≡ Menu

Book Review: Beyond The 4% Rule by Abraham Okusanya

Cover of the Abraham Okusanya book: Beyond the Four Percent Rule

The tactics you use to accumulate your retirement pot just won’t do when you throw the whole system into reverse and start spending those savings.

That’s a message that’s been slow to spread but is picking up speed now that the discipline of retirement research is moving out of academic journals and into Amazon books – placing more powerful retirement strategies into the hands of DIY investors like us.

The running has been made by US pioneers so far, but the good news is that we finally have our own Made In Britain take on retirement.

Abraham Okusanya is a UK-based retirement researcher and fintech entrepreneur and his book, Beyond The 4% Rule, should be required reading for any prospective UK retiree who won’t be relaxing in a hammock woven from secure Defined Benefit pension.

A great British retirement

When you need a strategy to last you the rest of your life, it’s a good idea to make sure that the American prescriptions travel well.

Beyond The 4% Rule marshals plenty of evidence to show that the US experience does translate but needs localisation. Okusanya shows the way – bounding as nimbly as a mountain goat across the deceptive slopes of retirement investing. He writes with a smile too, which is a welcome change from the dry-as-sticks tone that characterises most work in the field.

As the pages breeze by, you’ll find yourself covering:

  • The safety first alternative to nursing your portfolio through retirement uncertainty.
  • Why the 4% rule is a terrible rule of thumb.1
  • Longevity risk – your chance of drawing a golden ticket in the lottery of life.
  • The various ways you can pump up your SWR – including factor diversification, variable withdrawal strategies, choosing an acceptable failure rate(!), and declining consumption patterns in your dotage.

If all this is unfamiliar ground, you will find it relatively easy going with Okusanya as your guide. He makes light work of it – but that also means he takes some shortcuts.

The rocky patch

In my opinion, Beyond The 4% Rule stumbles in a couple of important areas where it would be better not to rush.

Okusanya replicates US withdrawal rate research by replacing historical US data with UK numbers. He doesn’t offer guidance as to how relevant historical UK returns are for contemporary retirees. We’d argue that in these days of globally diversified portfolios, UK data alone is not the best foundation for withdrawal rate assumptions.

This comes to a head when Okusanya pits a 50:50 global equity/global bond portfolio against a 50:50 UK equity/UK bond portfolio.

Okusanya’s numbers show that the UK portfolio has the higher SWR in the historical worst case. It also bests the global portfolio’s SWR 58% of the time between 1900 and 2016.

You’d be forgiven for thinking: “Well, it’s a UK-only portfolio for me, then – what a turn up!”

It is indeed a turn up. The renowned US retirement researcher, Wade Pfau, who has led the way on international withdrawal rates, came to a different conclusion. The global portfolio’s SWR beat the plucky UK 78% of the time between 1900 and 2012, according to Pfau. It also delivered a higher SWR than the UK portfolio in the worst case scenario.

I’m not saying Okusanya’s numbers are wrong. It takes only a different dataset or different assumptions to change the result. They could both be right! Precision is a myth in retirement investing.

But Okusanya errs, I believe, in presenting his research in a way that could lead investors to concentrate their portfolio in UK assets and ditch global diversification.

It’s not as if Okusanya is unaware of the Pfau findings. The key paper appears in the reference section of the book. His analysis could have been expanded to explain that the UK’s actual historical path was only one of many that might have been taken – as the fate of other developed countries shows. He might have explained that the historical returns are uncertain that far back, and that small input changes can create different results.

Okusanya does admit that the global portfolio’s worst case scenarios are largely caused by the catastrophic impact of World War One on the countries that bore the brunt. But he goes on to state that the evidence suggests the UK portfolio is better in extreme conditions.

This seems a bad case of projecting past performance into the future. We have no reason to believe that the UK could not be on the losing side in a major future conflict. Or it could be a ruined winner – as was Belgium after World War One.

Even US researchers such as Pfau think that US retirees should base future plans on the global dataset rather than expect their country’s 20th Century luck to hold.

To be fair, Okusanya doesn’t unequivocally back the UK portfolio. He makes a brief case for a global allocation based on volatility. But he’s vague and readers could use stronger guidance to interpret his evidence.

A lack of rigour also undermines the section on asset allocation between UK equities and bonds. Okusanya shows that a 100% UK equity portfolio delivered the best SWR across the board for a 30-year retirement. Yet Pfau has shown that optimal asset allocations are all over the map for different developed countries.

Drawing firm conclusions from a single dataset is a risk for retirees. Michael McClung was careful to use out-of-sample data to test his findings in his retirement investing book Living Off Your Money. Okusanya skips the nuance.

No easy answers

There’s an entertainingly self-aware comment from Monevator reader Mr Optimistic on another retirement book thread:

Thanks for the tip on Beyond the 4% Rule. Just bought it: hopes it helps in my quixotic quest for an easy answer!

Beyond The 4% Rule does not provide our easy answer. But in truth that’s because there are no easy answers for DIY retirees.

Despite its flaws I unequivocally recommend Beyond The 4% Rule. If you don’t know much about deaccumulation it’s a great introduction. There’s plenty of gold here for the more knowledgeable, too.

Okusanya brilliantly re-frames retirement failure not as the threat of running out of money but as the chance that you’ll need to lower your spending at some point. Combine that with his probability section showing that the odds of your nightmare scenario materialising and you living long enough to see it are pretty low, and suddenly the case for a bombproof SWR comes apart. If this convinces you to lower your demands from 100% historical success to 90%, then you can treat yourself to a nice SWR uptick.

There’s also a handy section at the end that shows how you can tweak your SWR in tune with various ‘Beyond the 4% rule’ factors you can bake into your plan. You add SWR points for positives like variable withdrawal strategies and subtract points for negatives like fees.

Again though, Okusanya’s version is infuriatingly incomplete and light on caveats, compared to similar work by the likes of Michael Kitces. FIRE devotees will also be disappointed by the book’s omission of time horizons beyond the standard 30 year, retire-at-65 game plan.

All of which serves to illustrate that while you could put a plan together from Beyond The 4% Rule, you probably shouldn’t. It’s better to use it as a gateway to more knowledge. The Kindle version enables you to click through immediately to the fantastic body of research – including UK sources – that Okusanya references. You can then follow up your reading with Michael McClung’s Living Off Your Money and Wade Pfau’s How Much Can I Spend In Retirement?

You can also check out the free chapter of Beyond The 4% Rule and read Okusanya’s blog.

Like the 4% rule itself, Okusanya’s book is an excellent contribution to our understanding of retirement investing.

But it’s not the easy answer. There isn’t one.

Take it steady,

The Accumulator

  1. The original research behind the 4% rule was a massive breakthrough, but Chinese Whispers have turned it into a retirement-maiming meme. []
{ 74 comments… add one }
  • 1 Accidental FIRE April 17, 2018, 10:51 am

    Thanks for the great review. I’m U.S. based but any additional writings on this topic are welcome, even if they have the flaws you mention.

    “Precision is a myth in retirement investing.”

    To me that’s the key takeaway for all of this and you were keen to point that out. Precision is a myth not only in explaining one’s theory on a SWR (whether it be Pfau, Kitces, or Okusanya), but just as importantly on the spending side. Some 4% devotees frustrate me in their unwavering confidence that their current spending level will remain the same. Or that they could even possibly predict their spending level over the next 30 – 40 years with accuracy.

    I mean, who knows how much one of Elon’s Mars helicopters will cost, and whether or not I’ll want one 😉

  • 2 David April 17, 2018, 2:12 pm

    Very interesting timing following the glowing review of the Amazon business model at the weekend. I’m genuinely interested to know whether today’s post is an independent book review or an advertising feature with affiliate links where Monevator gets paid for every lead. If the latter, doesn’t the Advertising Standards Authority guidance state that this should be disclosed:

    No complaint from me if this comment is edited or deleted, I just happen to respect the integrity of your website amongst a jungle of unethical investment advice and find it disappointing when my trust feels misplaced. I’m pretty sure you disclosed the Ratesetter referral bonus and I was very happy to sign up through your link for that for example.

  • 3 hosimpson April 17, 2018, 2:54 pm

    A very interesting post, thank you. I’ll add the book to my reading list.

  • 4 hosimpson April 17, 2018, 2:55 pm

    A very interesting post, thank you. I’ll add the book to my reading list.

  • 5 The Accumulator April 17, 2018, 3:00 pm

    Jeez, I was hoping we could talk about the book. David, your comment will be neither edited nor deleted because we’re totally happy to have these conversations. I guess nobody should be blamed for being cynical in this world but this is a case of 2+2 = 5. Go back to this thread:


    A reader tipped me off about Beyond The 4% Rule two weeks ago. I bought it, read it, reviewed it. Why? Because I’m on the path to FI: http://monevator.com/financial-independence-plan/

    Being able to successfully manage my portfolio beyond FI is mission-critical to my life in the future and a great many of our readers. Hence, I’m now steeped in deaccumulation theory and have been exchanging ideas for months with Monevator readers on the Living Off Your Money thread.

    The first book written from a UK retirement perspective is a pretty big deal and it’s a goodie. That said, I’ve been critical where needs be and hopefully have shown Monevator readers where they should be wary in interpreting the evidence placed before them.

    This reply is probably too long already but I’ve written, I don’t know, getting on for 300 posts for Monevator in 7 years. 4 book reviews in that time. Written because I think our readers will benefit from those books. Most of my posts have near-zero monetisable value but hopefully some have helped our readers piece together the DIY investing puzzle for themselves. Without integrity, Monevator would be pointless and I personally couldn’t do it.

  • 6 hosimpson April 17, 2018, 3:15 pm

    Right. I’ve checked out the guy’s blog (thanks for the link). Fascinating.
    The nerd in me has latched on to it, and won’t let go for a while now.
    Anyway, he says that holding 2-5 years’ worth of cash is an exercise in futility… Ok, I understand it as an academic argument (the foregone return offsets the benefit of not having to sell at lows, etc.) but I wonder about the behavioural aspect. I know I’d sleep better with it than without it, and there’d be less chance of me selling a quarter of my portfolio in panic.

  • 7 Naeclue April 17, 2018, 3:27 pm

    Thank you for the review. Despite your recommendation, I think I will give this book a miss as I am probably already beyond this entry level sort of book. Your arguments against the book’s recommendation of a UK portfolio are both compelling and something any serious researcher should be aware of, so I wonder whether the author is naive with respect to proper statistical data anlysis. I would also add that the make up of the UK stock market varies a lot over time, so making projections based on past performance/volatility of this market on its own (now less than 8% of global stock markets by value) really is bogus.

    I have read through your previous recommendation “Living Off Your Money”, which is an excellent and thought provoking book, but not not an easy read. I am trying to work out how best to make use of the information. I must look at more of Pfau’s work as well.

    We are still drawing from our 60% Global equity, 40% gilts/cash portfolio but appreciate this is probably sub-optimal.

  • 8 The Accumulator April 17, 2018, 4:16 pm

    @ Naeclue – I agree that Living Off Your Money is an excellent but tough read. Beyond The 4% Rule is a useful primer for it though. It simplifies many of the same concepts and adds fresh perspective in some areas, which helps clarify much of Living Off Your Money.

    I agree about the limited utility of historical UK stock market returns. What’s not readily apparent is that large stretches of the datasets have been pieced together from incomplete historical sources. For example, the Barclays Equity Index (used in the Barclays Equity Gilt Index Study) is based on records of 30 large cap stocks between 1899 and 1962.

    The other main datasets that tend to be used are the Dimson-Marsh-Staunton Dataset and the GFD UK Stock Market Database.

    I certainly do not think that the author is naive. I think a desire to simply matters is a more ready explanation. As you say, Living Off Your Money is not an easy read.

  • 9 The Accumulator April 17, 2018, 4:18 pm

    @ Hosimpson – most defences of the cash bucket are based on its psychological benefits. And that has to trump marginal improvements in returns at the end of the day. The best strategy is the one you can stick with…

  • 10 RichardF April 17, 2018, 4:58 pm

    Thank you for the review @TA. Your thoughts are much appreciated.

    On the discussion regarding a cash reserve to smooth SoR risk. I have to say, in my ignorance, I’m tending now more to the McClung drawing from Bonds first approach to help me sleep at night. This seems in keeping ideas postulated with the Pfau/Kitches Rising Equity Glidepath strategy that help me become more comfortable with potential higher equity content to my portfolio. Together with my hope that I will be retired for almost as long as I worked and if equities were good before then …

    But when push comes to shove (in about 2 years) will I be brave enough to do that ? I’ll still probably keep some cash in a reserve though – but maybe just 6 months income.

  • 11 YoungFiGuy April 17, 2018, 5:12 pm

    Thank you for the review TA. It is most helpful. I’ve been on the fence about whether to buy the book. I think I will pass for the time being based on your review. I’ve got several major/serious criticisms of SWR calculations and this book doesn’t appear, from your review, to address these. I’m also still reflecting on whether to give “Living Off Your Money” a go.

  • 12 John B April 17, 2018, 5:13 pm

    I’m uncomfortable with the idea that the UK market is parochial because its only 8% of the global market. For the FTSE 100 at least, 80% of the revenue is earned outside the UK, so it has good a range of multinationals as any index, though light on tech firms.

    I am comfortable with not having a cash buffer, as while you might have to sell shares at a loss in a bear market, it will only a small fraction of your portfolio for a short time window. Most of the time you will be selling at a profit, and if time in the market matters, cash is just a drag on returns.

    It sounds like I agree with Okusanya. Now do I buy the book for confirmation bias, or save my tenner because I know it all already 🙂

  • 13 The Investor April 17, 2018, 5:42 pm

    Very interesting timing following the glowing review of the Amazon business model at the weekend. I’m genuinely interested to know whether today’s post is an independent book review or an advertising feature with affiliate links where Monevator gets paid for every lead.

    @David — Hi! I think you’ve merged a couple of things there in your query. I appreciate your comments about integrity etc. I’ll explain where we currently sit with this, and you can make your mind up as to how you feel.

    The article is an independent book review. Nobody asked us to write it, nobody has paid us for publishing it.

    It does have affiliate links to Amazon in it. I assure you that virtually any time you click on a link anywhere on the web to a shop (or pretty much anything else) there’s an *extremely* good chance someone is tracking it.

    We declare using Cookies like this the first time you or anyone else visits the website — you either have to click that you accept it, or the bar/declaration never goes away. You can also click “Read More” which discloses that Cookies are used for, among other things, affiliate advertising: http://monevator.com/cookie-policy/.

    There’s also a note about cookies in the small print of every page on the site.

    To me these pop-up bars are a scourge of the Internet and have introduced pointless clutter on virtually every website, as well as an extra click, which everyone does automatically, and which ironically only increases the amount of cookie use on the Internet further (because the consent you give to make the bar go away is itself stored in a Cookie.) But I don’t write the rules.

    We don’t get re-numerated for leads from Amazon. Only for confirmed sales.

    Going on past experience, perhaps 20-30 readers will buy the book after going through the link. (This is high, because people trust @TA a lot with his reviews. For something like a Lars Kroijer article with links to his book included we might get 2-3 sales the day after.)

    Most book sales nowadays are to Kindle editions. This book is £10. We’ll get 5% of that if someone went through the link and buys it.

    Do the maths and we will therefore probably make £10 to £15 in total in the short-term from links on this review. Maybe a few quid more.

    If @TA did the review for his local newspaper he’d probably get £50 at least. For something like the Investors Chronicle, where he is easily as well placed as anyone to review it, perhaps £200.

    That said we surely will get more sales over time as content sticks around on the Web. We might also get some other sales if people buy other stuff when buying the book. So perhaps it’ll make £50 over a couple of years.

    By far the majority of the revenue that helps this site (not) pay its way is the banner advertising that none of you regular readers click on, or probably even see any more. 🙂

    Making a link to the Amazon article at the weekend is almost offensively wide of the mark, but I’ll try not to take that personally as I don’t think you mean it that way and you’ve no reason that I’m aware of to be well-versed in Internet advertising or the monetization (or otherwise 🙁 ) of this site.

    It’s hard not to feel a bit sorry for myself at times like this, to get out my tiny violin.

    We regularly — dozens of times — have been accused of being a front for Vanguard, for example. Yet Vanguard has never paid us a penny!

    This is not through some principle of mine — I’d love them to advertise here. But they’ve never bothered. Presumably they’d rather see newspapers and others thriving and independent websites that have supported passive investing for 10 years like ours having to survive and justify the time and effort however we can.

    I get 20-50 emails a week (sometimes many more!) offering me direct payments to pay for links on the site or offering payment to run articles written by third-parties. The amounts can be substantial (easily $100 or more).

    I have NEVER done this. Plenty of sites do. (If you see “sponsored post” or similar on a site, that’s what it is doing).

    This isn’t entirely because I am noble and upstanding; I also think it would in time denigrate the website, and that wasn’t why I got into web publishing.

    Anyway, bottom line is the links are affiliate links. We use Cookies like most websites. We do not explicitly declare every affiliate link in copy as suggested by the Code of Conduct you link to. We’re not alone in this.

    I had hoped to avoid cluttering up articles with even more disclaimers and small print and whatnot, but perhaps with the Facebook scandal recently and the new EU guidelines coming in May it is unavoidable.

    I apologise to readers who have to put up with yet more clutter all over the page in advance.

    (Also, if anyone has emailed me and I’ve never gotten back to you, it is because email is now overwhelmed with these sorts of commercial requests that I mentioned above, as well as tons of PR fluff. I try to churn through them to find the real emails and respond, but one out of 20 are from a reader and it’s pretty time consuming and tedious. Always best to just comment on the site, anyway.)

  • 14 The Accumulator April 17, 2018, 6:00 pm

    @ John – earning revenue outside of the UK isn’t the same as being a diversified index. In comparison to a world index, The FTSE 100 is pretty concentrated on miners, oil and gas, commodities, and its top 10 mega-cap stocks. Tech is barely a trace element: less than 1% versus over 14% in an all-world index.

  • 15 Petepool April 17, 2018, 6:47 pm

    Please keep the de accumulation stuff coming, for us oldies(maybe) living the RE life. For what it worth the review of Living Off Your Money prompted me to buy it. As others have said not an easy read but appealed to my inter geek and I felt more confident in the alternative withdrawl strategies knowing how throughly they had been back tested.

    It does come with a free spreadsheet which is actually fairly easy to use after you’ve read the book, allowing for some UK tweets e.g. converting the cells to £s etc. It prompted me to revise my withdrawl strategy to a variable one starting this year so we’ll see how that goes.

  • 16 hosimpson April 17, 2018, 7:26 pm

    email is now overwhelmed with these sorts of commercial requests that I mentioned above, as well as tons of PR fluff. I try to churn through them to find the real emails and respond, but one out of 20 are from a reader and it’s pretty time consuming and tedious.

    I never thought of this, but you make a very good point.
    We should come up a code, y’know, an identifier, to make it easier for you to sort though email. How about if, whenever we email you, we put **HOT RU$$IAN BABES** in the subject line – then you could sort your messages by subject, or use a search function. Or maybe we could use **EUROMI££IONS B!TCOIN** … possibilities abound.
    What do you recon?

  • 17 David April 17, 2018, 7:44 pm

    @ Accumulator & Investor

    Thank you for taking the time to explain all that instead of just deleting my question! I’m certainly not well-versed in blog monetization but I do remember you pointing out that it’s about as well paid as subsistence farming, and that was 10 years ago, so with ad blockers and so on it’s probably got a lot worse:

    Please don’t take anything I wrote personally, it wasn’t my intent to cause any annoyance. Like many others I hugely value the integrity of this site and I have definitely benefited financially from what I’ve learnt on Monevator. Believe it or not I sometimes click on your banner ads just to send a few pence your way, although a “donate to beer fund” button might be more efficient. It works for the Guardian!

    Sorry also to detract from the subject of the article and the book review which I’m sure will be enormously appreciated in the UK FI/RE scene.

  • 18 The Investor April 17, 2018, 8:50 pm

    @David — Thanks for coming back, and glad we seem to be settled with this. To be clear, the situation is much better compared to when I wrote that old article (thanks not least to that Share Centre advert at the top of the page for the past few years.) Monevator now just about justifies the time we put into it, money wise, although it’s *far* from anything like these lucrative sites I read about (and I daren’t amortize the current figures over the 11 years that I’ve been doing it! 🙂 )

    Of course we don’t only do it for the money (it’s satisfying, the feedback overwhelmingly suggests it’s helping people, it’s nice to have your own outlet and be your own boss of an enterprise, etc).

    It’s been a while since we discussed all this so no harm done, cheers! 🙂

    But I would prefer we stuck to discussing the book from here (everyone) on this post please to maximize the value to fellow readers and share thoughts on drawdown strategies, etc.

  • 19 The Borderer April 17, 2018, 9:51 pm

    I bought ‘Beyond the 4% Rule’ a cople of weeks ago after you linked it. Hopefully, you can have a pint on me!

    I agree with much of what you say, and doubt I will be making any changes to my current portfolio based on this book.

    Since I have the comforting floor of a DB pension, I should be able to afford myself the luxury of minimising risk. After all, if the PV of my future cashflows is achieved with a real minus 2% (bank interest less personal inflation) rate of return, then just put my money in the Building Society.

    Alas, I (or we, if we count Mrs B) want a little place on the Med and holidays to India and South Africa and…

    So it’s some skull work with Wade Pfau and Michael McClung I’m afraid.

  • 20 marked April 17, 2018, 10:21 pm

    Hi TA (comment #17)

    I hadn’t thought of it like that. Interesting your comment on breakdown of FTSE100, and Tech being a slither. I just did a Nasdaq 100 breakdown and it’s 49% Tech


    Which comes back to having world indexes I suppose.

    Of note though I seem to remember when deaccumulating wasn’t the argument to have money in instruments closer to home as you’re deaccumulating in that currency. Do any of these books talk about that at all?

  • 21 The Accumulator April 17, 2018, 11:10 pm

    @ Marked – Living Off Your Money and Beyond 4% don’t deal with currency risk. One way to reduce it, is to hold your bonds in your home currency. It’s reasonable to tilt towards home equities too, but not 100%!

  • 22 JohnH April 18, 2018, 6:56 am

    My view is that the book is worth reading, though it is probably worth being aware that the vast majority of the content is cobbled together almost verbatim from various blog posts of his available for free on his website. And it reads that way as well.

    I felt the book didn’t really take that next step and pull them altogether into a workable framework as the title itself suggests, leaving the reader aware of a lot of valuable research into the limitations of the 4% rule of thumb (and other common approaches) but not really taking them “beyond”.

    The Timeline app the author has built (not included with the book, but you can try a free trial) is hugely useful though if you are inclined to model things yourself, and can accommodate different asset allocations, time horizons, many approaches to withdrawals and also the impact of fees (though sadly not taxes).

  • 23 Survivor April 18, 2018, 8:34 am

    @ TI, I’ve had my knuckles rapped [very politely] a couple of times in the past with comments, not having realised I was transgressing rules that I was unaware of…..so may I suggest you have a little ‘commentary etiquette’ section. That way everyone would know where they stand & you wont have to occasionally remind people to keep it civil/on topic? I/we obviously hugely appreciate the effort you put into this quality site & I’m sure would all be happy to reciprocate in maintaining that standard – in certain articles, the commentary is surprisingly interesting in itself. Sorry if I’ve not noticed that this exists in some form already & I’ve just missed it…..

  • 24 Hariseldon April 18, 2018, 9:45 am

    Interesting and thoughtful review. I am glad you make the point that past experience is just one of the many outcomes that investors might have experienced. It’s easy to forget that the future is unknown and a diversified portfolio is very much like buying insurance.

    Some elements of the diversified portfolio will not pay off but you don’t know which ones in advance.

    We insure our home against burglary, fire, subsidence…hopefully we never claim but just in case and however unlikely a serious fire may be, we still insure because the associated loss is likely to be severe and justify paying premiums for a lifetime. Likewise a divers portfolio.

    The risk of a sequence of returns goes both ways of course, my retirement at 49 in late 2007 was a baptism of fire but resulted in ultimately very high returns and effectively doubled in real terms my investment pot, such that dumping the lot in gilts now would likely be sufficient to last me to a 100.

    Luck plays a major role in life ! But many confuse luck with skill !

  • 25 The Rhino April 18, 2018, 10:12 am

    I wonder whether if one is willing to accept a range of potential outcomes with respect to future returns on investments, then one should also apply a range to potential future incomes, i.e. not assume with 100% certainty that one will earn nothing through paid work?

    A little income goes a long, long way when you can effectively multiply every £ by 25 based on the 4% rule.

    Would take a lot of pressure off if the ‘no-work’ assumption was relaxed, or as I suggest, just modelled as a range, rather than a constant (£0)?

    The more I look around, the more examples I’m seeing of people making a few quid in very interesting ways that look like more pleasure than chore..

  • 26 The Investor April 18, 2018, 10:27 am

    @Survivor — Apart from the (you’d think…) obvious like don’t be gratuitously offensive, don’t be racist, et cetera, the rule basically is if I don’t like it or deem it off-topic, I may delete it.

    That isn’t a random quip, it’s completely serious. It was a position I reached after trying other solutions.

    See this post here, which is the nearest thing we come to what you’re suggesting:


    People should basically leave helpful/informative comments in the same spirit and tone as the article itself and other comments they see on the post/site. If you do that, you’re very unlikely to be off-topic. (Random two word thoughts are best kept to oneself, even if on-topic.)

    There are a few regular commentators who do not do this and to some extent I indulge them for reasons unknown to me (perhaps a memento homo), but equally I will delete them in a heartbeat.

    If readers don’t like this approach, they should not comment. Ditto if they think it sounds arrogant or high-handed. I am only interested in what I have found best encourages useful discussions on the site. I’m not interested in outlining a set of rules or etiquette and then debating it with trolls. (I absolutely understand that is not what *you* are requesting or suggesting. But it is what would happen.) The comment section on Monevator is a benign dictatorship.

    If anyone would like to comment more on comments (…!) please do so on that post I linked to above, and I’ll try and respond there. I am going to delete any more comments about comments on this thread, or indeed anything which doesn’t add to the discussion about the book / withdrawal rates / and so on.

    Thanks! 🙂

  • 27 The Rhino April 18, 2018, 10:58 am

    Just to elucidate on prev comment,

    what I’m getting at here is prompted by recent articles by RIT and 3652 days.

    These guys are earning top city dollars and although they haven’t fallen foul of hedonic adaption, i.e. they’re not spending like they’re earning, possibly they have fallen foul of the cognitive bias of anchoring, i.e. this is how much my time is worth..

    I think this could be a source of the assumption my future income is going to be £0, i.e. you know you can’t get anywhere near the same £/hr when you’re out of the current job, and you also know that when you quit, there’s no way you’re getting back in.

    But if you can somehow cast that anchor off, and reframe the problem as ‘Can I earn income whilst having the same or more fun as whatever non-income paying leisure I had planned?’

    It then doesn’t hugely matter what that income is – the emphasis shifts towards how enjoyable the time is.

    Well then you could be in business. And I have a feeling the old spreadsheet will be enormously kinder to you if future income is not modelled as £0. It could save you multiple years, if not decades?

  • 28 Neverland April 18, 2018, 12:59 pm

    “it is probably worth being aware that the vast majority of the content [in this book] is cobbled together almost verbatim from various blog posts of his available for free on his website” says someone above

    Why not just spend a couple of days reading the blog for free and endure a few pop-up ads?

    I can’t really think of a scenario where I would pay for a book-of-the-blog concept

    Not paying money to buy stuff you don’t need is probably the financial advice you can get, retirement or otherwise

  • 29 Vanguardfan April 18, 2018, 1:00 pm

    Thanks for the book review. Since readers still have to make a comment to subscribe to comments, this may account for some of the random 2 word posts you get…

  • 30 Neverland April 18, 2018, 1:08 pm


    The reason that high income bloggers do “1/2/3 more years” always is as follows:

    – sequence of returns risk; a GBP 1.5m financial independence fund can easily lose a third of its value in a couple of bad years, it doesn’t come back if you are spending the income

    – while their income is special they are not so much so, the high income is mainly the result of right place/right time unlikely to be repeated if they step off the existing golden treadmill

    The “enormously kinder to you if future income is not modelled as £0” argument doesn’t work if you can make GBP 1,000 net a day as a banker but GBP 50 net as a baker

  • 31 The Accumulator April 18, 2018, 1:37 pm

    @ Hariseldon – interesting way of framing the problem. Given the path your retirement has taken, are you taking risk off the table?

    @ Rhino – I think you’re onto something with the anchoring issue. There’s a difference between seeing the bucks as an ends to a means e.g. money = time and freedom. And as an end in themselves e.g. money = status / approval vouchers. I struggle to believe that wellbeing is served by the second school of thought.

    On the modelling issue, I prefer to think of side-income like that as a bonus. Partly cos my plan will be selling close to the wind and partly to counter over-confidence / optimism bias. Also because, who knows, that income may never come, or be cut short by ill-health etc.

  • 32 The Investor April 18, 2018, 2:01 pm

    @Rhino — I totally agree, as we all discussed on that other thread the other day. Any additional income is hugely valuable when you’re living off savings. Even a small amount is worth a lot.

    Let’s say you have some area of expertise, you write an e-book about it, and you sell one copy a day for £5. One can argue that is worth well north of £50,000 in savings, assuming you’re using a SWR of around 3.5%.

    When I wrote the article below many years ago I compared £5 a day to 2% savings in a bank (it’s clearly not equivalent, this is just an illustration) and suggested it could stand in for £90,000!


    The point is not to quibble about whether most people can write an e-book, or how best to make £5 a day / £35 a week / £100 a week / whatever. I am not suggesting one precisely model a side hustle 10-20 years in the future.

    The point is (again 🙂 ) that retiring early AND quitting paid work/income entirely is a huge mountain to climb, and personally I think the majority of Monevator readers could easily do 1-2 days a week to slash the scale of the challenge without impacting their happiness much at all — and I suspect likely improving it over the long-term in most cases.

    But each to their own. 🙂

  • 33 RichardF April 18, 2018, 2:13 pm

    Oooh. Dare I ask this after excellent reviews of late.

    Are you planning a review of Wade Pfau’s “How Much Can I Spend in Retirement?” I assume it is very USA focused as the majority of his work is – even his international SWR work is pitched at what the USA can expect if it stops enjoying the 20th century dominance of investment return. But it would be very interesting to get your thoughts.

    Naturally I’m not suggesting you switch focus entirely towards book reviews but it would complete the set: Hale, McClung … Pfau 🙂

  • 34 Neverland April 18, 2018, 2:19 pm


    “Let’s say you have some area of expertise, you write an e-book about it, and you sell one copy a day for £5. One can argue that is worth well north of £50,000 in savings, assuming you’re using a SWR of around 3.5%”

    There’s a certain irony that in the Accumulator’s (sp?) original review Abraham Okusanya in that Mr. O has done exactly that, spent a fair bit of time on it and the recommendation is…

    …don’t buy it

    Side hustles are businesses. Businesses are hard work. I’m pretty sure you’ve written posts about that too.

    Being an employee with 5 weeks paid holiday, private healthcare and company pension contributions is pretty easy actually by comparison.

  • 35 The Rhino April 18, 2018, 2:33 pm


    Why not just spend a couple of days reading the blog for free and endure a few pop-up ads?

    Early Retirement Extreme is an example where I would say its well worth buying the book

    The “enormously kinder to you if future income is not modelled as £0” argument doesn’t work if you can make GBP 1,000 net a day as a banker but GBP 50 net as a baker

    You’ve missed my point – divide 1000 by 25 and you get 40. You’re actually up if you can make 50 as a baker! It has to be sustainable and enjoyable though, thats the big caveat..

    @TI – I know you are not a ‘no-work’ FI proponent. The observation is more directed towards the RITs and 3652s of this world. I think £0 post FI income as an unnecessary ‘limiting-belief’ (though FI becomes the wrong term potentially in this context)

    Really, its the idea of moving past the idea of FI and getting right to the root of the issue, how can I spend as large a % of my life living as well as possible.

    I look at my old-man at 70 bringing in 100s per week gigging with his bands, restoring old boats, fixing good friends houses/gardens and absolutely loving it. He’s more enthused about that than the myriad of holidays he’s always hopping off to. He’s cycling across Scotland as we speak.

    I’m increasingly convinced that there is a third-way..

  • 36 The Investor April 18, 2018, 2:53 pm

    the recommendation is…

    …don’t buy it

    That’s your recommendation. @TA said he thinks it is worth buying (/reading, if it eventually gets to a library or Kindle Unlimited).

    I agree it is some work to earn money. It’s work! But earning (say) £35 a week is not “hard work”. I earned £20 a week decades ago delivering newspapers, and was untroubled by paperwork and the need for an accountant.

    Most people should know where they can mostly easily make £100 or so a week, and if they don’t perhaps they might broaden their skill set. I’m not talking about trying to found the next Amazon here.

  • 37 The Investor April 18, 2018, 2:57 pm

    I look at my old-man at 70 bringing in £100s per week gigging with his bands, restoring old boats, fixing good friends houses/gardens and absolutely loving it. He’s more enthused about that than the myriad of holidays he’s always hopping off to. He’s cycling across Scotland as we speak.

    I’m increasingly convinced that there is a third-way.

    @TheRhino — This is *exactly* what I am talking about in all these posts on this subject. I think that some people who work 9-5 for their whole lives do have a self-limiting belief about this area. (I have a self-limiting belief about my ability to work full-time for one employer in an office, so we all have our foibles. But my beliefs probably do equip me slightly better for financial freedom, albeit by reducing my FU fund due to not pursuing the most lucrative career options etc.)

  • 38 Neverland April 18, 2018, 2:57 pm


    I did have a quick look at the 3652 blog. Its quite #firstworldproblems

    Banker wants a mortgage free house in London (i.e. GBP 1 million +), a yacht (which I can’t even spell) big enough und Europe, and GBP 1m of investments besides

    This would be why he can’t retire in ten years

    I also enjoyed his post about skiing in the French Alps “on the cheap’

  • 39 Neverland April 18, 2018, 3:18 pm


    “Most people should know where they can mostly easily make £100 or so a week, and if they don’t perhaps they might broaden their skill set”

    Okay, if the current opportunity is to earn GBP 40 per hour net by working another week of full time employment why not just work another week in the job to save 6 months* of having to work part-time to earn GBP 100 a week

    Some people at some points in their career can make that much that the trade-off makes sense

    Yes we are talking very high earners, but everyone contemplating early retirement is a high earner by definition

    *I’m just working off a 60 hour week

  • 40 The Investor April 18, 2018, 3:22 pm

    @Neverland — Because six months of not having to work part-time represents 1/60th or 1.6% (or far less) of the remaining lifespan of an early retiree.

    I’m deleting further comments from you on this thread, I’m bored of your trolling for today.

    (Readers who may think this is OTT are advised that they haven’t read NL’s other 800 negative comments on the site, his never conceding a point, his constant shifting to continue the argument. But please note I’ll delete any comments about this decision anyway, to preserve the thread. Cheers!)

  • 41 Hariseldon April 18, 2018, 3:33 pm


    Given my good fortune in the portfolio growing substantially over the last 11 years to exceed my requirements at a “Normal” SWR I have not really taken risk off the table.

    I keep a few years income in cash or similar but have the rest still largely in Equities and the low dividend income from this (around 2% ) would cover most of my needs and if we have another 50% drawdown it would not give me great concern. Conventional thinking would have a large proportion in Bonds/Cash but if a 50% fall in equity markets does not cause mental anguish then why worry ?

    The more money I have acquired, perversely, has cut spending, if you can afford expensive cars/houses but these things do not bring any real improvement in your quality of life why bother buying them ? Consequently outgoings remain modest and your overall worth tend to increase in a virtuous circle. (Travel budget has expanded though..)

    The difficulty in having a fixed SWR is that investment returns tend to vary significantly year by year and having reserves to tide you over these variations is very useful, so I would advocate a reasonable allocation to cash/bonds but rather than a set % eg 60/40 or 50/50 I would suggest an absolute amount and the balance in equities. The real problem that’s I see is that many people NEED a high SWR to cover basic needs and this could be very difficult if market conditions were poor for an extended period, the very people who need a good cash / bond buffer may not be able to afford it.

    (For clarity I do not have a pension, apart from the State pension in a few years time)

    The blog is interesting and I will buy the book out of general interest.

  • 42 The Rhino April 18, 2018, 3:45 pm

    @NL – yes, he’s clearly smart (top city job and his previous article on scandi-tax was really well written) but at the same time you get the feeling that there’s an issue in seeing the wood from the trees.

    I imagine the ‘French Alps on the cheap’ was akin to TEAs ‘Croatian villa on the cheap’, i.e. somewhat laughable?

  • 43 The Investor April 18, 2018, 4:07 pm

    @TheRhino — Enough about them cheers, going off topic.

  • 44 The Accumulator April 18, 2018, 6:16 pm

    @ Hariseldon – part of the remedy is using a variable withdrawal rate strategy rather than a fixed one. That’s covered in brief in this book and in much more depth in Living Off Your Money.

    @ Richard F – I am still awaiting instructions from my Amazon paymasters on whether I should review ‘How Much Can I Spend in Retirement?’ 😉
    But seriously… I will at some point. I have it next to my bed. I’ve kinda read it already as it’s mostly a collection of Pfau’s greatest hits. Which makes it well worth reading – he’s a great educator, though from what I’ve heard he doesn’t really bring it together as an executable plan. McClung is the man for that.

    YoungFiGuy – I’d be interested to hear more on your SWR criticisms. You can always check out Living Off Your Money’s 3 free chapters.

  • 45 Jamese20 April 18, 2018, 8:51 pm

    We brits always are pessimistic in our views… (probably to our detriment) data shows that our SWR is 3.5% in the UK… 0.5% worse than that of the US! that is worse case scenario stuff also AND inflation adjusted

    how many years do people go with pay rises that don’t even touch inflation for that year? quite a number… even if you took 4% and ignored a inflation for a few years you would have a situation where your retirement never failed in history? look at the last 8 years of investment returns… you only need one run like that and living on 3.5 – 4% and your pot will have grown substantially.

    People want 100% in retirement… but nothing in life is 100%, we get into our cars or on the train or bus everyday to get to work with a % chance of not making it back alive… striving for 100% safety really is insane when you stop to think about it.

    when i see books or blogs saying 4% wont work etc… i get extremely sceptical of whoever is saying it…..so i wont be reading this book and still plan for the very conservative 4-5% SWR

  • 46 UK Value Investor April 19, 2018, 9:35 am

    A quick point on the blog monetisation topic. You might want to set up a page explaining your position and just link to it at the bottom of every page, as you do with your privacy policy etc. MoneySavingExpert has a good example of this as their site was/is basically funded (to the tune of many millions each year) by affiliate links, e.g.:


  • 47 The Rhino April 19, 2018, 10:08 am

    @TI – good shout, I was digressing, I blame NL, he’s a bad influence on me.

    To get back on point and to summarise, could it be that the whole FI movement is simply a mis-guided response to the problem of how to work well. In other words, the question isn’t ‘should I work’ and what to do if the answers ‘No’; Its ‘How can I work well?’, i.e. in a way that is both enjoyable and sustainable.

    ‘How can I work well’ is part of the parent question, ‘How can I live well’ – the answer being (as oft quoted by Ermine) ‘know thyself’.

    So potentially financial independence is a correct answer, but to the wrong question – the equivalent of ’42’, once you’ve computed the answer you realise you have to ask another question? On the realisation I’ve traipsed down a cul-de-sac in man’s search for meaning I can stop reading all these blogs and finally get on with some work. The boss will be pleased..

  • 48 W Neil April 19, 2018, 3:21 pm

    There is a series of interesting posts by the blogger ERN with critique of various drawdown strategies and detailed discussions of SWR. The series is well worth reading alongside the book reviewed here and McClung’s book. The starting point is here https://www.earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro

  • 49 The Accumulator April 19, 2018, 4:54 pm

    @ Jamese20 – what data are you looking at for an SWR of 3.5%? Please link to your source. SWR depends on a host of assumptions, but everything I’ve seen for a 50:50 portfolio of UK equities and bonds over 30-years is around the 3% mark. Sometimes not even that. Your 3.5% definitely isn’t worst case. Check out Japan’s 0.25% SWR for a counter-example. I don’t believe we should be taking our cues from single country portfolios though and I agree with your main point that certainty is a mirage. 5% SWR is not conservative though. If you start out that high there’s a substantial chance you’ll need to cut back spending later on.

  • 50 Jamese20 April 19, 2018, 5:34 pm

    “@ Jamese20 – what data are you looking at for an SWR of 3.5%? Please link to your source. SWR depends on a host of assumptions, but everything I’ve seen for a 50:50 portfolio of UK equities and bonds over 30-years is around the 3% mark. Sometimes not even that. Your 3.5% definitely isn’t worst case. Check out Japan’s 0.25% SWR for a counter-example. I don’t believe we should be taking our cues from single country portfolios though and I agree with your main point that certainty is a mirage. 5% SWR is not conservative though. If you start out that high there’s a substantial chance you’ll need to cut back spending later on.”

    the source is wade pfau’s safemax study… and 50:50 for UK only would be a poor investment choice when our bonds are substantially low historically from a return perspective.

    i would be 75/25 in retirement which would make that 3% higher -= but i have not seen 3% mentioned as being our SWR?

    yes Japan is an example..but frankly they have made mistake after mistake and their businesses are not really that profitable – so this is a rare exception to the rule..but they are getting back on track for now.

    it makes the case of ensuring your globally diversified anyhow…

    and 5% isnt risky at all if you don’t take inflation every year, inflation should also be calculated as 3% on your cost of living NOT 3% adjusted for inflation on your total investment pot.. otherwise you are giving yourself a huge pay rise each time.

    3% was the inflation % in 2017 – quite frankly i haven’t really noticed all too much and i dont think it will be felt so severely in the real sense either

  • 51 YoungFiGuy April 19, 2018, 5:46 pm

    @TA – I’ve got some thoughts scribbled on paper, just need to convert them into some coherent (at the moment I’m worried about it coming across as too “Debbie Downer”). Thanks for the HT on Living Off Your Money, I’ve downloaded the first chapters and will try to give them a read.

  • 52 The Accumulator April 19, 2018, 9:21 pm

    @ James20 – That low Japanese SWR dates from 1937. WW2 did the damage. Not the recent Lost Decades. France, Italy, Germany and Austria all have a SWR of 1% or less depending on the study. Again, the major lesson is, don’t retire on the eve of a World War.

    Re: “5% isnt risky at all if you don’t take inflation every year, inflation should also be calculated as 3% on your cost of living NOT 3% adjusted for inflation on your total investment pot.”

    This is a fixed withdrawal strategy. Abraham Okusanya calculated the SWR on such a strategy as 4.5%:
    By not adjusting for inflation, he calculated that you’d have suffered a 40% decline in real income by year 15 of your retirement if your path is in the 50th percentile of outcomes. If you’re in the bottom 10% then your real income goes down 73%. Inflation matters over time. You could follow the Guyton & Klinger rules which only require you to skip adjusting for inflation in down years, but again the SWR is far short of 5%. Ultimately, there’s no free lunch. If you start out aggressively then you’ll need to cut back later if the sequence of returns doesn’t go your way. If fortune smiles on you, then you’re laughing, but don’t count on it.

    UK SWR studies. They’re all over the map:

    3.43%, 1926 – 1979, Pfau, 50:50 UK portfolio, 30 year time horizon, historical worst case

    3.05%, 1900 – 1912, Pfau, 50:50 UK portfolio, 30 year time horizon, historical worst case

    2.1%, Monte Carlo return projection, Morningstar, 60:40 UK portfolio, 30 year time horizon, 99% estimated success rate, SWR is net 1% fees (deduct approx 0.5% from the SWR of other studies to account for fees)

    3.1%, 1900 – 1916, Finalytiq, 50:50 UK portfolio, 30 year time horizon, historical worst case

    Using McClung’s Living Off Your Money methods, I can just about scrape over a 4% initial SWR on a global portfolio, after deductions for fees and an assumed 40-year time horizon, while accepting bonus points for variable income strategies, factor diversification and a few other techniques covered in the book.

  • 53 The Accumulator April 19, 2018, 9:51 pm

    Just to clarify:

    “5% isnt risky at all if you don’t take inflation every year”
    This bit is a fixed withdrawal strategy – i.e. you take x% from your portfolio every year.

    “inflation should also be calculated as 3% on your cost of living NOT 3% adjusted for inflation on your total investment pot.”
    This is how any withdrawal rate strategy is meant to work. If you’re adjusting for inflation then you adjust the amount of income you drawdown from your portfolio, by the previous year’s inflation rate. James, you’re right that this is often misunderstood.

    The traditional 4% rule is a constant inflation-adjusted withdrawal strategy. You take 4% from your portfolio as your initial income. Then you’d adjust year 2 income by inflation rate. Repeat for every year of your retirement.
    e.g. 20,000 year 1 income taken from £500,000 portfolio @ initial SWR of 4%.
    year 2 inflation = 3%.
    year 2 income = £20,000 x 1.03 = £20,600.
    Using this strategy, the 4% SWR is only applied in year 1. After that, your income is multiplied by inflation every year to maintain real spending.
    PS – your initial SWR should be downgraded to account for the effect of investment fees.

  • 54 Jamese20 April 19, 2018, 10:44 pm

    Sorry but assuming 1% fees is frankly stupid when you are an index Investor

    The FTSE 250 has returned 350% in price alone since 1996 and it currently has 3.6 dividend yield

    The FTSE all share has returned over 80% in similar time frame and is currently yielding almost 4% in dividends alone and it still isn’t even considered overvalued.

    Why use these time frames ? Well for one it has the second worse crash in the last century included and another strong crash just before it.

    I fail to see much risk in the 4% rule and going for things like 2.5% when you can get more than that in dividends alone even in the UK alone makes me think people are insane to go so low.

    Do i recommend going 4% blindly ? No..I think flexibility is key but I don’t believe the past has been some golden dream for business in fact quite the opposite…

    Going lower than 4% is going for over 100% safety which is the definition of insanity..if we did this in our everyday life we would be sitting on the floor and not moving in fear of something killing you…even then there is a % chance of death doing that!

    I honestly don’t follow this line of reasoning and as is said before… unfortunately we Brits are on the negative side of the spectrum

  • 55 Jamese20 April 19, 2018, 11:31 pm

    Hi accumulator

    I think of it as a blended mix between the 2, so I would recommend only increasing for inflation when you start to feel the pinch of inflation…and realistically I don’t see that being each year.

    A global fund tends to provide almost a 2% yield alone…to obtain an average of 2% premium on top I don’t think takes much doing in most business friendly environments.

    50/50 splits also are not the most efficient way of maintaining your pots either looking into it…even following the 4% rule the median of 1m 100% equity gets you to 17m! With UK suffering abit more in history maybe it is perhaps 14m..still I don’t think many will be complaining about that.

    4% is meant to handle the worse crashes in history inflation adjusted.. that’s over 80% success rate also

    Honestly I think 2.5% withdrawal strategy is as silly as going for a 10% one…. Each at the end of their various spectrums.

    Who will spend every penny of that 4% a year also ? If you are smart enough to build a pot of money so large so early in your life I put money on those very people not just spending all that 4% each year.

    Not trying to be argumentive at all I just don’t want other readers to be worried that a sensible withdrawal plan won’t work when actually nothing has changed and the 4% guideline is a good one..yes for ukers also.

  • 56 The Accumulator April 20, 2018, 7:15 am

    James, the reason I’m at pains to continue this debate is because while a 4% SWR may work, you’ll be much safer if you don’t blindly apply the popular presentation of the 4% rule. You are correct that flexibility is key – by definition that means being prepared to take less income at times than the rule would otherwise allow for. It is not set and forget.

    Fees – the important thing is that you remember to reduce your SWR to account for the fees that you pay. Even index investors could well be paying around 0.5% by the time you account for a total world market portfolio, platform fees, some tracking difference.

    UK experience since 1996: too narrow a dataset. I’ve linked to plenty of counter material on this above. The worst case US scenario, for example, began in 1967-68. Relatively recent history and not even a wartime scenario.

    Optimal asset allocation – it varies depending on a country’s historical returns:

    Yep, lowering your potential success rate allows you to increase your initial SWR. Important to know that may have consequences later, though. It’s not the definition of insanity to decide that you wouldn’t want to do that and to aim for a lower initial SWR.

    Who will spend every penny? Someone who retired with ‘just enough’. Jim Otar has a traffic light system: green retirement pots – someone who’s built up a large enough pot that they are effectively immune to all but the very worst outcomes. Red retirement pots – someone who leaves the workforce underfunded. Their options are all bad. Amber retirement pot – the ‘on-the-edge’ brigade. They’ll be fine in standard scenarios, but are likely to need to cut back if they suffer a bad sequence of returns.

    The 4% rule has not worked as advertised for most countries:

    A withdrawal plan based blindly on the common conception of the 4% rule can get you into trouble. Better to know its weaknesses and the levers you can pull to fix them.

  • 57 zxspectrum48k April 20, 2018, 2:17 pm

    TA. Morningstar updated their numbers in Oct 17. http://media.morningstar.com/uk/MEDIA/Comprehensive_update_on_the_Safe_Withdrawal_Rate.pdf. Using 1% fees, a 30-year horizon and 60:40 equity/bond portfolio, they see the withdrawal rate at 2.4%/2.1%/1.6% at the 90%/95%/99% levels. For a 40-year retirement, that drops to 1.9%/1.6%/1.2%.

    Regarding the book above, I bought it and was disappointed. It’s positives are that it’s focussed on the UK and offers some ideas to the novice. However, it suffers from the same issues that Kitces and to a lesser extent Pfau in that the whole approach lacks rigour. The idea that you can use the historic data of the “winning countries” over those that “lost” is arguable. Surely these might converge in a world of globalized capital flows. The author needs to do more heavy lifting on constructing data sets for the various asset classes. Better data is available but he might need to pay for it. Even at a micro level, it’s not clear the most basic normalization is being done on the data set. You can’t take gilts returns over a 100+ year period and not control for duration changes. The gilt market 100 years ago didn’t have a duration of 12! Any 1st year fixed income analyst at a bank knows to do this when doing a historical asset allocation analysis. Finally, surely the real issue is not to come up with an SWR number but to identify what factors might drive the SWR. A simple PCA factor analysis on the data tensor would show relevant correlations with variables like bond yields, CAPE ratios, global CB balance sheets, debt levels etc.

    I also agree with W Neil that the blogger ERN is already ahead of the professionals in terms of his approach. https://www.earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro

  • 58 Jamese20 April 20, 2018, 2:29 pm

    Blind 4% would work over 80% of the time though…there is more chance of dying in your car on the way back from work than the 4% rule failing you.

    There is nothing wrong the aiming for 4% but there is everything wrong about people claiming you require way less withdrawal strategies

    So far I haven’t seen any credible evidence to suggest we should worry about the 4% rule
    ..those who do seem to add in silly 1% fees and predict that the future will be alot worse than our far from perfect less well off past?

    The UK can get fees for less than 0.3%! So even a 0.5% fee seems high for most funds.

    Show me some actual credible scenarios where we should fear the 4% rule and I will consider looking… ..and by credible I don’t mean the rare 10% times that it has failed or the fantasy land – the future will be worse

    It’s a guide and is a good very qualified guide…but folks suggesting 2.5% quite frankly is stupid and based on negative outlooks and insanely going after 100% certainty

  • 59 RichardF April 20, 2018, 3:29 pm

    Jamese20: I think we all understand what you are getting at but I feel uncomfortable with the word “stupid”. For my delicate sensitive self that doesn’t feel the right sort of language for this blog. Maybe I’m in the minority with that but I thought I’d share.

    You suggest that people can absorb inflation in their fixed income for certain periods and that is certainly the case. I have done the same thing in employment several time – particularly in recent years but the classic 4% and other similar SWR rules factor in inflation each year so your 4% isn’t the same as Bengen’s 4%. Same number different strategies.

    Maybe your approach could be bundled a strategy that says you pay yourself x% for 3 years (or so) then uplift by inflation; pay that amount for 3 years (uplift again for inflation) etc. That way you are stepping your way through deaccumulation with flexibility as you could decide along the way whether to religiously apply inflation or again push it on for another yer. One could even call it the “Jamese20 Variable Withdrawal Strategy”

  • 60 The Accumulator April 20, 2018, 3:50 pm

    @ zxspectrum48k – thank you for the updated Morningstar study. Much obliged!

    The convergence of winners vs losers washes out in the global portfolio SWR, for example:

    I can’t agree that Pfau or Kitces lack rigour. I think where I share your frustrations, is that the pro retirement researchers don’t bring their many contributions together as an executable plan. I guess that’s not surprising as they work on the wealth management side – execution is their business.

    That’s where ERN (Early Retirement Now) and Living Off Your Money are a godsend for DIY investors. They’re coming at the problem from the same angle as we are: hence they have developed a coherent plan and we’re all free to use or adapt it.

    You’re spot on with the long bond problem for historic UK gilt returns. However, Pfau has published a UK SWR using an equities/bills portfolio which pushes up his result by a few notches (i.e. tenths of a percent) in ‘How Much Can I Live On In Retirement’. That suggests to me that the volatility / inflation vulnerability of long UK bonds is a contributing factor to the lower-ball SWR figures.

    (Quick jargon-buster for anyone wondering what I’m going on about re: Bills = very short-dated gov bonds, used as a proxy for cash.)

  • 61 The Rhino April 21, 2018, 11:57 am

    Inflation is super tricky to deal with.

    The disparity between national figures and personal inflation is significant.

    But it’s pretty much impossible to pull out personal inflation from your expenses.

    So what do you factor in into any SWR calc?

    It’s a really rough part of the calculations.

    There’s a huge amount of detailed research out there on SWRs but for all that, the pragmatist in me says just go 4%, but with caveat you’ve got to stay on your toes, keep your eye on the ball, don’t fall asleep at the wheel (I can’t think of any more metaphors)

  • 62 The Accumulator April 21, 2018, 12:15 pm

    Hi Rhino, if you keep a spreadsheet, divided into spending categories, wouldn’t you have a pretty good gauge on how much more you spent on food this year vs last, heating, fuel, boozing etc?

  • 63 John B April 21, 2018, 6:18 pm

    Spending categories always seem to miss big ticket items: new roof, marriage, cars moving house which with hindsight are the expensive parts of any year. Any long term plan should allow for a spending U, high to start with all those exotic holidays, dropping as you become a homebody, and a sharp uptick in a home. Very had to map to that by extrapolating your working middle-aged lifestyle.

  • 64 The Accumulator April 22, 2018, 11:31 am

    If the plan is to accommodate a personal rate of inflation then we’re better positioned than any official inflation rate to estimate how frequent big ticket events are likely to be in our lives. It’s entirely possible to estimate the rough impact of those events and to amortise them over time. It’s about accuracy over precision as they say!

    Beyond The 4% Rule has an interesting section on the spending U. It quotes a fair bit of research that suggests the U is a myth for most people. Most people don’t end up in a home according to the research. And if they do, it’s not for very long…

  • 65 Vanguardfan April 22, 2018, 12:27 pm

    I agree that you can wildly overestimate care costs. Neither of my parents needed residential or nursing care. One needed substantial home care input for several years, but that was easily covered by pension income as the rest of the outgoings were so minimal.
    We really need some kind of collective social insurance for this though, as it’s hopelessly inefficient leaving it to individuals to self insure something so unpredictable.

  • 66 John B April 22, 2018, 1:11 pm

    The problem is that people dismiss care costs as an unlikely outcome, but worry about a repeat of the Wall Street Crash. If you are going to Monte Carlo model stock market portfolios, you also need to model health and life expectancy outcomes too. The problem is the life assurance industry has been attacked for offering such poor returns on annuities which hedge the former, and have had no traction with policies to cover the latter, again presumably because the premiums sound so high.

  • 67 The Rhino April 22, 2018, 3:28 pm

    @TA – do you keep categorised expense accounts? Have you tried to pull a personal inflation figure out of that data?

    Here’s my personal inflation figures for the past 7 years:


    As you can see, its nonsense.

    I’ve thought about it quite a bit, but can’t see how you can pull apart expense variance and expense inflation. You’re possibly right that some categories like maybe gas and electric lend themselves to computing an inflation rate, but overall, I think you’ve got no chance.

    Dominant items, say like groceries, are impenetrable. How do you distinguish between butter rising from 60p to 140p and you consuming 2 packets rather than 1 packet? But then next year only consuming 1/2 a packet? Inflation, consumption it all gets conflated and its hugely variable.

    If the plan is to accommodate a personal rate of inflation then we’re better positioned than any official inflation rate to estimate how frequent big ticket events are likely to be in our lives. It’s entirely possible to estimate the rough impact of those events and to amortise them over time. It’s about accuracy over precision as they say!

    I would respectfully disagree here – My life experience suggests the exact opposite, i.e. its almost impossible to predict the impact of big-ticket items that may or may not occur in the future – and they have a huge impact on how much money you need to spend.

    My conclusion is erring towards excessive investigation into sensible SWR no.s is unecessary. Market returns exhibit great variability but you also have very little idea of what you will need to spend. Couple those two together and debating over whether a SWR is 2.7%, 3.2% or 4.0% starts to suggest we’ve lost sight of the size of the error bars.

    I’m starting to think rather than being over-cautious and revising SWRs ever downwards or being blase, picking too high an SWR and potentially suffering badly way down the line, what is necessary is simply to remain agile and retain the ability to adapt for as long as you possibly can. People talk about diversity amongst their portfolio but I don’t think you can stop there. You need to think broader, diversity in retaining social capital, human capital (ability to generate income) etc.

    To think along the lines of I need generate x pounds income per year and then I’m sorted is to misunderstand the nature of the beast. You’ve got to treat your financial position as a continuous feedack loop that you can’t afford to take your eye off, ever vigilant, ever tweaking and understanding the importance of keeping your options open. To calcify around the concept of ‘I’ve got y pounds in the bank and I’m never working again’ is probably not the smartest strategy. It might well not even be the most fun?

  • 68 YoungFiGuy April 22, 2018, 3:49 pm

    @TA – thanks for the recommendation on McClung – I read the first three chapters and have bought the book. I’m very impressed so far.

    @Rhino – I agree with your comment. Watch out for my thoughts coming through early next week (I’ve written the post, now I just need to make sure readable…)

  • 69 RichardF April 22, 2018, 4:13 pm

    I’m not quite retired but I’m hoping it will be similar in earnings terms as when I was employed (not the amount but the approach). I will earn £x a year/month; if I’m lucky that money may increase on average each year to cope with inflation (note that this hasn’t happened as an employed person over the last 10 years but I will be paying myself in retirement and I hope I’m a kinder boss). If my personal inflation goes up or down my current boss doesn’t care. I get my pay and I live off it. The same will happen in retirement.

    I currently hope to adopt a McClung Prime Harvesting Strategy or similar and attempt some form of Variable Withdrawal rate that considers both minimum needs and also how well the portfolio is doing. I’m not interested in squeezing the very last drop of potential growth out of my savings because that adds formulistic complexity when I may be of diminished mental ability in the future. If I’m lucky enough to have a growing portfolio It’s will either be a hedge against potentially expensive long-term care or my children will benefit.

    So, in retirement as in employment I must continue to sensibly balance my outgoings and income. Nothing will change in that regard. If my personal inflation needs to increase for something I will have to save for it or do without. If I cannot, then I hope the Variable Withdrawal rate strategy will help.

    I suspect the vast majority of people that read this site will be in a similar position but with different income generating strategies.

  • 70 The Accumulator April 23, 2018, 1:36 pm

    @ Rhino – yes, I track expenses. Mine don’t bounce around quite as violently as yours. It seems doable to me, especially if I focus on representative essentials rather than the headline figure. But, in practice I think RichardF is right – I’d cut my cloth according to the circumstances.

    I very much agree with your idea of building a wider base of capital. It’s hard for any spreadsheet to capture a full life. Where we seem to differ is how we approach our framework. It surely is impossible to predict with precision what the big tickets will cost and how frequently they arrive. But by trying to model them and coming up with a number, I’m in a much better place than if I hadn’t bothered. Both from a psychological p-o-v and a financial perspective. I don’t curse my luck when things happen, I’m prepared for things to crop up. And the plan is more robust because it’s tried to price them in to some degree. Also, the financial difference between a 3% SWR and a 4% SWR is massive. Choosing one or the other will impact my financial flexibility in the future. Still, the greater value in following the research is I’ve got a much clearer idea of how to respond if things do go wrong.

  • 71 The Rhino April 23, 2018, 3:57 pm

    @TA – that is interesting about the expense volatility. I’d assumed what I’d measured might be normal but maybe that isn’t the case. For sure, the less volatile the expenses, the more it makes sense to refine the SWR.

    I guess its the extent of the modelling that you do that is maybe the key here. Understanding the limits of its accuracy and letting that dictate how much effort you put into it – how many decimal places you use.

    You’re right about the difference between 3 and 4 percent SWR being massive.

    Its all moot really as has been mentioned before, no-one in reality would ever run their finances in such a way that they wouldn’t react and do something long before things went really bad.

    But I suppose if you took that on-board prior to even getting started with the saving/investing you could potentially save a lot of time?

  • 72 The Rhino April 23, 2018, 5:37 pm

    Just to elaborate on the 3 to 4 percent SWR being massive.

    It is if you’re looking from the required capital perspective

    It is not if you’re looking from the required income perspective

    Say you want 20k a year to live off.

    at a 3% SWR you will need 666k of assets
    at a 4% SWR you will need 500k of assets

    Thats a massive extra chunk of change to work for – how many years to be able to save 166k?

    But say you’d modelled 4% SWR, but then reactively decided to trim back to using 15k of assets and 5k of income (some form of work) – well you’ve managed to bridge the gap between that massive difference of settling on a 3 or a 4 percent safe withdrawal by earning just under 100 pounds per week.

    With any form of human capital left in the kitty that is eminently doable – and a healthy social capital is what will provide the opportunities to allow that to happen.

  • 73 The Rhino April 24, 2018, 7:24 am

    Nice piece on SWR s over at Young FI Fuy

  • 74 Mr Optimistic April 30, 2018, 8:18 pm

    I enjoyed reading this book and although I think it cut some corners it probably meets the needs of the audience he targeted and at least hammers home some basic points. Given the frequency with which seeking a financial advisor is promoted, the book would be a good primer for understanding such a conversation, providing you got a competent advisor of course. Thanks for the review.

Leave a Comment