A Safe Withdrawal Rate Case Study for Becky and Stephen

What? A new case study? I know, I had promised myself to wind down the Case Study Series I ran in 2017/18 after “only” 10 installments. It was a lot of work and a lot of back and forth via email. It takes forever! I mean F-O-R-E-V-E-R! But then again, there’s always a reason to make an exception to the rule! Jonathan and Brad from the ChooseFI Podcast had a very interesting guest on their show this week (episode 152). Becky talked about her experience of a late start in getting her and her husband’s finances in order. They started at around age 50 and became Financially Independent (FI) in their early 60s and retired a year ago. I should also mention that Becky recently started her own blog, appropriately labeled Started At 50, writing about her path to FI and RE so make sure you check that out, too.

In any case, Jonathan and Brad asked me to look at Becky’s numbers because I must be some sort of an expert on Safe Withdrawal Strategies in the FIRE community. I chatted with Jonathan and Brad about my case study results the other day and this conversation should come out as this week’s Friday Roundup episode. Because there’s only so much time we had on the podcast and I didn’t get to talk about everything I had prepared, I thought I should write up my notes and share them here. Heck, with all of that effort already spent, I might as well make a blog post out of it, right? That’s what we have on the menu for today… Continue reading “A Safe Withdrawal Rate Case Study for Becky and Stephen”

Who’s Afraid of a Bear Market?

We made it through October, without much volatility this time – what a change compared to last year! We even got to a new all-time high in the S&P 500 in the last few days. When you reach new records, the pessimists come out of the woodworks and declare that “this is the top” and the next bear market must be right around the corner! It’s like clockwork! And if you go to the popular forums and Facebook Groups in the FIRE community, you’ll see people poking fun at the perma-pessimists. Quite appropriately, I think!

Even if we’re at a top, we’ll have another top before too long! Source: Twitter.com, StockCharts.com

But why are people still a bit nervous about corrections and bear markets and market crashes? Being retired now, I have to admit I feel at least a little bit uneasy right now. Why’s that? If I wanted to quantify how afraid I am of something I’d do so as follows: Fear depends on both the probability and the magnitude of something scary happening:     FEAR = The probability of something scary  TIMES  the magnitude of something scary

In my recent post My thoughts on the “Upcoming Recession” I wrote about the probability part. I personally don’t think that the economy is at the brink of a major slowdown (yet) and with the economic growth trend, still intact the stock market will likely chug along. This all looks like a mid-cycle, temporary soft spot.

What makes me nervous about the bear market prospect, though, is the magnitude part; the fact that IF a bear market were to occur (however unlikely that may be) we’d most definitely go through some anxiety for a while. That’s true for all retirees and even folks close to retirement. Probably not so much for everybody just starting out in their accumulation phase, see the post “How can a drop in the stock market possibly be good for investors?” from earlier this year.

Quite intriguingly, though, if you look around in the FIRE community I get the sense that people minimize how scary a bear market will be if it were to start today. And the thought process is:

  1. The market will always recover (see the chart above)
  2. Most bear markets last only about one to two years

It sounds like the bear has really lost its teeth! So, why am I not convinced? There are multiple problems with that line of thinking. That 1-2 years estimate wildly underestimates how long it takes to recover from a bear market.  If you do the math right a bear market will appear a lot scarier than it’s commonly portrayed. Let’s see why…

Continue reading “Who’s Afraid of a Bear Market?”

My thoughts on the “Upcoming Recession”

“The recession is near!” Headlines like that have become more common recently. And I’m not talking about those ridiculous “sponsored posts” on Yahoo-Finance (“Reclusive millionaire’s warning: get out of cash now”) but the actual news; the Yield Curve inverted recently and then you add the “Trade War” and weakness abroad and everybody gets nervous. Even the U.S. Federal Reserve is nervous enough to start lowering rates again; one cut already in July and another 0.25% cut likely coming tomorrow! So, will the longest-running economic expansion end of “old age” soon and cause a sizable market correction? Or a bear market? Or a market crash? Should we even care? Since lots of readers have asked me to weigh in on those issues I thought this might be a good time to write a post on this.

First of all, hell yes, we should care. If the economy really goes South and the stock market with it, that would be detrimental for retirees and even folks well before retirement. Fortunately, despite all those bad headlines, I’m still sleeping well at night. Sure, the outlook has worsened since earlier this year and I am a bit more worried about the market now compared to before. But I’m still not too concerned in absolute terms. And my view is mostly based on economic fundamentals. Notice how that view is different from some places in the FIRE community where “no worries” has become something of a mantra. The standard applause line there is that “the market always recovers, so we don’t have to worry about a bear market!” But that’s really a strawman argument. Nobody ever argued that we’ll have a recession and a permanent bear market that we’ll never recover from! The stock market is tied to macroeconomic fundamentals and as long as the economy grows we can be confident that the market keeps delivering. But eventually getting back to the old peak is a pretty lame criterion. Why? Let’s look at the chart below from my post earlier this year, but updated to 9/13/2019. It plots the real (inflation-adjusted) total-return performance (dividends reinvested) of the S&P 500 since 2000.

Real, CPI-adjusted S&P500 total return (dividends reinvested) 12/31/1999 to September 2019 (month-to-date). I also marked the 2000-2002 and 2007-2009 peaks and troughs and how the index would have performed with an assumed 6% p.a. trend return.

Of course, the market recovers eventually. But it may take a while! The index didn’t reach the 2000 peak until 2013. And a zero-percent real return over 13 years is a pretty lousy goal. Or here is another way to look at the chart: Let’s start at the peak in 2000 and assume the 2001 and 2007-2009 recessions had never happened and the index had instead advanced at 6% per year (even a little bit less than the long-term average). We’d be 50+% richer today. Don’t tell me recessions and bear markets don’t matter! Also, we did catch up to the 2007 peak plus 6% growth, but even that took about 10 years. So, yes absolutely, recessions and bear markets matter because of what they can do to our retirement plans, compliments of Sequence of Return Risk.

I’m just pointing this out to stress that I’m not categorically unconcerned about a recession. I just don’t see enough evidence yet to run for the hills. Let’s take a look at the details… Continue reading “My thoughts on the “Upcoming Recession””

You are a Pension Fund of One (or Two) – SWR Series Part 32

The other day I was browsing on Amazon to look for the book “The Simple Path to Running a Pension Fund” and couldn’t find anything. Maybe Jim Collins is working on that right now? Or Mr. Money Mustache might have a blog post on the “simple math” or wait, I mean the “shockingly simple math” of running a pension fund? Duh’uh! Of course, there is no such simple path/simple math! Because it’s no simple task. Lots of people are involved in running a pension fund. And we’re not just talking about the operational people; customer service reps, lawyers, etc. There would also be a bunch of highly-trained investment professionals taking care of the portfolio. When I worked in the asset management industry I talked to them frequently because a lot of our clients were indeed pension funds. 

And I realize that – strictly speaking – I’m actually running a pension fund right now. For a married couple like us, it has only two beneficiaries, my wife and myself. I could count our daughter as beneficiary #3 because she’ll get some money for the first two decades or her life, but strictly speaking, she’s more of a “residual claimant” who’s going to get most of the “leftovers” when Mrs. ERN and I are gone. All of us in the FIRE community are running our own little one-person or two-person pension funds. And of course, in a lot of ways, running these small-potato pension funds is a lot easier than what the big guys (and gals) are doing. We don’t need fancy buildings, lawyers, customer reps, etc. But that’s the bureaucracy side. How about the mathematical and financial aspects? I’ve obviously written about how decumulating assets in retirement is clearly more complicated than accumulating assets while working (see Part 27 of this series – Why is Retirement Harder than Saving for Retirement?) but I was surprised how my DIY pension fund faces math/finance challenges greater than even a large pension fund. So, here are seven reasons why I think my personal pension fund is a heck of a lot more challenging than a corporate or public pension fund…

Continue reading “You are a Pension Fund of One (or Two) – SWR Series Part 32”

The Safe Withdrawal Rate Series: A Guide for First-Time Readers

We’re back home in Washington State after our epic 2019 Summer Tour. Four months on the road, mostly in Europe with a quick visit in Morocco for a week! In early August, while traveling I almost fell out of my chair (or was it my bed?) when I read that my little blog is nominated for not one but two (!) Plutus Awards this year. “Best Financial Independence/Early Retirement Blog” and my work on the Safe Withdrawal Rate research was nominated in the “Best Series: Blog, Podcast, or Video” category, how awesome is that? So, please accept my deep gratitude: thanks to everyone who took the time to submit a ballot and nominate my blog! I’m very humbled and honored. Whether it’s a Plutus Award nomination or just a friendly comment or email, thanks for supporting my work here! It always makes my day! 🙂


Talking about the Safe Withdrawal Rate Series, I often get feedback like this one, let me paraphrase:

“The entire series is obviously very helpful but also a bit intimidating. As a first-time reader, where should you even start?”

I hear you! I totally hear you! So, I wrote a new “landing page” for the Series that has a summary of all 31 posts, grouped by major topic and also a few suggestions for readers what to read depending on preferences and where you are with your early retirement planning. There are two ways to get to this new summary page:

1: Click this new link:


2: Even easier, when you’re anywhere on the ERN blog webpage, simply go to the top of the page and click the new menu option “Safe Withdrawal Rate Series” – see below!


So, if you get a chance, please check out that new landing page and let me know what you think! And please continue sharing the SWR Series everywhere people discuss safe withdrawal rates, ideally using that new landing page link! Many thanks in advance!

Continue reading “The Safe Withdrawal Rate Series: A Guide for First-Time Readers”

Can a Rising Equity Glidepath Save the 4% Safe Withdrawal Rate Over a 60 Year Retirement? (Guest Post by Dr. David Graham)

Welcome back to another guest post. Dr. David Graham, over at FIPhysician has been on a roll. His spike in productivity has been the perfect “hedge” against my drop in productivity while traveling this summer, so when he offered me to write a follow-up on his very well-received guest post a few weeks ago, I was all for it. This current post is about adding a “glidepath” to your retirement portfolio and how and why this would change the success prospects over a 60-year retirement horizon. Over to you, Dr. Graham…

In my last post, I show a 4% Safe Withdrawal Rate (SWR) is actually NOT safe over 60-years (assumptions, assumptions). A more conservative 3.25% SWR does ok. On the other hand, if the asset allocation is increased from 60/40 to 90/10 stock to bond ratio, a 4% SWR thrives again. ERN advises, however, that a 90/10 portfolio sets you up for even more Sequence of Return Risk (SORR). SORR describes the long-term detrimental effects initial negative market returns have on overall portfolio success. Even if the stock market eventually recovers, selling part of your equity portfolio at rock-bottom prices can lead to premature failure of the withdrawal strategy.

What protects from SORR yet permits a higher SWR? A rising equity glidepath is one possibility. Let’s look at the details…

Continue reading “Can a Rising Equity Glidepath Save the 4% Safe Withdrawal Rate Over a 60 Year Retirement? (Guest Post by Dr. David Graham)”

Does A 4% Withdrawal Rate Survive a 60-Year Retirement? (Guest Post by Dr. David Graham)

You might have noticed that I haven’t published any guest posts for a while. I even explicitly state on my contact page that I’m no longer interested in publishing any guest posts. But every once in a while you make an exception to the rule. David Graham, actually, Dr. David Graham (FIPhysician), has been on a roll with a bunch of top-notch guest posts on other personal finance blogs; first writing for the White Coat Investor blog on Roth Conversions, then two guest posts on Physician on FIRE, first on Asset Location in Retirement, and then on Buffer Stock and Bucket Strategies to alleviate Sequence Risk in retirement. All really important topics! And after sending a few emails back and forth with the good Dr. Graham we agreed on a topic for him to publish a guest post here on the ERN blog, Instead of using backward-looking historical return windows, as I would normally do in my SWR Series, why not check the sustainability of the 4% Rule with forward-looking return projections? Vanguard and a lot of financial companies publish those every year. Sounds like an interesting exercise! So, without further ado, please take over Dr. Graham…

As we all know, ERN is the man when it comes to Safe Withdrawal Rate (SWR) and FIRE. Reading between the lines, he has a different opinion on SWRs for a 60-year retirement vs. a more traditional 30-year plan. Obviously, using only historical data, it is more difficult to study SWR with rolling 60-year stock and bond returns than 30-year periods. Nevertheless, FIRE often subscribes to the 4% rule despite a prolonged period of income demands on the accumulated nest egg. In order to further understanding of the 4% rule over a longer than usual planned retirement, let’s visualize the 4% rule over a 60-year period and see what we can learn. Continue reading “Does A 4% Withdrawal Rate Survive a 60-Year Retirement? (Guest Post by Dr. David Graham)”

How To “Lie” With Personal Finance

“Lies, damned lies and statistics” (Mark Twain)

“Do not trust any statistic you did not fake yourself” (Winston Churchill)

There is a classic book called “How to lie with Statistics” that I read many, many years ago (actually decades ago!) as a college student. If you’re ever looking for an inexpensive but fun and impactful present for a young student/graduate with the hidden agenda of getting that person interested in math and statistics, this is the one! The book taught me to take with a grain of salt pretty much anything and everything number-related. Anywhere! Whether it’s in the news or in the Personal Finance blogging world and even (particularly?!) in academia. I’m not sure if I was already a severely suspicious (paranoid?) person before reading this or the book turned me into the person I’m today. So, inspired by that book, I thought it would be a nice idea to write a blog post about the different ways numbers are misrepresented in the FIRE/Personal Finance arena. And just to be sure, this post is not to be understood as a manual for fudging numbers, but – in the spirit of the “How to Lie With Statistics” classic – serves as a manual on how to spot the personal finance “lies” out there!

And there’s a lot of material! Probably enough for at least one more followup post, so for today’s post, I look at just four different way of how quantitative financial issues are frequently fudged in the personal finance world. And a side note about the slightly attention-grabbing title I used here: Well, I put the word “Lie” in quotation marks to show to the faint-hearted that this is a bit tongue-in-cheek. I could have written, “fudge the numbers” or “Enron-accounting” or “How we delude ourselves in personal finance,” or something like that. Also, Hanlon’s Razor (“don’t attribute to malice what can be explained by incompetence”) comes to mind here, but I’m not sure if those faint-hearted folks feel that incompetence is a significantly more benign explanation than malice.

So, let’s look at some of my favorite examples of how people lie to themselves (and others) in the realm of personal finance…

Continue reading “How To “Lie” With Personal Finance”

Where are they now? A Case Study Update with “Captain Ron”

From 2017 until early 2018 I ran a series of ten case studies for readers who volunteered to open their books and serve a real-world safe withdrawal rate guineapigs. The second case study in July 2017 was for Captain Ron (not his real name) who was planning to FIRE and enjoy early retirement with his wife on a sailboat! That title picture you see up there, that’s their actual boat! Sounds like a great adventure, not just the financial aspects but also the lifestyle changes are daunting! So, how did that all go? Captain Ron just sent me an update on how life has been, so Ron, please take over the wheel…


We retired in September 2017 as planned and are really enjoying life. Financially things are great and we have adjusted to the sailing life, but that first year of cruising was a surprisingly difficult transition. More on that later.

Continue reading “Where are they now? A Case Study Update with “Captain Ron””

The Yield Illusion (or Delusion?): Another Follow-Up! (SWR Series Part 31)

Welcome to the follow-up to the follow-up post on the “Yield Illusion.” Again, here’s the context: a few weeks ago, I wrote a post (SWR Series Part 29) on why I don’t believe that chasing higher yields is necessarily a good hedge against Sequence of Return Risk. A very well-received post! It was picked up by CanIRetireYet.com as one of their Best of the Web in February, it was featured on RockstarFinance on Monday, and we had a great discussion in the comments section. So I wrote a follow-up post on Monday (SWR Part 30) and since that post was running way too long already, here’s some more material that got cut; some more thoughts on my asset class outlook, international vs. U.S. stocks, dividend vs. value stocks, and more. So let’s get rolling…

Continue reading “The Yield Illusion (or Delusion?): Another Follow-Up! (SWR Series Part 31)”