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WHOA...what if there isn't a Safe Withdrawal Rate?


The safe withdrawal rate of 4% keeps leading to more challenging questions than long-lasting answers, and new versions keep changing assumptions. Before sharing a simpler solution, I have a confession, after 26 years as an equity portfolio manager. My industry complicates too many things for investors who really only have two important questions:

1) Am I going to be okay? 2) How much is enough?


Attempting to solve the retirement income puzzle, when those two questions matter most, advisors run simulations all day long at every firm showing what % might be withdrawn from a nest egg to survive. Their favorite prediction of what should still work most of the time in the future is 4%, using historical market averages and a 30-year retirement. I do not question any of the good data, even if the failure rates are too often footnoted in disclosures than openly discussed. To be clear, conservative safe withdrawal rates are a lot better than no plan at all, and some advisors do a wonderful job projecting and explaining.


But sadly for most, manufacturing confusion remains a big business for Wall Street firms. Consistent quarterly/monthly/weekly updates with different reasons why investors should always just “Hang in there…” is not always good advice. It is a wonderful recurring revenue model. And, it is one of the reasons I escaped. I have told all my clients to fire me if they ever hear those three words.


For almost three decades – the first part on Wall Street, and since 2006 running a private money management and financial planning firm - I have listened to all the debates on safe withdrawal rates. I’ve read countless academic papers and studies, all while learning only one thing for certain from real people instead. A retiree is at the point in their life where they deserve more peace of mind than they can find in the 177 million Google search results for “safe withdrawal rate.”


We will share exactly why a focus on dividend growth can be the antidote for that growing anxiety. A dividend is not a withdrawal of profits or principal. It is the delivery of annual income to your mailbox. A dividend is the only investment metric you can hold in your hand to know it is real.


The best way to share exactly why predictions of future appreciation, to hopefully withdraw profits from may not work, isn't another list of bearish reasons of what could go wrong – that is too easy. Instead, let me share the most remarkable period of what can go unimaginably right, as a more shocking reason to not rely on predicting safe withdraw rates.


Imagine you have a time machine better than Doc Brown’s from “Back to the Future.” Rather than finding the sports almanac where every game in the future could be correctly “predicted,” you are a stock market investor and you’re about to get a list of game-changing technology - ahead of time. The technology does better than win. They all wildly exceed the most bullish predictions, over more than two decades.



To make this more fun than any movie, now imagine being lucky enough to retire in 2000, and you invest in all of the greatest technology in history. Just to name a few breakthroughs since then:


iPhone USB flash drive Video Calls Virtual reality headset

YouTube Google maps Bluetooth Electric cars

Artificial heart Gene editing Stem Cells Genome Sequenced

3D printing Cloud Computing Multi-use rocket ships





…and direct-pay point of sale systems, to buy more of it all!


Along the way, the number of humans and new consumers added to technology’s food chain was the most astonishing growth of all. Approximately 300 million people were on the internet in 2000, and today we are closing in on 6 billion.


I started my own first little investment plan when my new young family started depending on me, after I got married in March 2000. I had no idea how good things were about to get, and not just for me! Over the next two decades new technology unleashed the most remarkable game-changers in history. If you knew all of that ahead of time, and retired in 2000, what % of your nest egg do you think could be safely withdrawn each year?


The best technology and biotech stocks are in the Nasdaq Composite. If you owned that index since March 2000 and remained fully invested through 2022, never missing one day of those extraordinary gains….


the annualized rate of return was 3% per year.





I propose a new rule that will be completely un-crowded and no online searches will be needed. The next time you hear or read about another simulation showing why safe withdrawal rates might work (most of the time), stop. Save yourself that precious time and anxiety, and breathe in a safer mantra: “W.H.O.A.”


Withdrawing Hopes Of Appreciation is not a plan, it’s a prediction.


I think most investors would be surprised to learn how often that “long-term” stocks always go higher, is a story that simple math disagrees with more often than narrators would like us to believe. So, from here on, I’ll just stick with the math and get out of the way, because math leaves no room for opinions – including my own. My fondest wish is that the math of dividend growth does for anybody reading this what it’s done for me – provide the Holy Grail of repeatable deeply informed simplicity, instead of simulations.


Let’s widen the lens to include more than technology and ask the one question bulls and bears both underestimate – what happens when the entire Stock Market goes nowhere for a lot longer than most are expecting?





Over that exact same period of time, dividend growth investors' experiences could be very different.





This is just one set of long-lasting examples. And, full disclosure I absolutely hand-picked the 25 stocks that delivered these rising dividends with plenty of survivorship bias. But, not because I cherry-picked the best. I am sharing data from the stocks that we still own today that paid a dividend in 2000. I admit to being severely biased by active management and stock selection every day.


There are many other dividend growth stocks that did even better, I don’t write about the individual stocks because I don’t want to run the risk that any are taken as a recommendation or prediction. I’d much rather share the repeatable process of dividend growth’s potential for anybody.


To be clear, the stock prices of even the highest quality dividend growth stocks we find will go down, just like any other stock. But if you just got another pay raise, are you worried about a price decline you’re not forced to sell into, by any crowds' anxiety? Dividend growth investors may see bear markets through a different lens. If you are retired and just got another dividend pay raise this year to not work, are you worried about how the crowds are pricing stocks? Or, if you are just starting to save, with years to go before retiring, thanks to those crowds’ fears you can now acquire future streams of rising income at a discounted starting yield. Their fear could allow you to retire sooner. Neither are a prediction – just the simple mailbox money math of receiving free cash flow from dividends, versus hoping for appreciation to withdraw from.


There is one last crowded myth to dispel with simple math, which may help. The best argument against dividend stocks, is they will not appreciate as much as “growth” stocks. I am willing to take that risk. I have zero fear of missing out, and instead am good friends with JOMO, embracing the joy of missing out of some of the most spectacular gains. I even put the spotlight on some in this post earlier, with the best list in history.


The best pushback I have ever received on our One-Page Plan showing only free cash flow mailbox money, rather than counting on one penny of price appreciation to withdraw from, is that it feels overly conservative to some investors. I would humbly point out that good math beats feelings also.


I’d much rather surprises be to the upside. The simple math of this chart may surprise most bulls and bears also. I love un-crowded simple truths that stand the test of all times.