Fatally Flawed

Traditional Safe Withdrawal Rate studies are fatally flawed.

They sought capital appreciation instead of income. As a result, they chose the wrong investments. They looked at the overall market instead of dividend paying stocks. They sold shares, a reverse form of dollar cost averaging with a vengeance. Selling too many shares when prices are low leads directly to bankruptcy.

They ignored valuations. Data from two time periods, 1929 and 1965-1966, were treated as outliers, not as typical of today’s market. That was horribly misleading. It leads to bankruptcy.

They ignored retiree needs. Retirees need a continuing income stream, not one that can disappear, even at a far away date. Dividend based strategies continue indefinitely.

Have fun.

John Walter Russell
December 30, 2007