You’ve probably heard talk about the key role that reinvesting dividends play in total returns.

This CNBC article from 2010 says “dividends make up 90% of total return”.

Since 1970, more than 80 percent of European equity returns came from dividend yield and growth, it stated, citing data from GMO.

And this 2019 article from The Balance quotes two different sources on the importance of reinvested dividends. Eagle Asset Management says reinvested dividends account for 97% of total return since 1871. John Bogle says they account for 95% of total return since 1926.

Articles in this vein are often accompanied by a chart that looks like…

I’ve long been dubious about the hand-wringing around retirement savings in America. There is certainly room for improvement but I’ve never been convinced it is quite as dire as op-ed columns and media reports make it out to be. In particular, median personal income in the US is $33,706. So 50% of Americans make even less than that. How much “retirement savings” do they actually need once you factor in Social Security and home equity? (Also where are the tens of millions of retirees living in extremely dire circumstances caused by this lack of planning?)

A new NBER paper does a deeper analysis and comes to a similar conclusion. …

Variable withdrawal schemes can often see us cut our withdrawals dramatically in retirement. It is tempting to add some kind of floor — a minimum withdrawal that we won’t go below. “Sure, the algorithm says to withdraw $27,500 this year. But that would represent an unacceptable reduction in my standard of living. It would mean giving up my mobile phone or cancelling internet or selling my house and moving to an apartment. Instead I will withdraw $32,000. After all, the market will probably bounce back next year, anyway.”

But how can we pick a floor that is “right”? What does “right” even mean? What tradeoffs are we making? Money doesn’t come from nowhere, so we must be increasing some kind of risk somewhere, right? …

This is more of a “look how easy pandas & friends make it to investigate things” than anything fully baked. Closer to a tutorial than anything else. But it was small & self-contained but also not an entirely contrived example, so I thought it would be worth sharing.

As we all know, in late 2018 the stock market crashed. It didn’t go down by exactly 20% based on a closing prices. It didn’t meet the arbitrary 20% drop based on closing prices criteria that seems to now be universally adopted as the definition of a bear market. But if you press people about why it “doesn’t count” few will argue that a few tenths of a percentage point are really that important. …

In 2017 I wrote the second edition, updating how a Year 2000 retiree has actually done.

Apparently I didn’t bother to do one for 2018. Now that 2019 is over we can update things again. The retiree is now 20 years in. 2/3rds of the way done. 46% of male retirees are dead already, assuming they weren’t smokers and were in good health at retirement. (And if they are a smoker then it skyrockets to a 79% chance of being dead already.) 36% of female retirees are dead already, with the same assumptions.

Wade Pfau famously questioned whether a Year 2000 retirement was doomed. He’s far from the only one. EarlyRetirementNow has said similar things. They all make the same mistake, they don’t look at a Year 2000 retirement in the context of other retirements. …

One widely known, but little discussed, aspect of the 4% rule is that is has a severe flaw around timing of retirement.

Adam and Bob identical twins, working identical jobs, and investing identically. Both 65 years old and both have $1,000,000 invested in an S&P 500 index fund. Adam decides to retire in January 2008 and the 4% rule tell him he can withdraw $40,000 a year for the rest of his life. Bob decides to work one more year and retires the following January. …

“Optimal lazy rebalancing” is a technique that Albert H. Mao wrote an online calculator for a number of years ago.

Avoid these issues by being as lazy as possible: only rebalance as you contribute to or withdraw from your portfolio, avoid selling assets when you contribute, and avoid buying assets when you withdraw.

When contributing, use this calculator to help you purchase under-weighted assets optimally using only the contributed amount so that you get as close as possible to your target allocation without selling anything. …

I think the Funding Ratio is a pretty great tool for retirement planning. It can easily take into account your entire balance sheet — things like pensions, Social Security, and downsizing your house. It can easily handle different amounts of spending every year. And, with a bit of arithmetic re-arrangement, it can also be used to guide your savings before retirement. But it does have some downsides and one of them is that the resulting number isn’t exactly intuitive.

You have a Funded Ratio of 0.9. Does that mean “monitor and see”? Or “start panicking”? Does a Funded Ratio of 1.2 mean “you should have retired 3 years ago”? …