Overview of the Great Safe Withdrawal Rate Debate

The Great Safe Withdrawal Rate Debate was a series of discussions started by Rob Bennett with a post to a Motley Fool discussion board on May 13, 2002. Over the course of the following three years, the debate spread to six other discussion boards, and generated tens of thousands of posts. The fruit of these efforts was the SWR Investing Tool, a new approach to the analysis of historical stock-return data providing far more realistic guidance to investors as to the risks of various portfolio allocations than is available in most existing safe withdrawal rate studies and retirement calculators.

SWR analysis aims to tell a retiree what percentage of his portfolio he may use to cover living expenses each year without taking on a significant risk of going bust, presuming that stocks perform in the future much as they have in the past. The results of conventional methodology studies have been cited in a number of influential investing columns, including the "Getting Going" column published in the Wall Street Journal and the Scott Burns column in the Dallas Morning News. Members of the Financial Freedom Discussion-Board Community have long relied on the SWR study published at the RetireEarlyHomePage.com site and the FIREcalc retirement calculator published at Early-Retirement.org for help in planning their early retirements.

The Great SWR Debate discussions revealed the grave flaw at the root of all conventional safe withdrawal rate methodology studies--their failure to make adjustments for changes in retirement start-date valuation levels. The reality is that the SWR is not a single number (4 percent is often cited as the safe withdrawal rate for a high stock portfolio in conventional studies), but a number that varies with changes in valuation levels (sometimes about 4 percent, sometimes 6 percent or higher, and sometimes 2 percent or lower).

The most important research put forward during The Great Debate was published at the SWR Research Group board, a board founded and moderated by Rob and made available to the public at the NoFeeBoards.com site from July 2003 through March 2005. Highlights of much of the research first published by John Walter Russell at the SWR board are now available at the Early-Retirement-Planning-Insights.com site. Rob plans to publish a Research Report on safe withdrawal rates in 2006.