This was in an article in today's WSJ:
WSJ: In the book, you discuss likely returns for stocks and bonds in the coming decades and the effect of those returns on retirees’ “burn rate”—how much of their nest egg gets spent each year. The numbers are sobering.
Bernstein: From the mid-1920s to the mid-1990s, investors were blessed with real stock returns of 7% and real bond returns of 2%. The reason for those high stock returns, in particular, was the dramatic increase in stock valuations over that period.
I think a more reasonable real return over the next several decades will be about 4.5% for stocks and about 1% for bonds. When we plug those figures into a 30-year retirement, we confirm the suspicion of many retirement analysts that “3% is the new 4%.” In other words, if you want your nest egg to last 30 years, you’re much safer pulling 3% or less from your savings each year than the popular 4%. In fact, I think if your burn rate is much above 3.5%, you’re in the red zone.
In general, perhaps, but a lot depends on your asset allocation, asset location (taxes), and how much your returns are being "burned" by high fees by advisors/planners and the expense ratio of the funds you're invested in. Know your fees! It isn't easy, because they come out of your investment returns/accounts and of course aren't made clear on statements. I think we should have a clear legally mandatory format in all investment statements, much like we do on loan/credit card forms now.
I find discussions on withdraw rates on web sites and by talking heads a little perplexing. "I think if your burn rate is much above 3.5%, you’re in the red zone" doesn't make any sense ( https://www.scribbr.com/common-mistakes/sence-or-sense/) to me. It seems to me that a big factor in your "withdraw rate" is how much money you have in your retirement accounts to begin with. If your living on $50,000/yr but you have $10,000,000 in the bank, withdraw rate is meaningless, your nest egg with continue to grow well beyond your needs even if your returns are just a little above inflation. Or you could could spend $200,000/yr and still have money left over. Your withdraw rate is the result you get after you've done all your other calculations: using PRC you plug in your starting $'s, all living expenses, asset allocation, ROR, and time frame, to name a few. You don't start with a withdraw rate and then try to fit in the other numbers to make it work, that's backwards. I think the real ROR given in the article are good numbers. The question should be, given your starting $'s and length of retirement, will the real ROR work for you.
I have a lot of respect for Bernstein. He takes a commonsense approach to investing and I would bet he knows more about financial history and how markets work than anyone on this website. I listened to a recent interview about his new updated book and he is only stating that (in his opinion - need to read the book to get his reasoning) he does not believe we can expect historical returns to be repeated in the future. That is consistent with saying if you think in terms of the 4% safe withdrawal rate and all other parameters are the, the withdrawal rate needs to be less. He is not advocating the use of a safe withdrawal rate instead of doing more detailed planning. I would recommend reading his book before you get too critical. He has some incredibly wise advice.
I was simply commenting on one sentence in @nc-cpl 's post. No disrespect was intended to Mr. Bernstein or anybody else. However, having said that, I am critical of everything I read no matter who wrote it 🤔. I personally only tend to respect people who I have actually meet, spoken with, worked with, etc 😇. When it comes to my family's financial future, there's me, and there is, well, me, period. I do my own research and come to my own conclusions. I am in the came of trust but verify. One of the purposes of this forum is to kick around ideas, see if they work for individual people, and provide critiques and alternate ideas. Most importantly, I want to have fun with bouncing ideas off of fellow forum members. So please interpret my posts with that in mind 😉.
@pizzaman What got under my skin was your comment - "It doesn't make sense to me." It does make sense if you put into the context that Bill Bernstein was relating to.
My criteria for trusting in work and articles people publish is not as narrow as yours but I also tend to dig a little deeper than just taking it for face value. If it is work by someone I have followed for many years, then I tend to trust the findings. There are great retirement experts out there that I tend to trust. If it is an online article, it is good to go read the comments to see how others have reacted - good starting point anyway. Bill Bernstein is one of those guys that I trust but don't necessarily agree with all his recommendations.
Withdrawal rates can be useful for generic academic type studies to compare different strategies or other parameters such as forward ROR assumptions. For someone many years from retirement, it can be a starting point to see if you are on track to retire when you want. As you get closer to retirement or in retirement, then it probably has little value, but I bet there are advisors out there that still use it?
Keep posting and I will try and take some of your remarks with a big dose of salt.
I agree Berstein is pretty knowledgeable on this stuff. The 4% "rule" is well-researched and generally accepted as a good "guiderail" to help seniors gauge their spending relative to lifespan. It is also self-adjusting in that it's a percent of what you have - have more, spend more- have less, spend less. A simple guide so you can have comfort you'll have something left after 30 yrs. (I know most of you know this already). Absent any way to gauge your spending, you can err too far in either direction. It's a guideline, nothing more. Yes, to Pizza's point, if you have $10M in retirement you're probably not overly concerned with the 4% rule, that is, unless you spend like a bunch of drunk Kardashians, then you might still need it. Think of it like a speedometer...you can go any speed you wish without one, but then there's no way to compare your speed to the posted limit (and avoid a ticket).
Personally, I look at my "rate of spend" in the Tabulations>Summary page of PRC to see how close I am to 3-4% as a way to compare how my plan tracks with the rule.
Plus, I think Pizza enjoys poking at the bear...;)
@golich428 You take me way to seriously 😲, remember I am Pizza Man, the Rouge 😎, stirrer of the pot and definitely a BIG pile of salt. We just see things a little differently and that's more then OK. My "It still doesn't make sense to me" comment was directed at "discussions on withdraw rates on web sites and by talking heads" in general, and not directed solely at Mr. Bernstein. But I stand by it. I definitely do not take things at face value and I do a ton of research, a benefit of being retired 🤗. I just think that there should be a much bigger discussion given to growing your retirement funds before you retire, i.e. savings rate, vs spending rates in retirement. In retirement the discussion should be on being flexible with your spending, going up and down based on that year's ROR and life circumstances, unless of course you accumulated a big pile of salt, I mean money, in which case all these discussions are moot.
One big problem with the 4% rule fo thumb is that it assumes a constant rate of spending through the rest of a retiree's life. Certainly they'll be spending more, want to be spending more, in early retirement years when they're young and fit, and less later when they become older, more sedentary, travel becomes difficult, etc.
Yes, medical expenses can balloon late in life, so it's kind of a barbell thing sometimes.
That's why Pralana is so invaluable. I love setting up the spending plan for clients through the go-go, slow-go, and no-go phases of retirement, running the analysis, then going to the tabular results to look at the withdrawal rates through the rest of their lives. Much different than a static 4% plus inflation!
