Revisiting the worst times to retire in history (2014 update)

Time for another one of those yearly updates. In this post I’ll update the data for the worst times in history to retire by adding 2014 data to the 4 worst retirement portfolios in history. See here for last year’s update.

The worst time to retire since 1929 turns out not to be the Great Depression, as most people would believe. In fact, the worst time to retire in history was 1966, followed by the Great Depression year of 1929. The SWR (safe withdrawal rate) of 4.39% for a 70% stock 30% bond portfolio is solely determined by the retirement results of the 1966 retiree. Of course, we care about the present not the past. How are the year 2000 and the year 2008 retiree doing compared to those who retired during these worst of times? The table below shows the year by year progress for 4 retirees; the 1929 retiree, the 1966 retiree, the 2000 retiree, and the year 2008 retiree. It uses a starting portfolio value of $1M, with a 70% stock 30% bond portfolio, which yielded a max SWR of 4.39%. With 2014 behind us we know have 15 years of data to look at, or half of the 30 year retirement period we are interested in.

As the table shows the year 2000 retiree is way better off than their 1966 and 1929 cohorts. I would even go as far as saying that the year 2000 retiree is pretty much home free. Unless markets deteriorate quite dramatically and/or inflation really picks up the 4.39% SWR will be successful. The year 2008 retiree is doing even better than the year 2000 retiree was at the same point in time but it is still too early to tell. We have to wait at least for the first 10 years of retirement to make a good guess as to viability of the SWR.

A new item for this year’s update is that I now have the data for the various retirees using the flexible spending model (FCM) as opposed to the inflation adjusted spending model used in the above table. The FCM model allows the use of a higher SWR in return for having flexibility to reduce spending when needed. Below are the portfolio updates for the retirees using the FCM model and an SWR of 4.84%.

As the table shows, despite the higher initial spending the year 2000 and 2008 retirees portfolios are at about the same place as the inflation adjusted model in terms of current withdrawal rates (CWR). That’s exactly what the FCM model is supposed to do. Also, notice this higher SWR came with not too much impact. The year 2000 retiree had to reduce spending twice, at the end of 2000 and in 2009. The year 2008 had to reduce spending once, at then of 2008.

In summary, the year 2000 and 2008 retirees, the two worst cases since 1966, are doing just fine. They are no where near as bad as the 1966 retiree. The SWRs for the year 2000 retiree look like they are going to succeed. And the year 2008 look pretty good as well. And here is an important point. We won’t know for sure if these SWRs survived until at let 15 years from now when the year 2000 retiree completes their 30 year retirement. And if the 2000 retiree survives we’ll have to wait 23 years for the full data on the 2008 retiree. No other years will give worse data. Keep that in mind when you hear of the demise of the 4% SWR. Any claims of that nature are based on future forecasts. No one knows and no one will know for sure until 15 years from now.