Now go to monthly withdrawal rates. According to Wood’s calculations, the safe rate was 5.09% for December 1966—a 21 basis point upgrade from the annual withdrawal rate. The safe rate for December 1967 was 4.62%, another 21-point boost; and it was 4.29% for the locust year of December 1968, the beginning of the most challenging retirement period.
There’s much better news for more recent retirees: He takes the period starting with January 1990, which encompasses the tech bubble and the 2008 financial crisis. With annual withdrawals, a retiree could safely take out 7.4%, he says. With monthly withdrawals, it’s 7.5%, so it’s one of those situations where there is not much difference. “I think it’s because the first years matter the most, and if we’re starting in 1990, you’re getting so much growth at the beginning of your time, you’re getting 10 years of growth before you’re getting the tech bubble. By then you get another eight years of growth before you hit the Great Recession.”
He says that his model differs from Bill Bengen’s because Bengen has more in small-caps in his 4.5% withdrawal rate model—20% not 10%—which makes a big difference. “Another reason is that he’s doing annual withdrawals instead of monthly.” The data set might have also made a small difference (Brightworth used Morningstar data).
Brightworth co-founder and advisor Dave Polstra and Wood plan to present these findings at the Inside Retirement conference on May 2.
Bill Bengen himself weighs in on what might happen with more frequent withdrawals: “Although I have not tested withdrawals more frequently than annually with my models,” Bengen says, “the conclusions you cited make sense. I don’t know any other researcher who has used quarterly withdrawals. I used annual withdrawals to generate my 4.5% maximum safe withdrawal rate. My withdrawals were scheduled at the end of each year, not the beginning (with a little tweak to partially offset the timing). Other researchers I have spoken to computed safe withdrawals using annual withdrawals made at the beginning of each year. They generally arrive at significantly lower safe withdrawal rates, about 4.1% to 4.2%.
“Thus, it seems likely to me that using quarterly withdrawals, an intermediate approach, would yield intermediate results.”