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URL:  http://boards.fool.com/3-is-the-new-quot4-rulequot-30910905.aspx

Subject:  3% is the new "4% rule"? Date:  10/7/2013  6:44 PM
Author:  intercst Number:  73467 of 74759

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.

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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.html

Limiting the "skim" we leave you a lot wealthier.

intercst
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