Do You Have Enough Money To Retire? The Myth of the 4% Safe Withdrawal Rate Rule.

Hi Folks, welcome back to Investment Income for Life. It has been a long week of chaos with Donald Trump continuing his bombing campaign against Iran and the retaliatory strikes from Iran which is now spreading to the Red Sea and the nearby Suez Canal. Oil price is soaring back to US$100 per barrel with the instability in the Middle East. It does not help that Donald Trump also started imposing hostile 100% import tariff again on Canada and planning to go after many countries. He is really like the Night King (Game of Thrones) seeking to eradicate the world of men and our entire history. Anyway, I digressed too much....let me get back to my intended topic which was inspired by a post on Financial Horse and a few other bloggers regarding drawing down one's wealth for retirement. This is where the famous 4% Safe Withdrawal Rule (SWR) is often mentioned. Don't hammer me but the hard truth is that many common folks will (i) either not be able to grasp it or (ii) do not have the conviction & confidence to apply it.

1. In a Nutshell, What the Heck Is The 4% Safe Withdrawal Rule ("SWR")?

Basically, the 4% SWR is a retirement planning guideline that suggests withdrawing 4% of your total portfolio balance in the first year of retirement, then adjusting that exact dollar amount for inflation annually. 

If you want to read more about SWR in our local context, I will refer you to Investment Moat by well-known and respected finance influencer Kyith and his perspective on retirement projection. He is kind enough to be sharing his knowledge accumulated via reading and research on his site along with many posts on it. You can read here on his Retirement Planning subsection. But problem is that Kyith can get very technical at many times and his various posts extremely hard to understand & filled with charts and retrieved data as per what many of my network of friends mentioned. 

I think that the recent post by Financial Horse is easy to digest, you folks can find it here: "Is $2.5 Million Enough to Retire in Singapore? Why the 4% Withdrawal Rule may Fail you?"

2. It Is Not Intuitive & User Friendly- Practical Application & Usability Issues

• Withdraw 4% based on previous year end portfolio balance every year?
• What is the so called inflation rate to use?
• How to get inflation rate data? Monetary Authority of Singapore? Which column? How come got different types of inflation rate?
• How come some finance videos and posts say use 3% SWR better and not 4%?
• What if I Chao Suay and the subsequent post first year are all bear markets? Will I still have enough to last till age 100 from age 65?

Above are just some of the confusing questions put up by the common folks despite reading on it. Don't believe me, you all go office and ask around 10 of your colleagues sitting near you on whether they heard of it and know exactly what to do upon retirement using this strategy.

This SWR rule of thumb is also rigid and possess elements of unnatural behavior- the fact is that we as human beings do not spend money like a computer algorithm.

Parting Thoughts

Sometimes, I think that one should not over-complicate life. For Singaporeans, we are already very blessed that we have a CPF system in place for retirement (4% risk free annual return). There are also various private annuity products in our local market and some even pay out as early as from age 55 onwards. Last but not least, retirement should be about having peace of mind, spending time with your loved ones, and finally enjoying the fruits of your labor and not living in fear of a spreadsheet. :)