New Morningstar Article (Feb 26) - Very low Safe Withdrawal percentages

I get the argument that when PE ratios are sky high like they are now you should consider lowing your withdrawal rate, but this just seems like Morningstar fear mongering

Best articulation of this topic I've found by far was from this episode with Karsten Jeske (skip ahead to 0:35:30)… =="If you want be the the absolute safest you want to be, 3.25% should be the floor"==

Ep 563 | Safe Withdrawal Rates, Drawdown Strategies, RMDs and 50 Year FI Timelines

Looks like the usual fear mongering from an insurance company with stuff to sell you. And is inconsistent with Morningstar's own report from December. Very bad forecasting, especially regarding long term care.

But hey, if you like hoarding money, you'll find as many articles as you like about this. Better keep working until age 70 at least.

Have you actually read this study and what about it convinces you is worth more than the paper its printed on? And yes, its your burden to tell us because it sounds like bullsh** on its face.

Here is some more realistic information about long term care in particular. The truth is that the biggest problem cited by retirement planners today is people not spending money. Over 80% of US retirees do not even access retirement accounts until force to by RMDs. And less than 15% of retirees have any significant long term care issues, because the majority spend EXACTLY ZERO dollars on it and most of the rest spend less than 50K over their lifetimes.

https://youtu.be/IOPWlBtsPNU

Thanks for pointing us all to that article.

It provides yet another evidence-based data point supporting that 4% is too high a baseline starting point for the FIRE community to be using for Safe Withdrawal Rate. I am not saying 4% or higher won't work for some circumstances, but it is simply not a valid baseline for 40+ years without other assumptions like ongoing substantial earned income.

Specifically, the article said:

In our base-case spending simulation, for example, expanding the drawdown period from 30 to 35 years reduces the starting safe withdrawal rate from 3.9% to 3.5%. Stretching the time spending horizon to 40 years takes the starting safe withdrawal rate to 3.2%.

Which says in Morningstar's research (based on forward capital market assumptions), 40 years dropped SWR by 0.7% (3.9%-3.2%). Which is why:

The default (baseline starting point) SWR (Safe Withdrawal Rate) for FIRE should be 3%-3.5%, not 4% (29X-33X, not 25X)!

It’s an unfortunate article from Christine that missed a lot of what she shared in her book where she interview other finance pros (how to retire, decent book).

Is healthcare cost, sequence of returns risk, and long term care concerns you should consider, yes. But as robert noted it’s not the whole story, more of spreading fear.

Like robert noted, (1) doesn’t consider any future income, (2) is based on standard stock / bond portfolio and doesn’t consider risk parity style, (3) doesn’t account that most retires decrease spending or less than inflation, (4) long term care only effects a small fraction of people (better chance of dying before 75 than needing years of LTC, but consider your genetics and family history), (5) it also assume consistent withdrawal with no guardrails / adjustment.

I’ll stick with my 45yr timeframe and 5%+ withdrawal rate and spend my money while I’m alive and sleep well doing it.

Only having very quickly skimmed the article, I don't see any evidence that they are considering a FIRE-style early retirement.

The problem with this article, and with most such articles in the popular finance media is that they take the "standard" retirement model (that is, someone works until age 70, retires, and does nothing except maybe spend time with grandchildren and travel, then dies at around age 85 or 90), which you will not does not involve ever earning income past the point of "retirement", and then they ask "what if we move the point of 'retirement' 20, 30 ,or 40 years earlier?"

So, yeah, if your model is "I want to start at age 30 or 40 with a pile of money and never add a single dollar to it from any sort of productive work (or even hobby) until I start drawing Social Security)", then the 3.2% withdrawal rate could be in view.

But, as Doc G from Earn and Invest has been pointing for years now, the "and never add a single dollar to it from any sort of productive work (or even hobby) until I start drawing Social Security" part is something that essentially never happens for the sort of people who are FIRE-minded.

I would estimate a large percentage of this community is modeling a 40+ retirement period.

And a near-3% withdrawal rate is a rational consideration for only a very tiny fraction of those people.