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FYI 4% rule is probably too aggressive because it’s based on historical U.S. stock market data for a 30 year retirement. People are living longer and it’s a bet
by elil17 4y ago
FYI 4% rule is probably too aggressive because it’s based on historical U.S. stock market data for a 30 year retirement. People are living longer and it’s a better assumption to use global stock market returns (because there’s no reason to think U.S. stocks will continue to outperform the global average - they very well may revert to the mean).
3% is a better bet for people retiring today.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132
- smileysteve 4y agoSome people are living longer. But the average is decreasing in the US.
- actionablefiber 4y agoThe average just got whalloped by a deadly pandemic, so the average today is probably not representative of how long a person should expect to live in the future.
- Amezarak 4y agoThe average was decreasing before the pandemic.
- readthenotes1 4y agoFor men, at least
- etrautmann 4y agoIsn’t this due to things like the opioid crisis etc? Is it still true if you marginalize on HN readers? There might be a few fentanyl addicts here but I suspect fewer?
- smileysteve 4y agoYou can find comments pretty regularly made here by users and former addicts. There is little reason to suspect that HN would not follow age and income demographics; and chair sitting is a common source of chronic pain. But also increasing rates of depression, obesity, diabetes, and other chronic diseases led to the decrease in life expectancy.
- elil17 4y agoEither way, it’s not relevant for withdrawal guidelines because the relevant statistic is life expectancy at retirement age, not life expectancy at birth. Things like ODs mostly impact those who aren’t yet of retirement age, so they don’t effect the parts of the actuarial tables used for retirement calculations.
- elil17 4y agoThe 4% rule paper was written in 1994, when most retirees would expect to live 15.3 (male) to 19.4 (female) more years. People retiring now can expect to live 18.1 to 20.7 years, make and female respectively. The % rules are calculated using joint actuarial tables and a given percentage chance of going broke before death (I believe it is 5%).
- Rebelgecko 4y agoCant you just guarantee your ability to do the 4% rule by buying some 30 year treasuries (the current interest rate is ~4%)? If you're worried that interest rates will be lower if that matures and you're still alive, you could even look at annuities (not that an annuity is necessarily the right move)
- matt-attack 4y agoNot exactly because the 4% rule allows you to increase your withdrawals throughout time to track inflation. That would it be true if the treasuries. Also worth noting that the 4% rule is not designed for principle preservation. So you end up with zero after 30 years. I’m contrast, your approach would preserve the principle.
- elil17 4y agoThe 4% rule is inflation-adjusted, so no.
- berberous 4y agoYou can do it with TIPS: https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier https://www.advisorperspectives.com/articles/2022/10/24/the-...