Nevin's Data "Points"

Over the years, so-called personal finance experts have provided valuable information—but also a smattering of misinformation—but I can think of none quite as egregious as some remarks recently made by Dave Ramsey. By now I’m sure you’ve heard—or heard about—his “counsel” with regard to acceptable retirement withdrawal rates—and his disparagement of the “supernerds” who would dare to disagree with him. As for that counsel, at a high level, Ramsey maintains that an 8% withdrawal rate is not only doable, but sustainable. All you have to do is be invested 100% in equities—oh, and assume a 12% return. [i] Of course, such machinations have always been predicated on assumptions—about inflation, about market returns and, most notably, about the length of life itself. That said, this didn’t become a specific focus—a so-called “rule of thumb”—until 1994, whe...

 A recent white paper has garnered a lot of discussion by casting “shade” on a traditional premise about retirement plan withdrawals. The premise—a so-called “rule of thumb [i] ”—isn’t all that old, actually; it dates back only to 1994, when financial planner William Bengen [ii]  claimed that over every rolling 30-year time horizon since 1926, retirees holding a portfolio that consisted 50% of stocks and 50% of fixed-income securities could have safely withdrawn an annual amount equal to 4% of their original assets, adjusted for inflation without… running out of money.  That said, even though it was predicated on a number of assumptions that might not be true in the real world—a 30-year withdrawal period, a 50/50 portfolio mix of stocks and bonds, assumptions about inflation—oh, and a schedule of withdrawals unaltered by life’s changing circumstances (not to mention a 90% probability of success)—a recent Morningstar  paper  challenged its conclusio...