4 ms·

Sad to see people still parroting the 4% rule when you can get "risk free" US Treasuries, today, paying more than that. Not to speak of the numerous, still cons

Sad to see people still parroting the 4% rule when you can get "risk free" US Treasuries, today, paying more than that. Not to speak of the numerous, still conservative, investments paying far higher. This isn't the 2010s era with ultra low fixed income yields. If you intend to retire early, please educate yourself on the state of the market

whateveracct 2y ago
I think 4% is still a fine thing to plan around. I don't think it's wise to plan as if today's treasury rates will last your entire retirement.
- adam_arthur 2y ago
  You can lock in cash flowing assets today yielding 6%+ with very low risk. Think REITs with conservative portfolios and strong balance sheets. You can lock in today's treasury rates for 30 years by buying a 30Y treasury bond. So, yes, they will last if you understand where to put your money. The options are extremely numerous and plentiful now in cash flowing assets, and you don't have to deal with the uncertainty of selling off principal in down markets to finance your retirement
  - vaidhy 2y ago
    6% after inflation? The problem with 30yr bonds is that it is effectively 2% assuming 2.5% inflation rate. Stock returns have been generally around 10% even after accounting for inflation. A good mix is critical and what is a good mix depends on the personal circumstances.
    - adam_arthur 2y ago
      Are you trying to retire with stable cash flow, or grow your wealth? For many, retirement is first and foremost about generating a stable income. A guaranteed lower rate of return is usually desirable over a speculative higher rate of return.
      - TheCoelacanth 2y ago
        Certainly, but a stable inflation-adjusted income. If your income is stable in nominal dollars, then it is constantly decreasing in real dollars.
      - snowwrestler 2y ago
        The 4% rule, by definition, provides stable cash flow.
  - naryJane 2y ago
    30Y treasury bond yielding 4.625% according to this source[0]. Please educate me so I can understand where you are seeing 6%+ [0] https://www.treasurydirect.gov/marketable-securities/treasury-bonds/ https://www.treasurydirect.gov/marketable-securities/treasur...
    - adam_arthur 2y ago
      [flagged]
bachmeier 2y ago
The 4% rule requires increasing that amount at the rate of inflation throughout retirement. 30 years in the case of the original studies. Even with an inflation rate of 2.5%, the required withdrawal will more than double after 30 years. The 4.625% you can lock into a 30-year Treasury would not be enough.
- adam_arthur 2y ago
  The 4% rule suggests selling 4% of your principal per year. Buying a 4.625% yielding bond does not require selling principal at all. But you're taking my point too literally. You can easily buy a 6 or 7% yielding bond that is lower risk than equities, but still paying far more in a more certain fashion You can buy REITs today paying 6% that will grow rents around the rate of inflation (O is one example). You can far surpass a 4% yield on cost in year 1, while also locking in inflation adjusted income growth today, very trivially, without selling one dollar of principal. Unfortunately any thread on this is drowned out by uninformed people, or people who don't understand retirement is first and foremost about securing a stable (and non anxiety inducing) cash flow. Not growing wealth maximally. There have been many times in history where the broad index has been flat for years. 2000 to 2010 is a famous more recent period. Would you be comfortable selling 4% a year into year 9, having watched your wealth decline materially over the last decade? I guarantee you the retiree in bonds getting 5% and maintaining 100% of their principal is experiencing much less anxiety. And bonds give you the optionality to swap to equities in a down market like 2000 or 2008
  - bachmeier 2y ago
    > Unfortunately any thread on this is drowned out by uninformed people That's a fairly aggressive statement for someone that doesn't know what the 4% rule is. It's definitely not this > The 4% rule suggests selling 4% of your principal per year. https://www.investopedia.com/terms/f/four-percent-rule.asp https://www.investopedia.com/terms/f/four-percent-rule.asp
    - adam_arthur 2y ago
      So if you withdraw 4% in year 1, and your underlying equities are flat for 10 years because the market moves sideways, as it did in 2000 to 2010, what percentage are you withdrawing in year 10? It's more than 4% That just makes my example above even worse for a retiree. Is it true or not that you can secure well above 4% in year 1 YoC in a relatively low-risk manner in today's market, and also secure it against inflation? Yes, this is true. So either you disagree with this premise and can back it up with a meaningful counterpoint, or you can agree and move on.
Kirby64 2y ago
What does the 4% rule have to do with yields of treasuries? This is a 30-year time horizon that changes spending purely based on inflation figures. Yields in the market do not matter.
- bachmeier 2y ago
  TIPS would work, but you're not getting 4% on TIPS. Though you can get 2.375% on 30-year TIPS, which isn't bad, just not enough to suffice for the 4% rule.
  - Kirby64 2y ago
    Again, what do treasury yields have to do with the 4% rule? The 4% rule assumes you’re investing 60% in equities.
  - rufus_foreman 2y ago
    >> Though you can get 2.375% on 30-year TIPS 30 years? The author of the article is 47 years old, and his wife is 43. What happens if they live to be 80?
    - bachmeier 2y ago
      The 4% rule was proposed by Bill Bengen in the context of a 30-year retirement. Others have studied it in other contexts (including an infinite horizon) but 30 years is where the "safe withdrawal rate" literature started.
deleted 2y ago
[deleted]

whateveracct 2y ago

I think 4% is still a fine thing to plan around. I don't think it's wise to plan as if today's treasury rates will last your entire retirement.

adam_arthur 2y ago
You can lock in cash flowing assets today yielding 6%+ with very low risk. Think REITs with conservative portfolios and strong balance sheets. You can lock in today's treasury rates for 30 years by buying a 30Y treasury bond. So, yes, they will last if you understand where to put your money. The options are extremely numerous and plentiful now in cash flowing assets, and you don't have to deal with the uncertainty of selling off principal in down markets to finance your retirement
- vaidhy 2y ago
  6% after inflation? The problem with 30yr bonds is that it is effectively 2% assuming 2.5% inflation rate. Stock returns have been generally around 10% even after accounting for inflation. A good mix is critical and what is a good mix depends on the personal circumstances.
  - adam_arthur 2y ago
    Are you trying to retire with stable cash flow, or grow your wealth? For many, retirement is first and foremost about generating a stable income. A guaranteed lower rate of return is usually desirable over a speculative higher rate of return.
    - TheCoelacanth 2y ago
      Certainly, but a stable inflation-adjusted income. If your income is stable in nominal dollars, then it is constantly decreasing in real dollars.
    - snowwrestler 2y ago
      The 4% rule, by definition, provides stable cash flow.
- naryJane 2y ago
  30Y treasury bond yielding 4.625% according to this source[0]. Please educate me so I can understand where you are seeing 6%+ [0] https://www.treasurydirect.gov/marketable-securities/treasury-bonds/ https://www.treasurydirect.gov/marketable-securities/treasur...
  - adam_arthur 2y ago
    [flagged]

bachmeier 2y ago

The 4% rule requires increasing that amount at the rate of inflation throughout retirement. 30 years in the case of the original studies. Even with an inflation rate of 2.5%, the required withdrawal will more than double after 30 years. The 4.625% you can lock into a 30-year Treasury would not be enough.

adam_arthur 2y ago
The 4% rule suggests selling 4% of your principal per year. Buying a 4.625% yielding bond does not require selling principal at all. But you're taking my point too literally. You can easily buy a 6 or 7% yielding bond that is lower risk than equities, but still paying far more in a more certain fashion You can buy REITs today paying 6% that will grow rents around the rate of inflation (O is one example). You can far surpass a 4% yield on cost in year 1, while also locking in inflation adjusted income growth today, very trivially, without selling one dollar of principal. Unfortunately any thread on this is drowned out by uninformed people, or people who don't understand retirement is first and foremost about securing a stable (and non anxiety inducing) cash flow. Not growing wealth maximally. There have been many times in history where the broad index has been flat for years. 2000 to 2010 is a famous more recent period. Would you be comfortable selling 4% a year into year 9, having watched your wealth decline materially over the last decade? I guarantee you the retiree in bonds getting 5% and maintaining 100% of their principal is experiencing much less anxiety. And bonds give you the optionality to swap to equities in a down market like 2000 or 2008
- bachmeier 2y ago
  > Unfortunately any thread on this is drowned out by uninformed people That's a fairly aggressive statement for someone that doesn't know what the 4% rule is. It's definitely not this > The 4% rule suggests selling 4% of your principal per year. https://www.investopedia.com/terms/f/four-percent-rule.asp https://www.investopedia.com/terms/f/four-percent-rule.asp
  - adam_arthur 2y ago
    So if you withdraw 4% in year 1, and your underlying equities are flat for 10 years because the market moves sideways, as it did in 2000 to 2010, what percentage are you withdrawing in year 10? It's more than 4% That just makes my example above even worse for a retiree. Is it true or not that you can secure well above 4% in year 1 YoC in a relatively low-risk manner in today's market, and also secure it against inflation? Yes, this is true. So either you disagree with this premise and can back it up with a meaningful counterpoint, or you can agree and move on.

Kirby64 2y ago

What does the 4% rule have to do with yields of treasuries? This is a 30-year time horizon that changes spending purely based on inflation figures. Yields in the market do not matter.

bachmeier 2y ago
TIPS would work, but you're not getting 4% on TIPS. Though you can get 2.375% on 30-year TIPS, which isn't bad, just not enough to suffice for the 4% rule.
- Kirby64 2y ago
  Again, what do treasury yields have to do with the 4% rule? The 4% rule assumes you’re investing 60% in equities.
- rufus_foreman 2y ago
  >> Though you can get 2.375% on 30-year TIPS 30 years? The author of the article is 47 years old, and his wife is 43. What happens if they live to be 80?
  - bachmeier 2y ago
    The 4% rule was proposed by Bill Bengen in the context of a 30-year retirement. Others have studied it in other contexts (including an infinite horizon) but 30 years is where the "safe withdrawal rate" literature started.

deleted 2y ago

[deleted]