A fellow going by the name “SWR Lover” has posted a comment to Tuesday’s blog entry on the Bogleheads wiki statement on safe withdrawal rates (SWRs), saying that he is the author. We of course do not know this for certain to be so. I find it believable. The group that controls what goes into the Bogleheads wiki has strong connections with John Greaney and with the abusive posters who congregate at Goon Central to organize their work destroying Retire Early boards and Indexing boards. One of the regulars there is “Drip Guy,” and the wording of SWR Lover’s post suggests that he could well be “Drip Guy” under another name. Certainly the reasoning employed by SWR Lover is the reasoning that I witnessed often being put forward by Mel Lindauer (co-author of The Bogleheads Guide to Investing) and his “defenders” during his campaign to block honest posting on SWRs at the Vanguard Diehards board. If SWR Lover is not in fact the author of the flawed wiki statement, he is certainly guilty of possessing the same mindset as the author of those hard-headed and hard-hearted words.

First, a word on why you should read what follows. The Old School SWR findings have over the years been cited in tens of thousands if not hundreds of thousands of newspaper articles on retirement planning. It is rare to hear retirement advice today that was not influenced in some way by these studies. That means that you have been influenced by them. We all take in what we hear thousands of times and all of us have been influenced in some way by these claims. If the Old School SWR studies got the numbers wrong (and they did), we are all at risk of suffering busted retirements somewhere along the line as a result. And the false reasoning that led to the errors in the Old School studies led to errors in the investing advice you have heard and accepted as true in many other areas. SWRs matter. It is critical that they be reported accurately. That’s why I often spend time analyzing carefully statements of the sort we saw put forward by SWR Lover last night. His errors are our errors. When we come to understand why SWR Lover has gotten it all wrong, we come to learn where the rest of us have gotten it all wrong too.

Here is what SWR Lover said in his comment to the earlier blog entry:

“Rob,

“I personally wrote the initial article for the Wiki section on SWR. I also purposely included the statement you see there now:

“Original Author, in Wiki: “…one should always be sure to be clear whether the use is in reference to past or projected SWRs, so that unnecessary argument can be prevented.”

“I did that to illustrate there is no need to misunderstand history versus future. Most folks handle that concept quite nicely and naturally without needing to see such a clause, but I thought it added a nice closed loop to that potential argument(!). It certainly does not mean what you ascribe to it:

“RB on his blog: “This statement implicitly (but not explicitly, to be sure) acknowledges that [“old school studies”.. are not [correct].”

“It does not mean that in any way, shape or form. I know what it means, because I wrote it. My intent was to make sure the record is plain as can be, and I think it actually is. (Well, perhaps except for one person. We do what we can, but sometimes there are limits…).”

These are word games. People use SWR studies to plan their retirements. It is important that people planning retirements have access to correct numbers. Otherwise, they are likely to suffer busted retirements. The historical stock-return data shows that the biggest factor affecting the safety of a retirement is the valuation level for stocks that applies on the day the retirement begins. The Old School studies contain no adjustment for this factor. Thus, the Old School studies get the numbers wrong. At times when valuations are extremely high (as they have been for a good time now), they get the numbers wildly wrong. Those are the realities.

The key phrase in SWR Lover’s comment is: “Most folks handle that concept quite nicely and naturally without needing to see such a clause.” There is a sense in which that statement is 100 percent false and there is a sense in which that statement is largely true.

The “concept” he is referring to is the word game. Do most folks view the Old School studies as trickery? Do they know right off the bat that they are exercises in word gaming? Do they get it that we have about as much chance of learning the SWR by using the methodology employed in the Old School studies as we have of getting the SWR right by picking numbers out of a hat?

They do not. There were hundreds of SWR threads that appeared at the Motley Fool board in the days before I first reported what I knew about SWRs (that was on the morning of May 13, 2002). In none of those threads did anyone ever say that he knew that the Old School methodology was just a sick joke and that the numbers were wildly off and that these numbers were in no circumstances to be used to plan a retirement taking place on Planet Earth (William Bernstein has said that anyone giving thought to using one of the Old School studies to plan a retirement would be well-advised to “FuhGedDaBouDit!”). Every member of that discussion-board community thought that the Old School studies were legitimate (even I thought at the time that the studies were the product of honest effort). Those threads remain available today. What I am saying here can be checked. People have planned retirements by making reference to the Old School studies.

There is a sense, though, in which what SWR Lover is saying here really is so. People thought at one time that the methodology used in the Old School studies was analytically valid. Now they know that it is not. But a good number of the people who have learned as a result of our discussions that the Old School studies get the numbers wildly wrong still use the Old School studies to plan their retirements! This also can be verified by looking at the Post Archives of The Great Safe Withdrawal Rate Debate. This also can be checked.

So we have learned two important things. One, we have learned that our thinking on what it takes to plan a retirement effectively is hopelessly confused. We got it all wrong, and we need to go back to the beginning and start again (that’s what The Retirement Risk Evaluator, the world’s first New School SWR calculator, is all about). Two, we have learned that discovering that a methodology gets the numbers wrong does not necessarily hit investors where they live. It might be that people want accurate numbers when analyzing things in other fields (that certainly has always been my experience!). When it comes to investing, though, an entirely different set of rules applies. In the investing field, people love to be deceived. In the investing field, people applaud inaccuracies. In the investing field, people react with shock and anger and hostility to the idea that a false number might be corrected. Stock investing generally does not work according to the rules of reason.

The latter finding is the more important one, in my assessment. It is of critical importance that the Old School studies be corrected, to be sure. But it is of even greater importance that we come to a deeper understanding of why it is that people want to be deceived in the investing advice they read. That’s more important because doing the work it takes to get the numbers right is a waste of time if people are not responsive to what we come up with.

I say above that in earlier days I believed that the Old School studies were the product of honest effort, suggesting that I do not believe that to be the case today. Am I saying that I think that all the authors and promoters of the Old School studies are engaged in fraud? Yes and no. It is fraud to advise people to use numbers you know to be wrong to plan their retirements (and the errors in these studies are so basic that it is more than a little hard to imagine that I am the first person who has noticed them). But it is a very strange and special kind of fraud we are dealing with. Many of the people advocating that others use the Old School studies to plan their retirements are using them themselves to plan their own retirements. This too can be verified by making reference to the Post Archives of our discussions. So this is an act of fraud in which the person engaging in the fraud is himself a victim of the fraud. Holy moly!

Self-deception is the primary problem here. The deception of others is of course a big problem too. But, if we want to help the people whose retirements are at risk, we need to be practical in our approach. And the practical reality is that we need to deal with the self-deception matter to get to first base. When the people telling lies about SWRs (word games are essentially lies, are they not?) realize that they are destroying themselves by using bad numbers to plan their own retirements, they will stop urging others to use bad numbers to plan their retirements. Does that not make sense?

I of course believe that we should continue to do what we can to get the word out about the false SWR claims advanced in the Old School studies. There are hundreds of community members who have responded with great enthusiasm to our findings, showing that the level of self-deception practiced by stock investors varies greatly; some are capable of seeing that it is a bad idea to use wildly wrong numbers when deciding when to hand in a resignation to an employer. Many others are not capable of seeing this, however. Those many others include (not entirely, but to some extent) big names like John Bogle, William Bernstein and Scott Burns. So our most urgent task today is to come to a better understanding of why even powerful minds feel such a strong draw to self-deception when forming ideas about how to invest. That’s a big story in its own right, bigger than the story about the Old School studies getting the numbers wrong, in my estimation.

I referred to SWR Lover’s comments as “repulsive” in my response in the comments section for the earlier blog entry. The reason why I find the word games repulsive is that word games feed right into this self-deception disease that we all seem to suffer from in the area of investing. We very, very, very much want to believe that things that cannot possibly be so about stock investing really are so. I see it as the most important work project of my lifetime to come to a full understanding of why it is that stock investors destroy themselves in this way over and over again (this is the fourth time in history in which valuations have risen to what they are today — the first three trips ended in bone-crushing losses to all who invested heavily in stocks despite what their common sense told them about the risks of doing so at these sorts of price levels). Those who are engaging in word games are doing the opposite of what I am seeking to do. I am trying to make things more clear to people, they are trying to make things less clear. It is in this sense that I view the use of word games in this area as “repulsive.”

I do not view SWR Guy repulsive as a person. I am grateful that he let us know a little bit of what was going on in his mind when he wrote the gibberish that now serves as the Bogleheads wiki statement on SWRs. I contest the ideas put forward by SWR Guy to the strongest extent imaginable. He and I are coming at this from entirely different places. I hope that our personal interactions can be warm ones and civil ones and friendly ones and helpful ones. That’s because I want them to be learning ones. SWR Lover is not just destroying others with his word games. He is destroying himself at the same time. I think if benefits all aspiring early retirees for us to learn what it is that makes it seem in his eyes that that is an appealing thing to do.

Today’s Passion: I argue in an article entitled Does John Greaney Believe His Own Safe Withdrawal Rate Claims? that, if John’s best friend asked him about SWRs, John would probably say the same sorts of things that he says in his study and on our boards.