Rethinking Insane Retirement Rules

April 11, 2015
Retirement Rules: Rethinking a 4% Withdrawal Rate

After data showed that the rule, which posits the withdrawal of 4% of a portfolio in the first year of retirement, with annual adjustments for inflation thereafter, had worked in only two of 20 developed countries -- the U.S. and Canada -- Pfau dug deeper. He found that the rule wouldn’t work in a number of circumstances, including retiring during a market downturn and in a period of historically low interest rates.

It was a fine retirement rule in 10% of developed countries as long as interest rates weren't too low. Have no fear though. Nothing bad ever happens in the USA or Canada, Great Recessions and their aftermaths notwithstanding,

Why wouldn’t a more conservative investor stick with a bond ladder and call it a day?

For a more conservative individual, that may be a question to really think about -- especially since these calculations only assume fees of 0.5%, which is below the average mutual fund fee. The main drawback of not using stocks is no upside potential.

This retired conservative investor did more than really think about it heading into the Great Recession. As of 2004, I'm done with stocks. Those counting on upside potential from these lofty levels must really believe in never ending exponential growth stories. Good luck on that.

Counting on upside potential in retirement is a bit like counting one's chickens before they hatch. Yeah, call me old school. Not liking the long-term look of the chickens, especially with the Wall Street foxes guarding the hen house.

Have I mentioned lately that my last employer was on the front page of the Wall Street Journal for massive accounting fraud for months on end? Perhaps that affects my ability to trust Corporate America. Just a hunch.