One of my ongoing challenges as a writer is explaining financial concepts in an easy-to-understand manner. With a background in business school and 13 years at Goldman Sachs and Credit Suisse, financial concepts come naturally to me.
Despite writing over 2,500 personal finance articles since 2009 on Financial Samurai, however, some concepts still get misunderstood or provoke readers into a rage. One such concept is my Dynamic Safe Withdrawal Rate, introduced in my post, “The Proper Safe Withdrawal Rate Is Not Always 4%,” in 2020.
Instead of retirees adhering strictly to the “4% Rule,” popularized in the 1990s as a safe withdrawal rate, I advocate for a dynamic approach. This means adjusting withdrawal strategies as circumstances change.
By staying flexible, you increase your chances of staying retired.
A Quick Explanation Of My Dynamic Safe Withdrawal Rate
My Dynamic Safe Withdrawal Rate is calculated as the 10-year Treasury bond yield multiplied by 80%. This percentage is based on the idea that the suggested 4% withdrawal rate from the 1990s roughly equaled 80% of the average 10-year bond yield, which was around 5% at the time.
The concept was simple: if you could withdraw at a 4% rate while earning a risk-free 5%, your funds would never deplete. Therefore, let’s take this logic to the present.
Using the 10-year Treasury bond yield as a variable for withdrawal rates is crucial because it continually fluctuates. This yield stands as a pivotal economic indicator that every investor should monitor. It serves as the benchmark for risk-free returns, influencing the pricing of risk assets. Additionally, the yield curve reflects assumptions about inflation, economic growth, and monetary policy.
However, this is where confusion sometimes arises.
Retirees Have Diversified Portfolios
Some readers mistakenly believe I advocate for a portfolio consisting entirely of 10-year Treasury
