Does money invested in a US stock index fund have at least a 95% chance of lasting for 30 years at an annual withdrawal rate of 4% (excluding taxes and fees, and with withdrawals adjusted for inflation each year)?

Submitted by: KKrista 77

Yes, money does invested in a us stock index fund have at least a 95 % chance of lasting for 30 years at an annual withdrawal rate of 4 % ( excluding taxes and fees , and with withdrawals adjusted for inflation each year ). While the bulk of the studies in this list for which we identified answers agrees with this conclusion, some studies came to different conclusions. We encourage you to consider each of the studies for yourself to understand why they differ.
This short answer was generated by aggregating the answers that each of the 18 studies below gave to the question (as indicated by State of K members) and adjusting for source quality and other factors. If key studies are missing or the answers attributed to individual studies are incorrect, the above answer could be wrong.
9
YES ANSWERS
5
NO ANSWERS
1
MIXED RESULTS ANSWERS
0
INSUFFICIENT EVIDENCE ANSWERS
3
NO DATA ON ANSWER


Chart summary of 18 studies examining this question
Showing up to 10 at a time

All answers are assigned by State of K users. The label Mixed means that a study found some evidence to indicate that the answer to the question is "yes" and some evidence to indicate that the answer is "no". This label is often applied when a study uses two or more proxies to study the same phenomenon (i.e. firearm sales figures and self-reported firearm ownership rates as proxies for the prevalence of firearms) and the proxies yield different results when looking for correlations with another phenomenon (i.e. firearm-related deaths). Alternatively, the label may be applied if the phenomenon under study (i.e. whether breast milk improves cognitive function) is true for one group, but not another (i.e. true for girls, but not for boys). The label Insuff. Evidence means that a study found there was insufficient evidence to reach a conclusion regarding the question. The label No Data means that State of K wasn't able to identify the study's response to the question based on the information that was available. This label is often applied when the person creating the list does not have access to the full text and the answer isn't clear from the abstract.

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SUMMARIES OF STUDIES
Total studies in list: 18
Sorted by publication year
1
Joint Effect of Random Years of Longevity and Mean Reversion in Equity Returns on the Safe Withdrawal Rate in Retirement
"Using historical data on inflation-adjusted total equity returns (price change plus dividend) from the S&P 500 from 1926 to 2017, this paper develops a simulation-based model to determine the safe, inflation-adjusted withdrawal rate from a portfolio of assets. The model, named the Realistic Retirement Simulator (RRS), improves upon other simulation models by directly addressing two factors that significantly affect the safe withdrawal rate: (1) uncertainty about the number of years of retirement, i.e., at what age will the retiree die; and (2) mean reversion in equity returns. RRS models the number of years in retirement as a random factor based on the Social Security Administration’s 2015 Actuarial Life Table. The mean-reverting stock return model within RRS is statically calibrated to the 1926 to 2017 S&P 500 data. With these two key factors addressed and assuming future equity returns follow the historical record, RRS shows that a 65-year-old male retiree can withdraw 6% of the starting portfolio balance each year from a 100% stock portfolio with a 90% success rate; a 4% withdrawal rate is 99% successful. A simulation model that does not address these two key factors—and the author is not aware of single model that addresses both factors—shows that a 4% withdrawal rate results in a 90% success rate for a retirement lasting 30 years. At the 90% success level, about half of the increase from 4% to 6% comes from treating the length of the retirement as a random factor and other half comes from the mean-reverting model. Many scenarios are run to show how the success rate changes when RRS input assumptions are changed, e.g., age of retiree or stock/bond mix of retiree’s portfolio. Of particular importance is the assumption that future equity returns will repeat the historical record. If the future, long-run trend for equity returns is a 4% compound annual growth rate (CAGR) instead of the 6.93% observed in the historical data, RRS shows that a withdrawal rate of 4% has a success rate of 95%. Regardless of the assumption about future equity returns, directly modeling uncertainty in the length of retirement and mean reversion in equity returns results in more accurate and higher estimates of the safe withdrawal rates compared to models that do not directly address these factors."
AUTHOR
Donald Rosenthal
PUBLISHED
2018 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Mixed Results
Mixed Results
2
Maximum Withdrawal Rates: An Empirical and Global Perspective
"Standard analysis of retirement strategies involves evaluating their failure rate. One of the shortcomings of this approach is that a strategy may have a low failure rate and at the same time leave large unintended bequests. Maximum withdrawal rates, by definition, exhaust a portfolio by the end of the retirement period, thus leaving no bequest; they can be used both to assess the likelihood of sustaining any chosen level of inflation-adjusted withdrawals, and more generally to evaluate retirement strategies. This article provides a comprehensive historical perspective on maximum withdrawal rates considering 11 asset allocations, 21 countries, and 115 years."
AUTHOR
Javier Estrada
PUBLISHED
2017 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
3
Safe Withdrawal Rates: A Guide for Early Retirees
"When talking about withdrawal rates in retirement it's hard to ignore the 4% rule. The origin of this rule goes back to the work of Bengen (1994, 1996, 1997, 2001) and Cooley, Hubbard and Walz (1998, 2011), more commonly known as the Trinity Study. The Trinity Study showed that withdrawing 4% of the portfolio value at the beginning of retirement and subsequently adjusting the withdrawals for inflation, will likely sustain a 30-year retirement in a portfolio comprised of 50-100% stocks and 0-50% bonds. This result is relevant to the average retiree with a horizon of only 30 years and not the typical early retiree with a much longer horizon, though. We perform extensive simulations and case studies targeted at early retirees and show that the longer horizon and today's expensive equity valuations will likely necessitate a lower initial withdrawal rate."
AUTHOR
Ern EarlyRetirementNow
PUBLISHED
2017 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
4
The 4 Percent Rule is Not Safe in a Low-Yield World
"The safety of a 4% initial withdrawal strategy depends on asset return assumptions. Using historical averages to guide simulations for failure rates for retirees spending an inflation-adjusted 4% of retirement date assets over 30 years results in an estimated failure rate of about 6%. This modest projected failure rate rises sharply if real returns decline. As of January 2013, intermediate-term real interest rates are about 4% less than their historical average. Calibrating bond returns to the January 2013 real yields offered on 5-year TIPS, while maintaining the historical equity premium, causes the projected failure rate for retirement account withdrawals to jump to 57%. The 4% rule cannot be treated as a safe initial withdrawal rate in today’s low interest rate environment. Some planners may wish to assume that today’s low interest rates are an aberration and that higher real interest rates will return in the medium-term horizon. Although there is little evidence to support this assumption, we estimate how a reversion to historical real yields will impact failure rates. Because of sequence of returns risk, portfolio withdrawals can cause the events in early retirement to have a disproportionate effect on the sustainability of an income strategy. We simulate failure rates if today's bond rates return to their historical average after either 5 or 10 years and find that failure rates are much higher (18% and 32%, respectively for a 50% stock allocation) than many retirees may be willing to accept. The success of the 4% rule in the U.S. may be an historical anomaly, and clients may wish to consider their retirement income strategies more broadly than relying solely on systematic withdrawals from a volatile portfolio."
AUTHORS
David Blanchett
Wade Pfau
Michael S. Finke
PUBLISHED
2013 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
No
No
5
Asset Valuations and Safe Portfolio Withdrawal Rates
"Bond yields today are well below and stock market valuations are well above their historical average. There are no historical periods in the United States where comparable low bond yields and high equity valuations have occurred simultaneously. Both current bond yields and stock values have been shown to predict near-term returns. Portfolio returns in the first decade of retirement have an outsize impact on retirement income strategies. Traditional Monte Carlo simulation approaches generally do not incorporate market valuations into their analysis. In order to simulate how retirees will fare in a low return environment for both stocks and bonds, we incorporate the predictive ability of current valuations to simulate its impact on retirement portfolios. We estimate bond returns through an autoregressive model that uses an initial bond yield value where yields drift in the future. We use the cyclically adjusted price-to-earnings (CAPE) ratio as an estimate of market valuation to predict short-run stock performance. Our simulations indicate that the safety of a given withdrawal strategy is significantly affected by the initial bond yield and CAPE value at retirement, and that the relative impact varies based on the portfolio equity allocation. Using valuation measures current as of April 15, 2013, which is a bond yield of 2.0% and a CAPE of 22, we find the probability of success for a 40% equity allocation with a 4% initial withdrawal rate over a 30 year period is approximately 48%. This success rate is materially lower than past studies and has sobering implications on the likelihood of success for retirees today, as well as how much those near retirement may need to save to ensure a successful retirement."
AUTHORS
Wade Pfau
Michael S. Finke
David Blanchett
PUBLISHED
2013 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
No
No
6
How Did the Financial Crisis Impact Retirees’ Safe Withdrawal Rate? A Markets-Based Answer
"Individuals retiring in the aftermath of the financial crisis face an unprecedented market environment. Accommodative monetary policy and below trend economic growth present retirees with historically low interest rates and the longest period of negative real short term interest rates since the Great Depression. The result is likely a period of below-average, modest total portfolio returns that a particular challenge to retirees. Most studies of safe retirement withdrawal rates have concluded that a 4% initial withdrawal adjusted for inflation over subsequent years provides reasonable a reasonable margin of safety over thirty years. However, these studies are generally use historical analysis or forward-looking return analysis based on long-term return estimates and/or average realized returns. Because of this approach an extended period low nominal rates and negative real rates is not captured in traditional methodologies; therefore, they run the risk of overstating safe withdrawal rates. As an alternative, this article presents a market-based methodology for determining appropriate spending policy. Simulation analyses along with market-implied capital market assumptions (CMAs) are used to estimate feasible distribution rates for various portfolios over the next thirty years. The results imply that an initial withdrawal rate of 4% is unlikely to provide investors with a sufficient margin of safety. Instead, lowering initial withdrawal rates to 3.5% is likely to prove prudent."
AUTHOR
Michael W. Crook
PUBLISHED
2012 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
No
No
7
Sustainable Withdrawal Rates During Retirement and the Risks of Financial Ruin
"This paper describes the application of two different techniques for measuring sustainable withdrawal rates during retirement and the associated risks in running out of funds in the retirement savings pool. The first is a bootstrap simulation approach using recent Australian equity and bond market data. The second is a simulation-free analytical approach proposed in Milevsky and Robinson (2005). To illustrate, we compute and compare the probabilities of financial ruin for a retiree with a thirty year retirement horizon for some commonly recommended periodic withdrawal rates."
AUTHOR
Lakshman Alles
PUBLISHED
2012 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
8
Spending Flexibility and Safe Withdrawal Rates
"Shortfall risk retirement income analyses offer little insight into how much risk is optimal, and how risk tolerance affects retirement income decisions. This study models retirement income risk in a manner consistent with risk tolerance in portfolio selection in order to estimate optimal asset allocations and withdrawal rates for retirees with different risk attitudes. We find that the 4 percent retirement withdrawal rate strategy may only be appropriate for risk averse clients with moderate guaranteed income sources. The ability to accept greater shortfall probabilities means that risk tolerant investors will prefer a higher withdrawal rate and a riskier retirement portfolio. A risk tolerant client may prefer a withdrawal rate of between 5 and 7 percent with a guaranteed income of $20,000. The optimal retirement portfolio allocation to stock increases by between 10 and 30 percentage points and the optimal withdrawal rate increases by between 1 and 2 percentage points for clients with a guaranteed income of $60,000 instead of $20,000."
AUTHORS
Duncan Williams
Wade Pfau
Michael S. Finke
PUBLISHED
2011 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
9
Optimal Asset Allocation in Retirement: A Downside Risk Perspective
"Once an individual has retired, asset allocation becomes a critical investmentdecision. Unfortunately, there is no consensus on what the optimal allocation should be for retirees of varying age, gender, and risk tolerance. Thisstudy analyzes the allocation question through a focus on the downside riskscreated by uncertainty over investment returns and life expectancy. We findthat the range of appropriate equity asset allocations in retirement is strikinglylow compared with those of typical lifecycle and retirement funds now in themarketplace. In fact, for retirement portfolios whose primary goal is to minimize the risk of depletion and sustain withdrawals, optimal equity allocationsrange between 5% and 25%. This quite conservative level of equity holdingschanges little even when we significantly change our assumptions on capitalmarket returns. We even find that more aggressive equity allocations, thosethat still retain some focus on depletion risk but also seek to provide substantial bequests to heirs, are also relatively conservative. The study suggests,in short, that the higher equity allocations used in many popular retirementinvestment products today significantly underestimate the risks that thesehigher-volatility portfolios pose to the sustainability of retirees’ savings and tothe incomes they depend on."
AUTHOR
Van W. Harlow
PUBLISHED
2011 in Putnam Institute
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
No
No
10
Portfolio Success Rates: Where to Draw the Line
"Portfolio success rate analysis provides the information needed to plan withdrawals from a retirement portfolio. Because financial markets and other matters of life change unexpectedly, those plans are likely to change.This updated analysis reports portfolio success rates net of monthly withdrawals through a range of payout periods. The data we rely on are total returns to large-company common stocks and high-grade corporate bonds as well as Consumer Price Index values and inflation rates from January 1926 through December 2009.We conclude that if 75 percent success is where to draw the line on portfolio success rates, a client can plan to withdraw a fixed amount of 7 percent of the initial value of portfolios composed of at least 50 percent large-company common stocks.The sample data suggest that clients who plan to make annual inflation adjustments to withdrawals should plan lower initial withdrawal rates in the 4 percent to 5 percent range, again from portfolios of 50 percent or more large-company common stocks, in order to accommodate future increases in withdrawals.Changes in withdrawal rates or amounts can be made in response to unexpected changes in financial market conditions using the basic tables we provide."
AUTHORS
Daniel T. Waltz
Carl M. Hubbard
Philip L. Cooley
PUBLISHED
2011 in Journal of Financial Planning
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
11
A Safer Safe Withdrawal Rate Using Various Return Distributions
"A common conundrum faced by most people approaching retirement is the amount of money they can safely withdraw from their retirement portfolio without the risk of depleting the portfolio over their retirement horizon. The advice that most retirees will hear is the 4 percent rule—a retiree who faces normal retirement conditions can make an annual inflation-adjusted withdrawal equal to 4 percent of the original portfolio without risk of depleting the portfolio.This rule of thumb has helped bring a disciplined approach to retirement withdrawal strategy. However, tests of the 4 percent rule using simulation methodology have assumed that expected returns are drawn from a lognormal distribution—an assumption that lacks empirical support.The important question, therefore, is whether the choice of method used to represent the future affects estimates of the sustainability of a retirement portfolio.We test the 4 percent rule by creating plausible retirement scenarios using standard methodology, but assuming that expected returns can conform to various distributions.Our analysis indicates that a 4 percent withdrawal rate will result in portfolio failure with greater probability (18 percent) than previously believed, and the truly “safe” withdrawal rate—2.52 percent—is significantly smaller than previously believed."
AUTHORS
Joseph M. Goebel
Manoj Athavale
PUBLISHED
2011 in CFA Digest
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
No
No
12
Revisiting Retirement Withdrawal Plans and Their Historical Rates of Return
"This paper examines the historical record of the so-called 4% rule, the popular guideline for sustainable real annual withdrawals in a self funded retirement. Our findings indicate that a withdrawal plan following this rule (“4R”) carries an historical risk of failure for a long retirement that is much higher than generally acknowledged. For example, we find that 15% of the historical 35-year retirements failed when funded with equal parts of stocks and bonds. The “real” withdrawal plans that generated no historical failures were all less than 4%, sometimes far less, when retirements exceeded 25 years. The historical failure rates that we find for a 5R plan are higher than a 4R plan by a factor of at least three for all retirement periods. The historical failures are not random. Rather they occur in clusters of years in which the majority of new retirement withdrawal plans fail. A key driver of these failures was a rapid, significant and lasting increase in the rate of inflation - this event increased withdrawals and contributed to a declining real rate of return that was ultimately unable to support the withdrawal plan. Although TIPS bonds and inflation-adjusted annuities are both too new for historical analysis, we note they may offer an opportunity to curtail income plan failures in the future. This is because they (1) offer a known real rate of return and (2) adjust for inflation close to the time at which inflation impacts withdrawals. Our review of the prior literature and a detailed description of the methodology used in the study appear at the end of the paper, after the Summary and Conclusions section."
AUTHORS
Felix Schirripa
Christopher O'Flinn
PUBLISHED
2010 in SSRN Electronic Journal
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
13
Data Dependence and Sustainable Real Withdrawal Rates
"Past research on sustainable real withdrawal rates has been overwhelminglybased on past market returns. Suchresearch ignores the possibility, andconsequently the implications, thatfuture market conditions will vary fromthose in the past.• This paper will explore the impact ofvarying returns and standard deviationson a distribution portfolio in order toprovide the reader with information onappropriate sustainable real withdrawalrates for various market conditions.• Experts predict that the future marketreturn for a balanced 60/40 portfolio islikely to be 1–2 percent less than historical averages.• Over longer distribution periods thereturn of a portfolio becomes increasingly important in maintaining the likelihood of success of a distribution portfolio. A 1 percent decrease in portfolioreturn is likely to result in an increase inthe probability of failure that is approximately 4 times greater than a 1 percentincrease in portfolio standard deviation."
AUTHORS
David M. Blanchett
Brian C. Blanchett
PUBLISHED
2009 in CFA Digest
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Couldn't Identify
Couldn't Identify
14
Guidelines for Withdrawal Rates and Portfolio Safety During Retirement
"The existing literature for retirement portfolio withdrawal rates suggests that a real withdrawal rate of 4 percent of the initial portfolio is safe." This paper demonstrates that a blanket "4 percent withdrawal" rule may be an oversimplification of a complex set of circumstances. • Risk tolerance, asset allocation, withdrawal size, and expected returns all affect the process of withdrawing from a retirement portfolio. To advance previous research, this paper uses 21 stock/bond allocations and 71 withdrawal rates, for 1,491 possible combinations. For each of these combinations, 10,000 bootstrap iterations are run for 30-year periods. • Results show that withdrawal rates as high as 5.5 to 6 percent can be achieved, but only at a 25 to 30 percent chance of running out of money and with stock allocations of 75 to 100 percent. A 4.4 percent withdrawal rate with a 50/50 bond/stock allocation has a 10 percent chance of running out of money. To visually illustrate the results for clients, the paper develops easy-to-understand withdrawal contours, runout contours, and balance-remaining contours that clearly reveal the relationship between asset allocation, withdrawal rates, the chance of running out of money, and estate building. First, given a tolerance for the chance of running out of money, the largest amount that can be withdrawn can be determined. Second, the contours can be used to provide the client's optimal asset allocation for a fixed withdrawal rate and a given tolerance for running out of money. Third, the withdrawal amount at various levels of tolerance for running out of money can be determined while holding the asset mix constant."
AUTHORS
Sandeep Singh
Jeffrey C. Strieter
John J. Spitzer
PUBLISHED
2007 in Journal of Financial Planning
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Couldn't Identify
Couldn't Identify
15
A Sustainable Spending Rate without Simulation
"Financial commentators have called for more research on sustainable spending rates for individuals and endowments holding diversified portfolios. We present a forward-looking framework for analyzing spending rates and introduce a simple measure, stochastic present value, that parsimoniously meshes investment risk and return, mortality estimates, and spending rates without resorting to opaque Monte Carlo simulations. Applying it with reasonable estimates of future returns, we find payout ratios should be lower than those many advisors recommend. The proposed method helps analysts advise their clients how much they can consume from their savings, whether they can retire early, and how to allocate their assets. © 2005, CFA Institute."
AUTHORS
Chris Robinson
Moshe A. Milevsky
PUBLISHED
2005 in Financial Analysts Journal
Q1
SUBMITTED BY
JAloni 105
NO DATA
NO DATA
16
Decision Rules and Portfolio Management for Retirees: Is the ‘Safe’ Initial Withdrawal Rate Too Safe
"This paper establishes new guidelines for determining the maximum "safe"initial withdrawal rate, defined as (1) never requiring a reduction in withdrawalsfrom any previous year, (2) allowing for systematic increases to offset inflation,and (3) maintaining the portfolio for at least 40 years.z It evaluates the maximum safe initial withdrawal rate during the extreme periodfrom 1973 to 2003 that included two severe bear markets and a prolonged earlyperiod of abnormally high inflation.z It tests the performance of balanced multi-asset class portfolios that utilize sixdistinct equity categories: U.S. Large Value, U.S. Large Growth, U.S. SmallValue, U.S. Small Growth, International Stocks, and Real Estate.z Two portfolios (65 percent equity and 80 percent equity) are evaluated inconjunction with systematic Decision Rules that govern portfolio management,sources of annual income withdrawals, impact of years with investment lossesand withdrawal increases to offset ongoing inflation.z This paper finds that applying these Decision Rules produces a maximum"safe" initial withdrawal rate as high as 5.8 percent to 6.2 percent depending onthe percentage of the portfolio that is allocated to equities."
AUTHOR
Jonathan T. Guyton
PUBLISHED
2004 in Journal of Financial Planning
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
17
Retirement Spending: Choosing a Sustainable Withdrawal Rate
"To help in the selection of a withdrawal rate, the following sections provide information on the historical success of various withdrawal rates from portfolios of stocks and bonds. If a withdrawal rate proves too high based on historical year-to-year returns, then it seems likely that the rate will not be sustainable during future periods. Conversely, historically sustainable withdrawal rates are more likely to have a high probability of success in the future."
AUTHORS
Daniel T. Waltz
Carl M. Hubbard
Philip Cooley
PUBLISHED
1998 in American Association of Individual Investors
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes
18
Determining Withdrawal Rates Using Historical Data
"At the onset of retirement, investment advisors make crucial recommendations toclients concerning asset allocation, as wellas dollar amounts they can safely withdraw annually, so clients will not outlivetheir money. This article utilizes historical investment data as a rational basis forthese recommendations. It employs graphical interpretations of the data to determinethe maximum safe withdrawal rate (as apercentage of initial portfolio value), andestablishes a range of stock and bond assetallocations that is optimal for virtually allretirement portfolios. Finally, it providesguidance on "mid-retirement" changes ofasset allocation and withdrawal rate."
AUTHOR
William P. Bengen
PUBLISHED
1994 in Journal of Financial Planning
SUSPECT SOURCE
SUBMITTED BY
JAloni 105
Yes
Yes







ADDITIONAL STUDIES TO CONSIDER ADDING TO LIST
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