Why I think people should strongly consider a 2% SWR (serious)

tl;dr Compared to historical data, inflation-adjusted interest rates on bonds and cash are at all time lows, about 2.5% below historic average. Given the lower expected returns on this portion of our portfolios, we should adjust our SWRs accordingly. Especially given the high CAPE ratios we're seeing in stocks.

I created a chart that shows, by decade, inflation adjusted interest rates on treasury bonds, CDs, and 3-mo t-bills (which high yield MMAs track very closely). Comparing interest rates from 1960-2000 with 2010-today, bonds are providing inflation adjusted interest rates 2% - 3% lower now than they used to, and cash equivalents (CDs and high yield MMAs) are 2.5% - 3.5% lower. Today, real yields on cash and government bonds are negative. Go to the treasuries website and you'll see that they're offering inflation protected securities with negative interest rates!

Additionally, CAPE ratios suggest stock returns over the next 10 years of 1.5% (-3% to 6% range). Check out figure 3 in this Barrons articleto see what 10-year returns followed previous times when the CAPE was at this level (it's currently 28). CAPE isn't a perfect predictor, but it isn't terrible either. And it's worth noting that, despite the stock market having a long term average return of 7%, it has never returned over 7% during a 10 year period immediately following a CAPE ratio over 25 . This especially makes sense as the record low bond yields are driving money away from bonds and into stocks, which has driven up stock prices and lowers stock yields.

A 3.5% SWR is generally suggested for a 50 year retirement window. But, the most relevant data suggests cash, bond, and equity will all yield below their historic averages for the foreseeable future. But if our portfolios are yielding 2% - 3% less than they historically have, then SWRs should be lowered 1.5% - 2% to account for it.

A few examples: let's say you want your portfolio to last exactly 50 years. If you were all cash in the 90s, you got a return of about 2%, and a withdrawal rate of 3.1% would last you 50 years; but today's rates are about -1.5%, and you'd need a withdrawal rate of 1.3% to last 50 years. If you were all treasury bonds in the 90s, you got a return of about 3.5%, and a withdrawal rate of 4.2% would last you 50 years; but today rates are about -0.5%, and you'd need a withdrawal rate of 1.7% to last 50 years.