Letters to the Editor

Regarding the faster and easier approach

Rob Bennett asked me this question.

John: This question pertains to your article titled "Faster and Easier SWR Calculations" and the Postscript to that article.

You say: "Comparing the HSWR50/HDBR50 results from Calculated Rates of the Last Decade with an earnings yield 100E10/P of 3.5% with Faster and Easier SWR Calculations, the newer approach is more optimistic. Its Safe, Calculated and High Risk Withdrawal Rates are 3.72%, 4.53% and 5.16%. The older, more accurate method calculates these rates as 3.03%, 4.04% and 5.05%."

Is it possible to say WHY the results from the faster and easier approach turn out to be more optimistic results?

Is it reasonable to believe that over time, as more data points are entered into the historical record, there will be less divergence between the results obtained from use of the slower and harder methodology and from use of the faster and easier methodology?

Intuitively, it seems to me that this would be the case. But I don't have enough confidence in my understanding of the statistics-related questions at play to feel comfortable saying whether it is or not.

Rob

HERE IS MY RESPONSE:

Taking more data points usually solves statistical issues. This time, however, I don’t think that it will.

I am pretty sure that the correct answer is NO. I do not expect results from the two different methodologies to converge.

I have looked into the nature of errors. The problem seems to be that Safe Withdrawal Rates are dependent on the spread of the data. [The Safe Withdrawal Rate is the lower confidence limit of the Calculated Rate.] Apparently, the spread of dollar values at year 30, which is what the new procedure uses, does not translate well into the spread of Historical Surviving Withdrawal Rates about the Calculated Rate.

I have reported my findings in the General Topics section.
Faster and Easier SWR Calculations: Excursion

Earlier Letters

Here is a link to a recent letter from Greg about TIPS AND TAXABLE (NON-QUALIFIED) ACCOUNTS

TIPS and Taxable (non-qualified) Accounts

Here is a link to an earlier discussion with Rob Bennett about SAFE AND HAZARDOUS REGIONS
Safe and Hazardous Regions

Here is a link to an early discussion with Rob Bennett about SAFE WITHDRAWAL RATES AND HISTORICAL SURVIVING WITHDRAWAL RATES
Safe Withdrawal Rates and Historical Surviving Withdrawal Rates

Have fun.

John Walter Russell
Posted June 19, 2005.