Another post that I am recreating is one from last fall covering retirement spending. Maybe the number one question people have about retirement is how much money they need to fund a certain spending level. The flipside of this question is the level of spending that their current portfolio will safely support. We don't want to run out of money and end up back at our kid's house! In the spring of 2011, Wade Pfau extended the topic of Maximum Safe Withdrawal Rates, suggesting that Safe Withdrawal Rates in retirement were higher historically after periods of poor market returns and lower after periods of good market returns.
I cannot emphasize enough how important this concept has become to the way I think about retirement planning and advice. If markets mean revert, with periods of good market performance following periods of bad market performance, then one can adjust ones retirement spending up (or down) based on whether current markets are cheap (or rich). Let me be clear, on March 9th, 2012, I believe both the stock and bond markets to be rich versus historical averages - especially bond markets - and therefore the same portfolio value will support less spending today then it would have on March 9th, 2009 at the start of the 3 year bull market.