Community Comments on the Great Safe Withdrawal Rate Debate

Set forth below is the text of a post that I put to the Motley Fool board in the early days of The Great Safe Withdrawal Rate Debate (the post is dated August 10, 2002). It provides snippets of a number of comments advanced by Financial Freedom Community members.

”hocus” is me (Rob Bennett, owner of the site).

”intercst” is John Greaney, owner of the site.

“JWR1945” is John Walter Russell, owner of the site.

”TNFBogey” is David Forrest, site adminisstrator at the Motley Fool boards.


Thanks for your post.

The Retire Early Discussion-Board Community

I’ve had a few e-mail conversations with TMFBogey as this debate has proceeded because I want to avoid violating any Motley Fool rules as to the extent to which a non-board founder may question conclusions of a board founder. I’ve noted in earlier posts that, while TMFBogey prefers open debate as an ideal, he also grants some deference to what he refers to as “board culture.”

So I have tried to monitor whether my effort to get a discussion started on some investing ideas that have not been discussed on this board in the past disrupts the board culture in any way. I believe that there are arguments that can be made that it does. Certainly most of the threads relating to this effort have been far less pleasant to read than the average RE board thread. Posts like yours, however, suggest something different, that there are people who come to this board who appreciate threads on Retire Early investment ideas that have not been discussed here previously. I keep a file of such comments that I refer to from time to time when I am having a debate with myself whether to continue the effort to encourage such discussions or to drop the idea.

Set forth below is a sample of some of the comments from posts I have entered in my file. Set A is a set of comments suggesting that the person posting likes the idea of a broader range of investment discussions. Set B is a set of comments suggesting that people participating in the debate have gained some insight or another from the effort. If people are enjoying the debate or learning from it, that suggests to me that it is not entirely disruptive to board culture to try to advance it.

I believe that we all would be learning a lot more if there were some way to make the debate less argumentative in nature. But even under current conditions it does not seem to me that the effort has been 100 percent a waste of time.

Please understand that I do not believe that any of the posters below agree with my views on investing. Most do not, or agree with some aspects of my views and not others. The point of the collection of posts is not to show that others agree with me, but to suggest that there are people other than me who would like to see a variety of investing options discussed on the board.

Set A: Posters Who Enjoy Broad Debate:

Vickifool Post #66931.

Vickifool thinks this was a worthwhile and useful thread. This board is a good place to discuss these things until you understand them. Much better than arguing religion or political jingoism, IMHO. Look at all the bandwidth that’s been wasted on those topics lately.

I have had to stop and think, Now is Hocus right? You are certainly convincing (good writer that you are) so I really had to look carefully at what you had to say and why it was, or was not, correct.

UCalgaryGeer Post #66959.

Thanks to everybody for a fascinating discussion; imagine my shock when the top ranked posts on REHP suddenly started to be about retiring early!

FoolMeOnce Post 68454.

The REHP safe withdrawal study speaks not at all to the issues involved in the accumulation stage and doesn’t help a single soul to accelerate the process of achieving early retirement. All it does is prescribe a method which some individuals could use to help insure that they don’t outlive their assets, once they are accumulated. This is not unimportant, but receives entirely too much focus here.

nnn12345 Post #66842.

The Financial Freedom Discussion-Board Community

HOCUS–IMHO, you have started one of the most interesting and stimulating discussions this board has seen in a long time. It would be a loss for this board to not have such discussions.

Although the majority of posters may completely agree and be entirely comfortable with the premise of the 4% safe withdrawal rate, I for one simply find it to be a useful concept and tool which perhaps could be refined and improved if only challenged and questioned a bit. I hope that you will keep on posting your thoughts, comments, and provocative insight.

Dagrims Post #73316.

I’m enjoying this discussion, hocus, even if others may be tiring of it. I enjoy reading your posts and discussing these issues helps flesh out my thoughts and ideas much better. If you’d like to, feel free to e-mail me privately to continue.

BobBluff Post #66725.

I very much appreciate this thread, especially the points brought up by hocus…. We should not become fixed on the “one way to do it”. Different folks have used different methods to achieve FIRE….

nmckay Post #66709.

I do think you’re on to something about valuation that should be addressed. Keep at it. This has been one of the best threads we’ve had in a while.

JWR1945. Post #73284

I am continually frustrated by the attacks and diversions caused by those who restrict retirement and investment discussions to a very limited range….The mechanical structure of investing that makes the Retire Early study so very valuable also limits its applicability. That should be an advantage. It should cause people to think and to extend the research rather than to apply it in a mindless, mechanical manner.

Post 69209

We can provide real help to real people by extending the applicability of the Retire Early Safe Withdrawal Rate studies. Seldom can they be extended to answer questions directly. But they can provide valuable insights for making sound decisions. People do need answers to questions that extend well beyond a very narrowly defined set conditions that are not clearly delineated.

FriendlyGirl Post #70633.

The universe of the safe withdrawal study is limited, this is true. The data is insufficient to include many asset classes that are open to and might prove useful to investors. But even for these people the safe withdrawal study can be some help, if limited.

Perhaps intercst’s website could use a more extensive discussion of asset allocation and how you might go about determining it. I don’t think everyone is served by having an optimized asset allocation. Basically, I agree with you that we could expand the conversation.

mhtyler Post #70573.

I have let Hocus know that if he forms up a new group that is more supportive of alternative retirement discussion that I’ll be there, because as good as this group is, it doesn’t appear that it will ever get beyond the mathematics of the efficient frontier…helpful though they are.

JAFO31 Post #68952

FWIW, it [the debate you are proposing] would not bother me. I might even kibitz from the sidelines on occasion with questions, but I doubt that I would be a heavy or regular contributor.

path40a Post #73291.

I quickly realized that there was an on-going debate and some history between someone named intercst and someone named hocus. Both seemed to present thoughtful information, albeit from differing viewpoints (always good, IMNSHO). I then noticed that the tone of the discussion shifted to one which was quite combative, with perhaps an endgame intending to silence the less popular opinion. My fears were confirmed when Ms. Coy joined the board and was quickly attacked for expressing her ideas.

While I see nothing wrong in taking sides in a debate, I find the goal of silencing dissenting voices appalling. Surely there is more than one way to FI and RE!

inparadise Post #68951.

The Indexing Discussion-Board Community

I am very open for new topics, and think that though the various threads triggered by your issues have been excessively long and cantankerous, some excellent points have been raised.

Post #68869.

There are situations and personalities where the SWR just won’t always work, because the people won’t be able to stomach the volatility of the approach. Hocus, (and correct me if I’m wrong, Hocus,) thinks among other things that this is an issue that should be brought up and explored, a warning to those considering the system if you will. I think he has a very valid point.

FoolMeOnce Post #68775.

I don’t dispute any of your [referring to intercst] math exercises and never have. But you wear them like a protective cloak insulating you from the reality that the performance of 100% equity portfolios is little more than an interesting intellectual exercise and teaching tool. You appear not to understand that in terms of application to real people, in a real world, such examples are useless, because they simply can’t be put into practice by enough people to make them meaningful.

Daryll40 Post 68692.

I have read with interest the HOCUS-inspired look at equity-heavy portfolios. I kinda fall somewhere in the middle. I have NEVER EVER been comfortable with a high proportion of equities and even when I started here, back in 1999 when the Dow was going to 36000 tomorrow, I always felt uncomfortable with the exact Intercst approach….In the end, the answer to MOST things is “in the middle” as it is here.

nas90skog Post 68597.

So far the “Masterminds” have successfully driven away most of the real estate investors and who knows how many other “evil non-conformists”. The techies frustration with humanists that intercst referred to is no doubt as equally frustrating to the humanists. Having served on the engineering side of things, I can certainly acknowledge and relate to the arrogance and self proclaimed superiority of the “techie” view of the world. It was not until I became more aware of the “human” side of the equation however, that life revealed a broader value and potential. For me personally, I “get” what Hocus is trying to say.

[in response to an intercst assertion that he is “heartened” whenever FoolMeOnce or nas90skog find his posts repugnant] My recollections are that FMO has made a diligent effort to steer clear of petty bickering when he has presented his personal experiences in real estate investing. Why would you be put off by that type of person?…Sincerely appreciative of the work done by intercst, et al regarding FIRE management, but for me, its only part of the puzzle. And at times, the pompous arrogance that can permeate the board just becomes a bit overwhelming.

holzgrafe Post 68887.

Perhaps it will help if people on all sides (note not “both” sides ;o)) spend a little more time attempting to define the issues they wish to discuss in a given thread…I do think that good boards have a focus, often set by the founder or the gurus, and that, while discussion and new insights are valuable, significant departure from that focus belongs on its own board.

Certainly the focus here is RE, not SWR as such, but it seems to me that discussions on this board should focus on how best to achieve investing efficiency. What I mean by efficiency in the accumulation stage is the most rapid accumulation of the necessary wealth and in the distribution phase the maximum disbursable income consistent with longevity.

In both cases, the approaches espoused should be based upon generally-agreed-upon constraints, and I think it is very important that those constraints should be explicitly stated. If the participants in a discussion cannot agree upon the constraints, the chances of the discussion going anywhere useful are pretty much nil.

We have the same sort of hassles on the MI board over a different subject, and it’s really depressing how little communication is achieved on either side. It’s like one philosophy is being expressed in English and the other in Chinese. I think that breakthroughs in communications are starting to appear on both boards, but it’s a slow and frustrating process.


Post 1942 on Real Estate Board.(making reference to efforts to discuss non-MasterMind strategies at RE board.)

Financially Independent Retired Early

Perhaps a public discussion forum is not the appropriate place for those who can tolerate no dissension–or take what dissension there is personally… The core group at the REHP seems to be quite set in their ways, a result, possibly, of having retired and now having no compelling reason at such a young age to remain flexible in their thinking.

For example, there’s hardly a shred of support on the REHP for real estate as a road to early retirement. Maybe that’s because the original board-opening requester is anti-real estate to the extreme, in my opinion. You’d think by now the board would have evolved to include this very important component of wealth. I do not see that happening because of the sometimes virulent reaction to anything but the party line.

Moghoper. Post 68894.

I think it was a tremendous debate. I think there are many people who agree with you – and while some do not, that should be ok in a debate. And while some have even gone to the point of being borderline abusive during the expression of their opinions, I don’t think this prevented you from posting your opinions.

Agree or not, this is as spirited as the board has been in some time.

Set B: Posters Who Have Learned From Debate Thus Far:

rkmacdonald. Post 68981.

In this case, I think it could be argued that this person’s Personal SWR is actually 2% and not the Unemotional SWR of 3.7%. In fact, I wonder just how many people living right on the edge of the Unemotional SWR world really would have the personality and steel, to stay the course following a 1929 (or maybe a 2000) style market collapse. Is it possible that no real person actually has a Personal SWR that is as high as the Unemotional SWR!!

I wonder if there is some way to introduce a modifier to the Unemotional SWR, that would predict the true Personal SWR for each individual based on their personality and risk tolerance?

Patnbj Post 68793.

There certainly are differences for those who attempt to ER with a small portfolio. Let’s compare two ERs who are both single with no kids. #1 has a portfolio of $2 million and #2 has $500k. #1 has a lot more options than #2….

DaveLee Post 69080

Even the coarsest of stock valuation measures, if accurate, could benefit stock market withdrawals by increasing the average price of shares sold over 5 to 6 year periods. (Some people call this market timing. I do not.)….

I would end up with an equity allocation somewhere closer to 40 to 60% with fixed income instruments of mostly intermediate duration.

stoferj Post #73266.

What I’ve come to appreciate over the past couple years is the value of asset allocation. A lot of people think that if you’ve got a 30 year investment horizon you should be 100% in equities.

The Probabilities of Stock Investing

Well that may very well work for some folks but I can’t stand the volatility. I’m going to investigate building a portfolio that includes some real estate, bonds and hard assets as well as equities. I need a smoother overall return. This up 30% one year down 40% the next is too hard on the stomach.

FoolMeOnce Post #68738

Depending on how early you want to retire and actual market performance, the middle of the road approach may actually get you to your starting nut quicker. It will certainly propel you in that direction more predictably.

An increase in savings rate may also obviate the need to work for a longer period. With a high reliance of equities during the accumulation stage, even an increased rate of savings may not help much if the market turns against a portfolio heavily weighted in equities.


This debate between the efficient-frontier advocates and the skeptics is fascinating….Harry Markowitz, the discoverer of modern mean-variance portfolio theory (i.e., the theoretical underpinnings upon which the Safe Withdrawal Study rests) who won the Nobel Prize in Economics for this work, apparently does *not* allocate his assets in accordance with the efficient frontier; he actually uses something like a naive 50-50 stocks/fixed-income split, because his goal is to “minimize future regret”.

FoolMeOnce Post #69060.

Based on periods as long as 29 years, from my own simple models it is obvious that by judiciously diversifying into other asset classes it is possible to exceed the returns of the S&P 500 with less risk (as measured by standard deviation). By increasing returns while simultaneously holding the volatility down, I am confident that the maximum withdrawal rates can be increased significantly. A twenty nine year period includes the bear of 73/74, the crash of 87 and the recent unpleasantness, but is still not 130 years.

The question is should we constrain ourselves to asset classes for which more than a century of data is available or not? There is no good answer to this question beyond “more is better”, but 29 years is good enough for me.


[in response to an early retiree who revealed to the board that he has recently lessened his stock allocation in response to price drops]

Far from reacting emotionally as another responder has said, it seems to me that you’re simply reacting to the market. I’d expect your strategy to minimize your losses, but also temper your ability to see upside. I’m doing exactly the same thing, but I’ve reversed from 70/30 equity/fixed to 30/70.

My ultimate goal…and possibly yours too is to see that reverse back again, but if you’re newly retired (2 yrs) as I am you may seek to minimize your risk rather than prove out all the fancy RE philosophy of this board on your way to the poor farm.

JWR 1945 Post 68582

Buy-and-Hold Bias

It would be nice to know the effects of a more rational allocation of the fixed income component. Currently, the fixed income component is mechanically reinvested and rebalanced every year. However, because the income of a fixed income investment is highly predictable (when held to maturity even when inflation is taken into account), fixed income investors can take advantage of locking in favorable yields for longer periods and investing in shorter term instruments when yields are low. In addition, an investor may choose among fixed investment classes whenever he rebalances his portfolio.

Post 69074

I also see great merit in extending the usefulness of the Safe Withdrawal Rate study. Right now there is (roughly speaking) only one question that it answers. That answer is always right if that one question is asked. More often the study gives the wrong answer because the wrong question is asked. Sometimes that answer is very close to the correct answer. If so, it is very useful. Sometimes that answer is not only wrong, but it is dead wrong. At the same time, it gives one a false level of confidence.

I prefer to think in terms of opportunities. If hocus had relied on a single answer from the Safe Withdrawal Study, he would never have saved money. Lots of people are like that…if the only option for handling risk is to change from 25 times your desired withdrawal rate to some bigger number; retirement becomes an illusion…an unobtainable goal. But hocus has demonstrated that other options are available. I think that the applications of the Safe Withdrawal Study can be extended to make many more dreams come true. It answers only one question. But it can provide helpful information for a lot of questions.

Post 68916

The book [“Stock Cycles”] suggests that a there really is true Safe Withdrawal Rate…derived from the same data but using a different approach…that varies with market valuation.

We have a sensitivity study that shows that minor differences in withdrawal amounts caused by small errors or differences in the details of the Safe Withdrawal Rate calculations result in large variations in the outputs…the number of years at an acceptable level of risk…..We have another sensitivity study that shows that it often takes about a decade before you know how safe your withdrawals are.

Post 67551.

What hocus really needs are the tools to spot any problems by himself and to spot them early enough to fix things. He needs something better than that familiar assurance…„”trust me.”

Post 67209

Censorship of Discussion of Safe Withdrawal Rate Errors

Great advances in science are made by studying the anomalies…the things that are not fully understood.

Post 66854

The fact that there were only three bad periods to start a retirement in the twentieth century indicates that you probably can vary allocations successfully as long as your actions are based on decade-long variations and not one or two year changes. So far, it seems as if some changes in the percentage of stocks and in the type of cushion (commercial paper, TIPS, 5 year treasuries, long term treasuries) do make sense….

If you share hocus’s concern about valuations, think of your investments in terms of two portfolios. The first is the basic growth account at the best allocations indicated by the studies and the other is your reserve account that lets you sleep at night. Maybe that can help clarify your thoughts. If the basic account goes nowhere for a decade…and it might…you will be able to handle it. Personal considerations are always the most important in any financial decision.

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