Five Unfortunate Facts about Student Debt in America

Our first guest post on the ERN blog! Ever! Let me introduce Drew Cloud who runs the fascinating blog studentloans.net. Not too long ago, I remember U.S. student loans surpassing one trillion dollars (a one with 12 zeros!) for the first time. Now we’re at $1.4t and the amount just keeps growing. Make sure you check out Drew’s blog, too, especially the treasure trove of data on the topic. Take over, Drew!

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A quick online search of student loan debt in America reveals the astonishing truth about the widespread, increasing expense of attending a college or university. Currently, more than 44 million borrowers have amassed over $1.4 trillion of student loan debt, and each year, the total continues to climb. While taking out student loans is now firmly embedded in the college experience for the majority of students, the picture remains bleak for borrowers. Here are five unfortunate facts about student loan debt in America to prove that point.

StudentLoanChart
Student Loans Owned and Securitized, Outstanding. Source: Federal Reserve Bank of St. Louis.

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The 4% Rule is not as good as we hoped – Part 3: The small-sample problem in historical simulations

The rule to withdraw 4% of assets during retirement is considered “safe” because the Trinity Study has declared it so. The term “Trinity Study” has become something of a dogma, almost scripture, for the early retirement community. The 25 times annual consumption rule and the equivalent 4% withdrawal rate rule of thumb are referenced pretty much everywhere in the community. One almost gets the impression that what the Holy Trinity is to Christianity (you know; The Father, The Son and the Holy Spirit), the Trinity Study is to the Early Retirement community.

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Pros and cons of different withdrawal rate rules

Update Dec 7, 2016: Check our new series on safe withdrawal rates: The Ultimate Guide to Safe Withdrawal Rates – Part 1: Introduction

Look around in the early retirement community and everybody is raving about the 4% rule. It’s a “safe” withdrawal rate, we are told, by the Trinity Study and some in the early retirement community. Some claims, we found, are downright false but more on that later.Read More »

The 4% Rule is not as good as we hoped – Part 1: Equity expected returns

Update Dec 21, 2016: Check our new series on safe withdrawal rates: 

The sustainability of the 4% withdrawal rule depends on returns we can expect going forward. Backward looking simulations may be quite entertaining but they still require the usual disclaimer “Past returns are no guarantee of future returns.” How comfortable can we be assuming today’s retirees will enjoy the same average returns as in the last 145 years, the time span used by the cFIREsim site? Or the Trinity study, which uses data since 1926?Read More »