savings pot required to fund a "decent-length" retirement (something which novices might otherwise greatly underestimate!), I suspect that for retirees amortization-based withdrawal (ABW) strategies may come to supplant the various SWR-based methods. Once you recognise that a rigid SWR approach, in the face of ever-changing circumstances, is a bit daft, such that nobody's really going to follow it, then all the various tweaks of SWR can begin to seem like polishing turds, and you'd be better adopting an approach in which continuous adjustment to the task in hand is inherent and not a bolt-on.
Perhaps the strongest active advocate for amortization-based approaches is Ben Matthew:
https://www.linkedin.com/in/bmathecon/
...with detailed articles like this:
https://www.whitecoatinvestor.com/amortization-based-withdrawal-vs-safe-withdrawal-rates
...while developing his comprehensive and well-regarded TPAW tool found here:
https://tpawplanner.com/
https://tpawplanner.com/learn
...plus, he's highly responsive to questions and requests on this dedicated 35-page Bogleheads thread:
https://www.bogleheads.org/forum/viewtopic.php?t=331368
I've been using a "simple" (slightly hardcore) amortization withdrawal approach for over twenty years, and will do so hopefully for a further 30+ years, guided by the PMT spreadsheet function plus current portfolio size (so adjusts to actual mkt performance and past spending), current asset allocation & real return forecasts (so adjusts to anticipated future returns), forecast longevity (so adjusts to the passage of time & health outlook). This makes my spending plan responsive to reality, continually evolving as things change, never running out, nor unintentionally leaving a giant fortune unspent in old age.
For less hardcore and more sophisticated ABW approaches, I'd suggest taking a look at the TPAW Planner mentioned.0 -
I have issue with the SWR. Say you'd retired two years ago and invested 100% of your pot in a global equities tracker, which will have risen by around 30% since then. Why wouldn't you just re-baseline your SWR and pretend that your just retired, again?0
-
Johnnyboy11 said:I have issue with the SWR. Say you'd retired two years ago and invested 100% of your pot in a global equities tracker, which will have risen by around 30% since then. Why wouldn't you just re-baseline your SWR and pretend that your just retired, again?
But, I suspect many people might do what your suggestion because people are not robots. But, if you kept doing it for the good years, you'd also have to commit doing it for any negative return years.0
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 351.7K Banking & Borrowing
- 253.4K Reduce Debt & Boost Income
- 454K Spending & Discounts
- 244.7K Work, Benefits & Business
- 600.2K Mortgages, Homes & Bills
- 177.3K Life & Family
- 258.4K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards