Bankai wrote: ↑Tue Aug 10, 2021 8:25 am
Should also add that the below table doesn't consider valuations at start of retirement; with today's valuations success rate for 5% is much lower than shown below.
I understand your point here but it doesn't really matter.
Key points:-
1. No one knows what future returns will be. Your point is valid but you can't time the market. You may be right but you may be wrong.
2. Expenses are a key driver of your WR. Expenses can change over time. The big problem with ERE is that if your expenses are really low you have no buffer. If your expenses increase your WR can increase significantly,
3. The more reliable the instruments that you are investing in the more you can rely on your projections. Once you start getting into customized portfolios the math becomes less and less reliable.
I'm really confident. I think I'm as close to 100% success guaranteed as you can get but I know my risks and my buffers.
I'll give a clear example of why I'm pretty safe. I'm Australian. We have social security that is a little below my current living expenses available to me at 67. I'm 48. I have 3 kids to house and feed right now. My expenses should go down so our pension should be more than sufficient.
I don't expect to require or receive the age pension because I expect my portfolio to increase over time but if I'm wrong I'll be fine.
My key risk is getting divorced. I can't really mitigate against this but I recognize it's my key risk.
You have to try and look at your individual situation and WR's are only a guide. If you think differently you don't understand the problem or maybe better put you are looking at the wrong risks in relation to your approach.
The problem with getting so concerned about you WR is that you are fooling yourself. Your expenses are not completely stable over time. People also use customized portfolios and the math is at that point meaningless.
Invest predominantly in stock indexes. Have some buffer in your expenses. Work through your specific buffers and scenarios. Don't think getting to a false 3% is safe. If you are doing a real 3% than the cost of that is working too long.
There is no free lunch.