What are safe withdrawal rates from non-US investments?

Submitted by: BBlack 104

This list contains 4 studies that examine this question. The 4 studies were published from 2010 to 2018.


Chart summary of 4 studies examining this question

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SUMMARIES OF STUDIES
Total studies in list: 4
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1
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 a large unintended bequest. 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 in 21 countries over 115 years with 11 asset allocations ranging from 100% stocks to 100% bonds."
AUTHOR
Javier Estrada
PUBLISHED
2018 in The Journal of Retirement
SUSPECT SOURCE
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2
Safe Withdrawal Rates for Retirees in the United Kingdom: Where did the 4% rule come from and what is the impact of today’s low bond yields?
"Against the background of the UK pension freedom legislation, it is important that retirees have areasonable expectation of the proportion of their assets they can withdraw each year to fund theircost of living, while ensuring sufficient capital remains to deliver a similar level of income into thefuture. This is commonly known as the ‘safe withdrawal rate’.There is a growing body of literature on safe withdrawal rates for retirees, however most ofthis research is based on the historical returns of assets used by investors in the United States.While there has been some more recent research using projected returns for the United States(Blanchett, Finke, and Pfau, 2013) its applicability to the UK is questionable. Given the unique marketenvironment for UK-based investors today, it makes more sense to base withdrawal rates off theexpectations for UK-based investors than the history or projected returns for another country.In this paper we explore safe withdrawal rates from the perspective of historical returns, bothinternational and domestic, but more importantly we provide estimated safe withdrawal rates for UKbased investors based on our current return expectations. There are three primary findings from thisresearch. First, that while the historical performance of stock and bond markets in the UK has beenrelatively similar to the global average, future expected returns in the UK, especially in the near-term,are likely to be considerably lower. Second, given these lower returns, safe withdrawal rates arerelatively low, and may decrease further when incorporating future improvements in mortality (i.e.,people keep living longer in retirement) and the impact of fees. Finally, a balanced portfolio is likelythe best allocation for UK retirees. Overall, while these findings are less optimistic than past researchon the topic of safe withdrawal rates, they are nevertheless an important starting place for retireesand financial advisers today."
AUTHORS
Sue Watt
Dan Kemp
Marc Buffenoir
David Blanchett
PUBLISHED
2016 in Morningstar Research
SUSPECT SOURCE
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3
Safe withdrawal rates from retirement savings for residents of emerging market countries
"Researchers have mostly focused on U.S. historical data to develop the 4 percent withdrawal rate rule. This rule suggests that retirees can safely sustain retirement withdrawals without outliving their wealth for at least 30 years, if they initially withdraw 4 percent of their savings and adjust this amount for inflation in subsequent years. But, the time period covered in these studies represents a particularly favorable one for U.S. asset returns that is unlikely to be broadly experienced. This poses a concern about whether safe withdrawal rate guidance from the U.S. can be applied to the situation in other countries. Particularly for emerging economies, defined-contribution pension plans have been introduced along with under-developed or non-existing annuity markets, making retirement withdrawal strategies an important concern. We study sustainable withdrawal rates for a sample of 25 emerging countries and find that the sustainability of a 4 percent withdrawal rate differs widely and can likely not be treated as safe. The results suggest, as well, high stock allocations in the portfolio mix are not the optimal choice for retirees in emerging market countries."
AUTHORS
Wade Donald Pfau
Channarith Meng
PUBLISHED
2011 in National Graduate Institute for Policy Studies
SUSPECT SOURCE
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4
An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?
"Numerous studies about sustainable withdrawal rates from retirement savings have been published, but they are overwhelmingly based on the same underlying data for US asset returns since 1926. From an international perspective, the United States enjoyed a particularly favorable climate for asset returns in the twentieth century, and to the extent that the US may experience mean reversion in the current century, "safe" withdrawal rates may be overstated in many studies. This paper explores the issue of sustainable withdrawal rates using 109 years of financial market data for 17 developed market countries in an attempt to provide a broader perspective about safe withdrawal rates, as financial planners and their clients must consider whether they will be comfortable basing decisions using the impressive and perhaps anomalous numbers found in the past US data. From an international perspective, a 4 percent real withdrawal rate is surprisingly risky. Even with some overly optimistic assumptions, it would have only provided "safety" in 4 of the 17 countries. A fixed asset allocation split evenly between stocks and bonds would have failed at some point in all 17 countries."
AUTHOR
Wade D. Pfau
PUBLISHED
2010 in National Graduate Institute for Policy Studies
SUSPECT SOURCE
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