Avoid the New 3.3% Rule

by | Nov 19, 2021 | Archives

The stock market boom is most likely over… for awhile.  We can expect years to pass before we see growth similar to 2018 till now.

This creates a troubled scenario for those of us who are retired or are planning to retire in the years ahead.


Retirement nest eggs may require more feeding than expected.

A recent Wall Street Journal article “The 4% Retirement Rule Is in Doubt. Will Your Nest Egg Last?” (1) shows how the well-established strategy for funding retirement has been hit by inflation.

A longstanding rule of retirement spending is getting a pay cut. But there are ways to ensure the income you receive in your golden years doesn’t take a big hit—if you’re willing to be flexible.

People retiring now who want a high degree of certainty their money will last should spend no more than 3.3% of their savings in the first year of a three-decade retirement, and adjust for inflation after that, according to a report released Thursday by investment research firm Morningstar Inc. So someone with a $1 million portfolio would spend $33,000 in the first year of retirement. Assuming 4% inflation, the investor would increase annual income to $34,320 in year two and $35,690 in year three, regardless of the market’s performance.

That, however, is no longer as likely because future returns are expected to be lower following an extended period of above-average gains. Morningstar researchers simulated future returns over a 30-year period and found that in a quarter of the simulations a half-stock, half-bond portfolio would run out of money if withdrawals stayed at 4%.

One indication the current market may be overvalued is the S&P 500’s price/earnings ratio, which measures the price investors pay for a dollar of corporate earnings. It is 23.88 when calculated using recently reported earnings, according to FactSet. That is significantly higher than the 17.35 average over the past 20 years.

The statistics we follow (and have for over 20 years) at Keppler Asset Management do not look good for high growth in global stock markets.

The chart below shows the entire real-time forecasting history for the KAM Equally Weighted World Index, starting at the end of 1993.

keppler 10-21

Keppler’s three-to-five-year projection suggests that the KAM Equally Weighted World Index will see a compound annual total return estimate of 0.2 % in local currencies.

The 20% upper- band estimate implies a compound annual total return of 4.8 %, while the lower-band estimate indicates a compound annual total return of minus – 5.3%.

keppler 10-21


One solution is to invest in MSCI Pacific Index whihc is projected to rise at a rate of 2.9%, where the MSCI US Index is projected to fall 2.9%.

A better solution is to invest in the MSCI Indices of the Top Value markets. The chart below shows that the average P/E ratio of these markets is only 17.1 as compared to the US P/E ratio of 27.4%.


The global economic scene is at a juncture where investment growth rates projections are dropping and the cost of living is rising.  Investing in good value can help ease the purchasing power gap.


(1) www.wsj.com/articles/the-4-retirement-rule-is-in-doubt-will-your-nest-egg-last-11636713035?mod=itp_wsj&mod=djemITP_h