One caveat: If you retire before 62 (or whatever age you plan to draw Social Security), you will need a higher % of your savings for expenses. I agree with the comment about having a portion of your savings after tax if possible. It will give you needed flexibility. I am in year 5 of retirement, and it’s a wonderful thing!
Imo the only time this should be used is if you're retiring early but have pensions that cover all of your COL awaiting you at a defined age. Then you could coastFire adjusting work hours based on how well the portfolio is covering expenses.
It would be interesting to see what happens if you modify this method to recalculate the annual withdrawal using a new N from the IRS Life expectancy factor table each year.
Retire at 62 with no debt and mortgage paid off. Need two years of cash in a savings account. 5 years of cash in IRA/401K and balance of your IRA/401K in a 70/30 or 80/20 portfolio. On a good stock year remove a year of expenses. On a bad year remove a year expenses from IRA/401K cash. On great returns years you refill the IRA/401k 5 year cash bucket back to 5 years. On multiple bad years and your IRA/401K cash is getting low, use your savings account. Your yearly expenses need to include 10% to be added to your savings account. Collect SS at 70. Remember to adjust your expenses yearly.
Yeah, it is. It just goes to show how much variability there is in terms of market returns and sequence of return risk over time. It also puts into perspective just how bad things would really have to get for something like the traditional 4% rule to fail, which in a way is comforting :)
Retire at 62 and keep 10 years in cash and draw from that bucket until RMD . You are buying time with your investment portfolio to compound through an up and down markets
I found this a very confusing video - what exactly is the one/N and withdrawal strategy is it 10% this 20% that you didn’t really explain this - I think you’re talking to fellow engineers or some thing but not to older retirees -,you might want to rethink things (ps - I believe my IQ is 125)
Ray, basically the strategy consists of two things: How many years you want your nest egg to last starting from now (this is your N value and can be any length of time you want) and the size of your current nest egg. To calculate your withdrawal you simply divide 1 by N (hence the 1/N formula). So if you wanted your money to last you 10 years you'd withdraw 1/10 of your nest egg. If you wanted it to last you longer (like 30 years for instance) you'd withdraw 1/30 of your nest egg. Repeat this process each year. That's the basics of the approach anyway. As explained in the video there are ways you can alter it to better suit your goals. I hope that makes sense! Thanks for the comment :)
That's true. And while there are things you can do to help manage that uncertainty to some degree such as adjusting your N value mid-way through retirement or simply choosing a larger one that you reasonably think you'll need they have their own tradeoffs (which may or may not be worth it depending on your situation and goals). Even with that the uncertainty is not something that can be entirely eliminated. That's true of other strategies as well, just in slightly different ways :)
Depends on the N value they choose to use I suppose. But, yes, if they used 30 as I did for the example in the video they certainly would be extremely unlikely to outlive their savings ;)
One caveat: If you retire before 62 (or whatever age you plan to draw Social Security), you will need a higher % of your savings for expenses. I agree with the comment about having a portion of your savings after tax if possible. It will give you needed flexibility. I am in year 5 of retirement, and it’s a wonderful thing!
Having that flexibility can certainly be very helpful :)
Imo the only time this should be used is if you're retiring early but have pensions that cover all of your COL awaiting you at a defined age. Then you could coastFire adjusting work hours based on how well the portfolio is covering expenses.
Nice content, thanks for sharing this strategy!
You bet! Glad you enjoyed it :)
Interesting idea. I like it better than the 4% rule.
Awesome :)
Appreciate this kind of content from you!
Thanks! Glad to hear you're getting something out of it!
It would be interesting to see what happens if you modify this method to recalculate the annual withdrawal using a new N from the IRS Life expectancy factor table each year.
Please post link to source(s) of the 1/N strategy
Retire at 62 with no debt and mortgage paid off. Need two years of cash in a savings account. 5 years of cash in IRA/401K and balance of your IRA/401K in a 70/30 or 80/20 portfolio. On a good stock year remove a year of expenses. On a bad year remove a year expenses from IRA/401K cash. On great returns years you refill the IRA/401k 5 year cash bucket back to 5 years. On multiple bad years and your IRA/401K cash is getting low, use your savings account. Your yearly expenses need to include 10% to be added to your savings account. Collect SS at 70. Remember to adjust your expenses yearly.
Definitely an approach that would go a long way to helping you sleep at night! Glad you've found a system that works well for you :)
I'm 28. I'll have invested $28K ($18K Roth IRA, $10K taxable account) by the end of the year. Am I investing too much for retirement? $10K/year.
There’s one sure way to spend all of your retirement income. Stay Married!😜
I’m using the .5/n method starting this year. I’ll let you know how it works out.
Best of luck!
great video, enjoyed it very much!
Glad to hear it, Jason!
0:59 that is absolutely shocking
Yeah, it is. It just goes to show how much variability there is in terms of market returns and sequence of return risk over time. It also puts into perspective just how bad things would really have to get for something like the traditional 4% rule to fail, which in a way is comforting :)
Always valuable content.
Thanks! I'm glad to hear that you're still getting something out of it after all this time :)
Retire at 62 and keep 10 years in cash and draw from that bucket until RMD . You are buying time with your investment portfolio to compound through an up and down markets
That's certainly an option, too!
I'd think maybe 3 years would be enough to ride out a down period. Would 10 be overkill?
I found this a very confusing video - what exactly is the one/N and withdrawal strategy is it 10% this 20% that you didn’t really explain this - I think you’re talking to fellow engineers or some thing but not to older retirees -,you might want to rethink things (ps - I believe my IQ is 125)
Ray, basically the strategy consists of two things: How many years you want your nest egg to last starting from now (this is your N value and can be any length of time you want) and the size of your current nest egg. To calculate your withdrawal you simply divide 1 by N (hence the 1/N formula).
So if you wanted your money to last you 10 years you'd withdraw 1/10 of your nest egg. If you wanted it to last you longer (like 30 years for instance) you'd withdraw 1/30 of your nest egg.
Repeat this process each year.
That's the basics of the approach anyway. As explained in the video there are ways you can alter it to better suit your goals. I hope that makes sense!
Thanks for the comment :)
@@NextLevelLife I was right where Ray was until I read this reply.
Little typo on the moderate allocation at 3:19 with 100% allocated to bonds
Thanks for the catch! I've updated the charts for the series so that it'll be fixed next time :)
@@NextLevelLife No problem!
What I don't like about it is, that you have to make an assumption that you have no idea on how long that will be, i.e. how long you will live.
That's true. And while there are things you can do to help manage that uncertainty to some degree such as adjusting your N value mid-way through retirement or simply choosing a larger one that you reasonably think you'll need they have their own tradeoffs (which may or may not be worth it depending on your situation and goals). Even with that the uncertainty is not something that can be entirely eliminated. That's true of other strategies as well, just in slightly different ways :)
ty
You're welcome :)
I can't imagine a 96 year old using this and running out of money.
Depends on the N value they choose to use I suppose. But, yes, if they used 30 as I did for the example in the video they certainly would be extremely unlikely to outlive their savings ;)