Year 2000 Retirement: a 4% SWR Reality Check (3rd edition)

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.

Many people seem to think that 4% withdrawals means the portfolio never drops to scarily low levels during retirement. But it makes no such claims. After 20 years, a Year 1906 retiree has seen their portfolio drop to $311,866. And that’s supposed to last them 10 more years. A 1968 retiree has seen their portfolio drop to $239,967.

All of those retirements succeeded! 4% makes no guarantees about how bad things will get along the way. When we compare the Year 2000 after 20 years to all the other retirement cohorts, it actually looks…pretty okay. It is in the 24th percentile, meaning almost one-quarter of all retirements were looking worse. And all of them went on to succeed. It ain’t over till the fat lady sings, but at this point 4% withdrawals seem very likely to notch another success.

How bad would things actually have to get for 4% withdrawals to fail?

After 20 years, a 60/40 portfolio actually has $654,000 left. Remember, expenses are only $40,000 a year. Any real retiree who was actually scared of running out of money over the next 10 years could simply put $400,000 into a TIPS ladder. They’d be guaranteed $40,000 a year and still have $254,000 in a “risky portfolio” they could invest worry-free.

But let’s assume they don’t do that. They just let it ride. How far does the market have to crash in 2020 to jeopardize their retirement?


And not just a 70% drop, it would require a -70% drop in 2020 followed by 9 years of 0% returns. You can begin to see how unlikely it is for a Year 2000 retiree to actually fail with 4% withdrawals at this point. Every year we don’t have a financial collapse of that magnitude makes it more likely that 4% withdrawals will sail to another success.

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