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Comment by brianwawok | Hacker News Reader

If it’s all in the market, most wisdom says you can take out 4% a year and never run dry. Is 4% of your stash enough to live on? Congratulations you are financially independent. You can read through mr money mustache if you want more depth..

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To be clear, the 4% rule assumes a 30 year retirement (i.e. retiring at ~50-60). For early retirement you should target a 3.5% annual withdrawal rate.

https://www.madfientist.com/safe-withdrawal-rate/

Exactly this. Put your cash in S&P500 and live a peaceful life. For optimization: take out a little bit more when the price is considered to be high and take out a little bit less if it's low.

Is this not timing the market? How do you calculate what is "high" and "low" - rolling average increasing 7% per year, compare current price to that expectation?

Mean reversion.

> Mean reversion in finance suggests that asset prices and historical returns eventually revert to their long-term mean or average levels

The avg. 7% per year will break down into very good years and bad years. Let's say the S&P500 is already down -5% YTD and has underperformed over recent years, then you would it considered to be low, because you would rather expect the performance to increase in order to match the long-term avg. of 7%. So at this point you would happily buy in and expect mean reversion. But of course there's no such thing as perfect timing (except in hindsight) and no guarantee for mean reversion to happen.

Timing the market is doable I'd say. Not all the time and not by everyone but it is completely doable. Sometimes you will buy too late or sell too early but even buying the dips is timing the market. If you partook in some stocks, more so than otherwise, during the March lows you were also timing the market.

The current risk free rate is absurdly low, which would suggest a much lower sustainable draw down than 4% for the next 10-30 years, probably only around .5 to 1.5% at most.

That's rubbish that you think you can predict a 1% return in the market over the next couple decades. It would be extremely unprecedented, and you'd need a very solid argument to have any confidence at all in that prediction.

Not to mention SPY has a 1.75% dividend yield.

Well, inflation is also absurdly low. The direct return on equity, globally, is around 5% for a pure stock portfolio.

What is your basis for believing that the safe withdrawal rate will be less than half this, at less than 1.5%? That sounds excessively pessimistic to me.

Some of my money is in high-dividend ETFs. They have been returning between 5-10% over the past several years.

I agree the 4% rule is too aggressive nowadays. But every .25% increment lower means a huge improvement in sustainability, so even adjusting down to 3% is profoundly more conservative than the original rule. At 1.5% you are going lower even than endowment funds aiming for perpetual maintenance of principal (they often use 2%-2.5%).

The 4% rule of thumb was calculated to minimize risk of running out of money during the time period. 1.5% * 30 years = 45%, so an investment that simply keeps up with inflation would leave you with more than half your cash after 30 years.

And note that the stock market almost always has positive real returns over periods as long as 30 years (see William Bernstein’s book Deep Risk), so the assumption “just keeps up with inflation” is already very pessimistic.

TL;DR: Interest rates don't just affect one side of thing. They are tied to all aspects of pricing.

That's very simplistic one-sided view of interest rates. If interest rates stay low or go lower, the stock prices will keep skyrocketing which balances the equation on the other side increasing your stock portfolio returns. The P/E capacity will be much higher than it is today in a perpetual low-interest-rate environment.

that should be a temporary swing though right? once the P/E capacity normalizes to the lower interest rates appreciation should be proportional to the base rate.

Yes but only if people are convinced to make the call to consider interest rates to remain this low for a long time at once. If they gradually do it and the underlying businesses continue to generate the earnings and growth expected, the outcome is different. In any case if you have made your money today and investing it, 4% may still be quite reasonable.

You can take a 4% draw based on any 50 year period in the past 100 years. It is not risk free correct. There are many books and articles on the topic that are not worth trying to fit into a comment.

For most people, being able to retire and never work again with 95% certainty enough, especially when tweaking consumption and tweaking side income are easy knobs to turn. No reason to delay retirement 20 years to be 100% confident. Raises the risk a lot you just die before you retire.

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