I came across this article by high-fee investment advisor Larry Swedroe saying that the safe withdrawal rate is at best 3% in the current climate of low bond yields and "high" stock valuations.http://www.cbsnews.com/8301-505123_162-57604976/safe-withdra...There should be no doubt that current valuations and yields have changed the SWR. While each investor should run an MCS to determine the right asset allocation and SWR for there personal situation, it seems likely that the old SWR of 4 percent is at best now 3 percent. A recent report from Morningstar also supports this recommendation. That has significant implications for many investors.</snip>Looking at the Morningstar report, I found this.http://corporate.morningstar.com/us/documents/targetmaturity...Each scenario in the analysis is based on a 10,000-run Monte Carlo simulation. Taxes and Required Min-imum Distributions (RMDs) from the portfolio are ignored. The analysis assumes a 1.0% fee, or negative alpha, that is deducted from the portfolio value annually. This fee is included to account for unavoidable retirement portfolio expenses paid by the investor (e.g., mutual fund fees, advisor fees, account fees, etc.) for investment management.</snip>Of course your SWR is only 3% if you're allowing a financial advisor or mutual fund manager to take 25% of your annual retirement withdrawal in fees (e.g., 4% withdrawal from a $1MM portfolio is $40,000. A 1% fee on $1MM is $10,000.) You can put together a diversified portfolio at Vanguard for about 10 basis points in annual fees. See link:http://retireearlyhomepage.com/vg_tsp.htmlLimiting the "skim" we leave you a lot wealthier.intercst
Of course your SWR is only 3% if you're allowing a financial advisor or mutual fund manager to take 25% of your annual retirement withdrawal in fees (e.g., 4% withdrawal from a $1MM portfolio is $40,000. A 1% fee on $1MM is $10,000.) You can put together a diversified portfolio at Vanguard for about 10 basis points in annual fees. I use a financial planner for a portion of our assets, and I handle his commission by including it in my retirement budget, so it is part of the 4% withdrawal. It's the same as including house insurance and medical expenses in my budget as these are planned expenses, and are already included.So I don't look at it as you are presenting where you say it reduces your SWR. It really doesn't because it is part of those planned expenditures.Yes, I'm sure I can put together a diversified portfolio without the financial planner, but I have a financial planner because DH has neither the interest nor the ability to do it, and so I am insuring that he has enough money if I predecease him.I've made different decisions in my life than you have, and so my plans will naturally reflect that. That doesn't make my plans wrong, even though I choose to use a financial planner. It makes my plans different from yours, but certainly suitable for me.And for the record, my financial planner is actually doing a better job than I am these days, and that's after his fee, so I am finding his services to be very worthwhile, and certainly something for which I am willing to pay, not unlike other services that I could probably do myself by prefer to outsource.
I think it is a legitimate inquiry even if you don't have 1% management fees. My review of the latest dividend champions showed only 4 or 5 stocks out of 105 with a yield above 4%, and an average of 2.58. The dividend etfs on my watch list, sdy, dvy, schd and vig all have yields below 4%. In the real world, my 91 year old father's port that I now have to try to manage because of his rapid descent into senility in the last two years, is yielding about 4.8%, but bonds are expiring and I am searching for safe ways to replace them. Both he and I have reits that are yielding 6% or more, but there are risks there. Without going into real life numbers, a person hoping to retire on $1M at 4% might seriously consider working another few years with an eye toward retiring on $1.5M at 3%, or some other number in between. I am presently using 3.6% as my estimated safe withdrawal rate.Also, "A man's gotta know his limitations.' I seem to be better at earning a living than at investing. 3% might be a smart goal for those who can achieve it and who are not above average investors.
correction: Dad's port yields 3.8%, not 4.8%.
The analysis assumes a 1.0% fee, or negative alpha, that is deducted from the portfolio value annually. This fee is included to account for unavoidable retirement portfolio expenses paid by the investor (e.g., mutual fund fees, advisor fees, account fees, etc.) for investment management.Intercst, Swedroe has a long thread at Bogleheads on this. Never mentioned is the 1% fee being deducted each year. For fixed investments like bonds, this is like taking 25% to 50% of your annual gain from fixed investments each year as an annual fee. No wonder the "analysis" shows a lower withdrawal rate. You should go post your comments at BH on Swedroe's thread, as I've been banned for life over there for questioning Swedroe on his fees and self-interest regarding his financial advice, not to mention his being a total blowhard.
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