This leads to the other paper, «Predicting Sustainable Retirement Withdrawal Rates Using Valuation and Yield Measures,» which explores the relationship
between retirement withdrawal rates and market valuation levels at the time of retirement.
As an example, if we determined that a 5 % per
year retirement withdrawal rate would give us an 80 % chance of not running out of money in our lifetime; would that be a risk we would be willing to take?
When we shift
our retirement withdrawal rate to a level which does not touch principal, we suddenly start changing the way we view money.
High valuations suggest that
retirement withdrawal rates that were once safe may now deliver success rates that are no
Some good lessons about «safe»
retirement withdrawal rates.
Given the prospect for more muted returns in the future, writes Sibears, «
retirement withdrawal rates that were once safe may now deliver success rates that are no better — or even worse — than a coin flip.»
A crucial decision such as
a retirement withdrawal rate would require greater consideration of lower probability negative outcomes than a decision on a 1 % stock position.