Bond rates are correlated with stock returns, and the paper assumes a lower-than-historical stock return as well. I don’t know whether today’s low bond rates are an anomaly or whether the historically high rates/returns in the US were an anomaly, but it seems to me there’s a fairly high chance the latter is the case. As the paper points out, the 4% wouldn’t have worked in most other countries. If you assume the current rates will continue, then even a 2.5% withdraw rate will have a 10% failure probability over 30 years, and you’d have to go to 1.3% withdraw rate to get a 1% failure probability over 40 years. (And this is assuming optimal mix between stock and bonds so you wouldn’t be able to achieve greater withdraw rate at same failure probability by switching to more stocks for example.)
I myself am doing “”extreme saving”, but it’s a big decision and I think people should make the choice with an accurate picture of the likely benefits and risks. Saying “4% withdrawal rate should last you forever” seems to be overselling the benefits and underplaying the risks. “Making a habit of saving most of your income should give you the greatest possible utility no matter what your investment or retirement plans are” seems like an even stronger statement, which I don’t see how you can defend.
Bond rates are correlated with stock returns, and the paper assumes a lower-than-historical stock return as well. I don’t know whether today’s low bond rates are an anomaly or whether the historically high rates/returns in the US were an anomaly, but it seems to me there’s a fairly high chance the latter is the case. As the paper points out, the 4% wouldn’t have worked in most other countries. If you assume the current rates will continue, then even a 2.5% withdraw rate will have a 10% failure probability over 30 years, and you’d have to go to 1.3% withdraw rate to get a 1% failure probability over 40 years. (And this is assuming optimal mix between stock and bonds so you wouldn’t be able to achieve greater withdraw rate at same failure probability by switching to more stocks for example.)
I myself am doing “”extreme saving”, but it’s a big decision and I think people should make the choice with an accurate picture of the likely benefits and risks. Saying “4% withdrawal rate should last you forever” seems to be overselling the benefits and underplaying the risks. “Making a habit of saving most of your income should give you the greatest possible utility no matter what your investment or retirement plans are” seems like an even stronger statement, which I don’t see how you can defend.