The 4% rule suggests selling 4% of your principal per year.
Buying a 4.625% yielding bond does not require selling principal at all.
But you're taking my point too literally. You can easily buy a 6 or 7% yielding bond that is lower risk than equities, but still paying far more in a more certain fashion
You can buy REITs today paying 6% that will grow rents around the rate of inflation (O is one example).
You can far surpass a 4% yield on cost in year 1, while also locking in inflation adjusted income growth today, very trivially, without selling one dollar of principal.
Unfortunately any thread on this is drowned out by uninformed people, or people who don't understand retirement is first and foremost about securing a stable (and non anxiety inducing) cash flow. Not growing wealth maximally.
There have been many times in history where the broad index has been flat for years. 2000 to 2010 is a famous more recent period. Would you be comfortable selling 4% a year into year 9, having watched your wealth decline materially over the last decade?
I guarantee you the retiree in bonds getting 5% and maintaining 100% of their principal is experiencing much less anxiety. And bonds give you the optionality to swap to equities in a down market like 2000 or 2008
For REIT example (O), the yield is 5.61% and you need to pay tax on top of that. Assuming 25% tax, you will net 4.2%. Current inflation is 2.9% [0], so assuming principal conservation, you can only spend 1.4%. Much worse than 3.5/4% on the market.. Am I missing something?
So if you withdraw 4% in year 1, and your underlying equities are flat for 10 years because the market moves sideways, as it did in 2000 to 2010, what percentage are you withdrawing in year 10? It's more than 4%
That just makes my example above even worse for a retiree.
Is it true or not that you can secure well above 4% in year 1 YoC in a relatively low-risk manner in today's market, and also secure it against inflation?
Yes, this is true.
So either you disagree with this premise and can back it up with a meaningful counterpoint, or you can agree and move on.
> The 4% rule suggests selling 4% of your principal per year.
No, it doesn't. You misunderstand the 4% rule. The 4% rule states you sell 4% of your principal in the first year, then inflation-adjust the 4% value every year. If the stock market rockets and your portfolio jumps 30%, you still only sell/spend 4%+inflation. If your portfolio drops 20%, you still sell/spend 4% of first year + inflation.
> There have been many times in history where the broad index has been flat for years. 2000 to 2010 is a famous more recent period. Would you be comfortable selling 4% a year into year 9, having watched your wealth decline materially over the last decade?
This is exactly why the 4% rule has the allocation be 60% equities, 40% bonds, rebalancing every year. Bonds have their place for reducing volatility.
> I guarantee you the retiree in bonds getting 5% and maintaining 100% of their principal is experiencing much less anxiety. And bonds give you the optionality to swap to equities in a down market like 2000 or 2008
If you're 100% bonds, what criteria would you ever use to get back into equities?
Buying a 4.625% yielding bond does not require selling principal at all.
But you're taking my point too literally. You can easily buy a 6 or 7% yielding bond that is lower risk than equities, but still paying far more in a more certain fashion
You can buy REITs today paying 6% that will grow rents around the rate of inflation (O is one example).
You can far surpass a 4% yield on cost in year 1, while also locking in inflation adjusted income growth today, very trivially, without selling one dollar of principal.
Unfortunately any thread on this is drowned out by uninformed people, or people who don't understand retirement is first and foremost about securing a stable (and non anxiety inducing) cash flow. Not growing wealth maximally.
There have been many times in history where the broad index has been flat for years. 2000 to 2010 is a famous more recent period. Would you be comfortable selling 4% a year into year 9, having watched your wealth decline materially over the last decade?
I guarantee you the retiree in bonds getting 5% and maintaining 100% of their principal is experiencing much less anxiety. And bonds give you the optionality to swap to equities in a down market like 2000 or 2008