| Have you ever entered an internet search for the | | | | The "Retirement Risk Evaluator," a simple retirement |
| term "simple retirement calculator?" If you have, your | | | | calculator available at my web site, does the job. It |
| retirement plan may be in a lot of trouble. | | | | does not report a single withdrawal rate as the |
| I have looked at a good number of the retirement | | | | withdrawal rate that is safe at all valuation levels. It is |
| calculators available today on the internet. Most get | | | | rooted in an understanding that the historical |
| the numbers wrong. Not a little bit wrong. Most get | | | | stock-return data shows that the valuation level that |
| the numbers wildly wrong. It's hard to believe. But it's | | | | applies on the day a retirement begins is the single |
| so. | | | | biggest factor affecting the long-term safety of that |
| The problem is easy to understand. There was a day | | | | retirement. |
| when most investing experts believed in something | | | | The old calculators tell you that you can safely |
| called "the efficient market." An efficient market is | | | | withdrawal 4 percent from a high-stock portfolio |
| one that sets prices properly. Most of today's simple | | | | regardless of the valuation level that applies when |
| retirement calculators assume an efficient market. | | | | your retirement begins. Not the Retirement Risk |
| Unfortunately,. the theory on which these retirement | | | | Evaluator. The new planning tool says that there are |
| planning tools are based has been discredited. Yale | | | | some valuation levels (extremely high ones) at which |
| Professor Robert Shiller published research in 1981 | | | | you can safely withdraw only 2 percent from your |
| showing that valuations affect long-term returns | | | | high-stock portfolio each year. And there are other |
| (that is, that the market is NOT efficient). Shiller's | | | | valuation levels (extremely low ones) at which you |
| research has been confirmed in numerous studies | | | | can safely withdrawal as much as 9 percent from |
| done in the time since. Even the big names have | | | | your high-stock portfolio each year. |
| been expressing doubts about the Efficient Market | | | | If the idea that valuations affect long-term returns |
| Theory in scores of articles published since the onset | | | | makes sense to you, don't get burned by making use |
| of the stock crash in September 2008. | | | | of one of the Old School retirement calculators. A |
| If the market is not efficient, then the simple | | | | simple retirement calculator is no good unless it is an |
| retirement calculator that you used to plan your | | | | accurate retirement calculator. Give the New School |
| retirement steered you wrong. You had better look | | | | retirement planning tool, The Retirement Risk |
| for a new simple retirement calculator and redo the | | | | Evaluator, a spin. |
| plan. | | | | |