Will 2000-era retirees experience the worst retirement outcomes in U.S. history? A progress report after 10 years

Pfau, Wade Donald (2010): Will 2000-era retirees experience the worst retirement outcomes in U.S. history? A progress report after 10 years.

Abstract

We find evidence that retirees in 2000, in particular, are on course to potentially experience the worst retirement outcomes of any retiree since 1926. This holds for a wide variety of asset allocations and withdrawal rate strategies. Wealth depletion is taking place more rapidly for 2000-era retirees than for retirees who even endured the Great Depression or the stagflation of the 1970s. Though moderate inflation during the past decade has resulted in current withdrawal rates that are a bit less for the 2000 retiree than for some retirees in the 1960s, this is hardly reassuring with further analysis based on the required future asset returns needed for sustainability. Our findings cast doubt as to whether the 4 percent withdrawal rate rule will be sustainable for turn-of-the-century retirees.

• Item Type: MPRA Paper
• Language: English
• Keywords: retirement planning, safe withdrawal rates, sequence of returns risk, retirement ruin, retiring in 2000, current withdrawal rate
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C20 - General; N - Economic History > N2 - Financial Markets and Institutions > N22 - U.S. ; Canada: 1913-; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance

References

Arnott, Robert D. "Sustainable Spending in a Lower-Return World." Financial Analysts Journal, Vol. 60, No. 5 (September/October 2004), pp. 6-9.

Bengen, William P. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning, Vol. 7, No. 4 (October 1994), pp. 171-180.

Bob’s Financial Website. "Reverse Dollar Cost Averaging." Mimeo, 2008. Accessed on November 18, 2010, from http://www.bobsfinancialwebsite.com/reverseDCA1.html

Bogle, John C. Enough: True Measures of Money, Business, and Life. Hoboken, NJ: John Wiley and Sons, 2009.

Dimson, Elroy, Paul Marsh, and Mike Staunton. "Irrational Optimism." Financial Analysts Journal, Vol. 60, No. 1 (January/February 2004), pp. 15-25.

Fullmer, Richard K. “The Fundamental Differences in Accumulation and Decumulation.” Journal of Investment Consulting, Vol. 9, No. 1 (Fall 2008), pp. 36-40.

Pfau, Wade D. “An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?" Journal of Financial Planning, Vol. 23, No. 12 (December 2010).

West, John. "Hope is Not A Strategy." Fundamental Index Newsletter, Research Affiliates, (October 2010).