Vanguard has always been one of the most respected voices in the investing industry, and its values have defined a whole generation of DIY investors. Jack Bogle started the first index fund in 1976 and took a lot of heat for that decision among his contemporaries who felt that “Bogle’s Folly” was destined to fail. But he was a true visionary, and his dedication to low costs and customer-centric business practices helped build the company into the financial titan it is today. So when Vanguard speaks, people listen.

I’ve always been a big fan of road trips. Some of my fondest memories involve cruising through unknown roads soaking in beautiful scenes with the music turned up on the radio. Of course the best road adventures also involve a bit of concentration, as the most magnificent mountain vistas often come hand-in-hand with challenging hairpin turns. So even though road trips are a blast, you still have to be careful to avoid dangerous situations like taking a cliff-side turn with too much speed.

As a responsible driver acting in an abundance of caution, imagine for a moment planning your route ahead of time and deciding to set your cruise control for the entire trip to the minimum speed required to safely navigate the most dangerous turn. So even with miles of straight highways with no other cars in sight, you choose to never exceed 10mph. Sure, it will take you ages to get to your destination. And it might seem like not only an extremely inefficient way to travel but also a complete waste of the engine under the hood, but at least you won’t have to worry. Is it worth it?

I assume most people will find that idea completely silly and unrealistic, as dynamically adjusting your speed to the conditions of the road is a natural part of any intelligent driving experience. So why do so many people take this over-cautious approach with their retirement planning?

There’s a decent chance that anyone who has considered retirement with some amount of self funding has heard of the concept of the safe withdrawal rate — the amount of money that one can safely spend every year without prematurely running out of money.  First proposed by William Bengen in 1994, the math is pretty well established by now and many well-respected authors have written extensively on the subject dissecting it from different angles.

There’s also a pretty good chance that that the average person following a safe withdrawal rate does not actually understand how it works, and that lack of context can cause quite a bit of confusion.  You see, the various studies and calculators that determine SWRs do so based on a myriad of very narrow assumptions, and breaking from those assumptions also breaks the conclusions.  I’ve written quite a bit about the asset allocation assumption and the withdrawal method assumption, and I recently realized that I’m due for a discussion on another key assumption — how long do you plan to be retired?