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Safe Withdrawal Rates for Aussies — Part 3: Initial Findings

Posted by on 25 November 2018 in Safe Withdrawal Rate Series

If you’ve spent any time in the financial independence community, then no doubt you’ve come across the 4% rule. The rule states that you can withdraw 4% of your retirement portfolio (adjusted for inflation) without running out of money. As such, 4% is known as the safe withdrawal rate.

If you play through the mathematics, the implication of the 4% rule is that you need 25x your annual expenses to retire. So many would-be early retirees structure their entire retirement plan around that 25x expenses number.

More recent studies have questioned the robustness of the 4% rule for U.S. markets. Amongst other things, they have found that 4% very quickly turns into 3.5% or below when you change equity/bond portfolio mix, retirement length and other factors.

But all of this work was done for Americans using U.S. markets data. The question for us Aussies is: Does any of this apply to us? If so, which parts?

In this article we begin to clarify some of the important — but still unanswered — questions about the 4% rule for Australians. We test whether the basic 4% rule applies to Australians and whether it needs to be adjusted for different portfolio mixes.

In future articles in this series we will elaborate on these findings and test follow-on questions, such as ‘what is the effect of retirement length of safe withdrawal rates?’, ‘can we improve safe withdrawal rates by mixing Australian and international investments?’, and more!

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Bricks that look like data

Safe Withdrawal Rates for Aussies — Part 2: Building and validating a data set (updated)

Posted by on 17 November 2018 in Safe Withdrawal Rate Series

Ever heard of the phrase “garbage in, garbage out”? It’s the idea that no matter how good the analysis is, if the data is wrong then the results will be wrong too.

The challenge with safe withdrawal rates is that you need historical data to run the calculations. And historical data, particularly early data from the late 1800s and early 1900s, is notoriously difficult to find. So before I dive into the deep, dark chasm that is safe withdrawal rate calculation, I’m going to spend some time ensuring that I’m using solid data.

Apologies in advance. This is going to be a dull article for those of you who aren’t interested in validating data sources. But it’s a necessary evil.

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October Net Worth Report

October 18 Net Worth Report: My first really tough month

Posted by on 8 November 2018 in Net Worth Reports

Last month I talked about how things were falling into place and I was finding it easy to grow my wealth. I spoke to soon. This month was tough.

It was my first experience of the share market correcting; it lost something like 10% of its value during the month. It really hit my investment account and funds in my super. At the same time, I had a number of unique circumstances in October that resulted in quite a bit of additional spending.

Together, this all really took a hit on my net worth. Let’s see how much….

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