Is the 4% rule still applicable today?

Linton

Cobbler_tone said:

Pat38493 said:

Cobbler_tone said:

GDB2222 said:

Do folk allow for say 2 or 3 years in a care home costing £2k a week at the end of life? (About 1 in 3 of us will be in this position.) 

What is your source for this stat? In my personal circle, family and close friends this is not my lived experience.
I don't know of a single person who ended in a care home and at most some temporary care at home towards the end of life. Maybe fortunate to have supportive families.
However, based on your conjecture most people will be in a property worth £300k which would cover those needs, after any capital is accessed.

I find it pretty sad if people actually budget (especially if it means working longer, negatively impacting their health) on the off chance they need one. It would become self fulfilling, i.e. you work your way into a care home! 

Your experience seems to be typical - the % of people who actually need long term care if pretty small.

The numbers (albeit a couple of years old) back up that although many people do self fund care, it will be nowhere near 1 in 3.
March 2022-23 figures...372,000 care home residents, 137,000 of these were self funded. 
Population of over 9m over 70's, or 3m over 80's.

Care homes and estimating the self-funding population, England - Office for National Statistics

Anyway...if everyone tried to save additional wealth 'just in case' they needed a care home, I am sure it would be another nail in the economy!

None of the statistics I have seen actually give the chance that an individual would need to spend some time in a care home.  For example your figures of 372K care home residents and 3M over 80s could mean that everyone reaching 80 spends 1-2 years in a care home at some time in the following 10-15 years and then dies.

It would be interesting to see statistics based on numbers of individuals not needing care, needing care for 1 year, 2 years etc.

Also I am some what surprised by the 9M over 70 and 3M over 80 figures which implies that there are 6M in the 70-80 age range half of whom dont reach 80. This does not seem to correspond to the median age at death.

Mick70

Morning
must admit due to time I haven't read the fuill thread but I was going to use the 4% rule for my wife retiring next year .
so say if pot is £350k then in year 1 drawdown £14k and increase accordingly each year with inflation, she will have about 2 years worth of her portfolio as cash , which can be used if the markets ever fell badly 

michaels

dunstonh said:

tony4147 said:

I’ve read a number of articles that Bill Bengen who came up with the 4% rule for drawdown is stating that he believes it is more appropriate to be drawing between 5.25% and 5.5% due to ‘today’s’ economic environment.

What are people’s thoughts on this?

This is a UK site, and most posters will be UK-based.  So, using US data is not appropriate.

UK data is closer to 3% for people in their 50s and 3.5% in their 60s.    (its just under 3.5% at state pension age).

It is worth noting that the worst 1 year period for bonds was October 2021-Sept 22 and Mar 2008 to Feb 2009 for equities.   So, the worst years since reliable records began both occurred in the last 20 years.   Records are there to be broken. 

Are those percentages based on UK investors holding a globally diversified portfolio of stocks and bonds including currency impacts of doing so as surely simply looking at returns using UK registered stocks and bonds would not reflect how a typical UK investor would invest?

Linton

Mick70 said:

Morning
must admit due to time I haven't read the fuill thread but I was going to use the 4% rule for my wife retiring next year .
so say if pot is £350k then in year 1 drawdown £14k and increase accordingly each year with inflation, she will have about 2 years worth of her portfolio as cash , which can be used if the markets ever fell badly 

The problem is that if you are very highly invested in equities which crash by say 40% at the start of year 2 you will be withdrawing perhaps 6% of the then pot size.  History shows that a 4% initial figure may not be sustainable.  A 2-year buffer may help to some extent but has its own problems which have been discussed many times.  There have been falls which have lasted longer than 2 years (eg the 2000 .com crash).

If you are not highly invested in equities your pot may not be able to match long term inflation.

This is why a figure of 3-3.5% is usually quoted here.

Mick70

on our own scenario the 4% withdrawl will be halfed when State Pension kicks in , so for ten years it would be 4%

Pat38493

Mick70 said:

Morning
must admit due to time I haven't read the fuill thread but I was going to use the 4% rule for my wife retiring next year .
so say if pot is £350k then in year 1 drawdown £14k and increase accordingly each year with inflation, she will have about 2 years worth of her portfolio as cash , which can be used if the markets ever fell badly 

Does your wife have a state pension due, and if so is she retiring at state pension age?  If not, then in theory she should be able to draw more out before state pension age as she would need less once the state pension is in payment.

2 Years cash - most of the time markets recover in 2 years, but, a few of the worst downturns in history, the market took 2 years to reach the bottom.  Also, when you say keeping 2 years in cash does this mean a continuous rolling 2 years - if you start with 2 years in cash and then review it after the first year, at that moment you will only have 1 years in cash.

Edit - sorry I see you already answered that in a later post, but in that case your 4% should be fine - in fact probably she could take a bit more but it would need some stress testing.

Pat38493

dunstonh said:

tony4147 said:

I’ve read a number of articles that Bill Bengen who came up with the 4% rule for drawdown is stating that he believes it is more appropriate to be drawing between 5.25% and 5.5% due to ‘today’s’ economic environment.

What are people’s thoughts on this?

This is a UK site, and most posters will be UK-based.  So, using US data is not appropriate.

UK data is closer to 3% for people in their 50s and 3.5% in their 60s.    (its just under 3.5% at state pension age).

It is worth noting that the worst 1 year period for bonds was October 2021-Sept 22 and Mar 2008 to Feb 2009 for equities.   So, the worst years since reliable records began both occurred in the last 20 years.   Records are there to be broken. 

Based on what criteria?  I though that the markets dropped over 80% in the wall street crash or period around that time - as far as I remember it didn't drop 80% in 2008?

Also that doesn't necessarily mean it's the worst ever period to retire since there were other big crashes that were also accompanied by periods of killer inflation, which I don't think we had so much in 2008/9?

A while ago I used Timeline to test my bridging plan to state pension age by shortening the length of the plan, which forces the application to take the 2008 period into account.  It did not seem to introduce any new failures in my case at least.

Linton

michaels said:

dunstonh said:

tony4147 said:

I’ve read a number of articles that Bill Bengen who came up with the 4% rule for drawdown is stating that he believes it is more appropriate to be drawing between 5.25% and 5.5% due to ‘today’s’ economic environment.

What are people’s thoughts on this?

This is a UK site, and most posters will be UK-based.  So, using US data is not appropriate.

UK data is closer to 3% for people in their 50s and 3.5% in their 60s.    (its just under 3.5% at state pension age).

It is worth noting that the worst 1 year period for bonds was October 2021-Sept 22 and Mar 2008 to Feb 2009 for equities.   So, the worst years since reliable records began both occurred in the last 20 years.   Records are there to be broken. 

Are those percentages based on UK investors holding a globally diversified portfolio of stocks and bonds including currency impacts of doing so as surely simply looking at returns using UK registered stocks and bonds would not reflect how a typical UK investor would invest?

SWRs are based on what actually happened in the past 100-150 years.

For most of that time a US investor would have invested in US stocks and a UK investor in UK stocks.  The US was an emerging market whereas the UK market was much more mature.  Events of the past 30 years have yet to seriously impact the SWR calculation.

So one could, and I certainly would, question the extent to which one should rely on SWR. However if you are after a rational prediction of future withdrawals I suggest you take it as it is, it is the best we have.  The alternative is to accept that prediction of equity returns is impossible beyond a belief that they will rise over the long term, and structure your retirement  portfolio accordingly.

Linton

Pat38493 said:

dunstonh said:

tony4147 said:

I’ve read a number of articles that Bill Bengen who came up with the 4% rule for drawdown is stating that he believes it is more appropriate to be drawing between 5.25% and 5.5% due to ‘today’s’ economic environment.

What are people’s thoughts on this?

This is a UK site, and most posters will be UK-based.  So, using US data is not appropriate.

UK data is closer to 3% for people in their 50s and 3.5% in their 60s.    (its just under 3.5% at state pension age).

It is worth noting that the worst 1 year period for bonds was October 2021-Sept 22 and Mar 2008 to Feb 2009 for equities.   So, the worst years since reliable records began both occurred in the last 20 years.   Records are there to be broken. 

Based on what criteria?  I though that the markets dropped over 80% in the wall street crash or period around that time - as far as I remember it didn't drop 80% in 2008?

Also that doesn't necessarily mean it's the worst ever period to retire since there were other big crashes that were also accompanied by periods of killer inflation, which I don't think we had so much in 2008/9?

A while ago I used Timeline to test my bridging plan to state pension age by shortening the length of the plan, which forces the application to take the 2008 period into account.  It did not seem to introduce any new failures in my case at least.

The Wall Street Crash was spread over 3 years 

Cobbler_tone

Linton said:

Pat38493 said:

dunstonh said:

tony4147 said:

I’ve read a number of articles that Bill Bengen who came up with the 4% rule for drawdown is stating that he believes it is more appropriate to be drawing between 5.25% and 5.5% due to ‘today’s’ economic environment.

What are people’s thoughts on this?

This is a UK site, and most posters will be UK-based.  So, using US data is not appropriate.

UK data is closer to 3% for people in their 50s and 3.5% in their 60s.    (its just under 3.5% at state pension age).

It is worth noting that the worst 1 year period for bonds was October 2021-Sept 22 and Mar 2008 to Feb 2009 for equities.   So, the worst years since reliable records began both occurred in the last 20 years.   Records are there to be broken. 

Based on what criteria?  I though that the markets dropped over 80% in the wall street crash or period around that time - as far as I remember it didn't drop 80% in 2008?

Also that doesn't necessarily mean it's the worst ever period to retire since there were other big crashes that were also accompanied by periods of killer inflation, which I don't think we had so much in 2008/9?

A while ago I used Timeline to test my bridging plan to state pension age by shortening the length of the plan, which forces the application to take the 2008 period into account.  It did not seem to introduce any new failures in my case at least.

The Wall Street Crash was spread over 3 years 

Maybe it is starting again today?  tongue firmly in cheek!!