There's an optimal planning to retire at your own pace, I'm 59 and turning 60 soon. I got laid off with a bunch of other people at my firm. I was a little down (for about a day) because I was one of those people who did the right thing over the last 30 years. I'm now retired and love it. my assets being supervised for 8years plus has impacted a lot of exposure in nest egg (in excess of 2.8m), I say that because over those 30 years I was a personal finance junkie and listened to all my mentors (John Bogle, Warren Buffett, David Bach, sometimes Dave Ramsey) haven't spent any of my 401k, Roth IRA, or brokerage cash account. My SS and pension is so far adequate to meet my expenses. I don't want for anything, anyway. My kids will get my swag.
Lowery999 Cheers I love your viewpoint, I need a way to get ahead of my expenses and create more revenue exposure, I know for a fact that there's a lot of people that simply don't make enough, I make roughly hundred plus a year and in California, rent inflation alone eat up almost all of what I make, with dependents and other obligations included, it's easy to end up with zero. however it’s a good time to add to existing asset holdings as follow -on opportunities how did you go about touching base with yours, kudos on your growth so far.
Melii you only have to put in the simplest terms to help you understanding tax, mortgage, emergency funds for cashflow interest. If you're looking for nest egg options or if you have any questions about financing your next property or assets building.
Then feel free to write Suzana markasevic her incredible earning interest will support you in making your home buying and benefits journey as smooth and stress-free as possible. Good luck staying debt free as much as possible in the future.
I like the reward tip! My wife and I are working on paying off our mortgage fast, and I think that will help motivate us. I can't wait to be mortgage free! We have a plan, and should be able to get there in 5 years or so, with extra effort.
Making my guardrail system simple. If portfolio goes up more than 5% in a year, I take out 5% the next. If it goes up 0-4% in a year, I take out 4% the next. If it goes down, I take out 3% the next and supplement a little with cash equivalents, if needed. Can do semi-annual periods, if desired.
Wow!!!! There are a lot of things I like about this video. The biggest thing I like is that you call it the "dynamic withdrawal strategy" instead of the "dynamic withdrawal rule". I think having a plan based on rules helps to make better choices. But calling it a "rule" implies that there is a consequence for breaking it. There are times when you might need to spend more than the ceiling would allow... and that's okay, because it's your money and your choice. The other thing I really like about this video... This is literally the strategy I came up with... on my own... having never heard about the "vanguard dynamic withdrawal strategy". I had ready about the other strategies that you listed... and found there to be drawbacks and weaknesses in each of them.... and I came up with this idea. I didn't call it a ceiling or floor... I called them growth and loss limits, but it's the same basic idea. I was actually looking for your video talking about the different strategies so I could post "My Strategy" in a comment.... when I found this video.
Have in the pass and will considered and today, implementing this strategy as a withdrawal method in my retirement. Just another tool in my financial tool box. I love the freedom of tailoring it accordingly.
Case study: FT world traveler/early retiree (greetings from Zaragoza, Spain!). Actually calculate the percent of my portfolio after a "retirement year" completes. My first 4 years of retirement have been averaging 3.25%. This year I was thinking 5% (higher cost countries mostly: Norway, Switzerland, Oz, NZ), but the market is killing it at the moment. Would be classified as long time (much younger partner I want to provide for), more aggressive, more flexible & high risk. Focused on $ for decades, now I hardly think about it. Life is good.
I like customization! Since I retired early this year, I am not taking any large or unnecessary withdrawals to hold my marginal tax bracket down. Starting next year. I will withdrawal what I need to meet my goals for fun, travel, education, etc, whatever hat number is. I think by chance it may be around 4 percent. I have found myself in the fortunate situation that I need to spend aggressively to avoid leaving a large estate.
Wow. This popped up in my feed and it's perfect! Thanks Erin. I like the thinking on this withdrawal strategy. I'm not retired yet, I'm 61, plan on retiring at 67, watching this has made my decision on what to do when the time comes. Great job! Perfecto! Thanks again. I'll be watching more of you! Next up is your video on how much will I get from Social Security.
Thank you Erin - this was helpful. I’ve got 3 pensions generating about $160K/yr, so that more than satisfies my monthly expenses. Also have a $1.3M portfolio. My “dilemma” is how to spend down the portfolio. My initial thought was/is to wait each year to determine the performance of the portfolio and then spend the “appreciation/profit” from the previous year. I haven’t done this yet because I retired about 8 months ago. Hence my need to educate myself on the different established withdrawal strategies - hence my watching your video. I’ve started watching your work about 18 months ago & have always appreciated the content, so thank you for all your advice.
I have 401k account invested in Vanguard 2050 retirement index. It’s long way to go before retirement but my account grows well so far. 20% return on average
Retired almost 6 years & using the "Dynamic" style. I was not aware Vanguard had this system but just my own financial background led me this way. I am discovering I need to increase my "micro adjustments" though. I am an aggressive investor but conservative spender. My portfolio has grown substantially in the 6 years and am going to face required RMD's that may hurt. Not only tax brackets but Medicare insurance as well. My crystal ball was a little cloudy & did not predict this strong Bull mkt. If we could only predict the future it sure would make these decisions easier!
Don't worry about using numbers and stuff, that is what I suspect most folks watching want to see. The theory put to actual case numbers that make the scheme or plan take on a real feel. A withdrawal plan like this can also be complicated or complimented by all the RMD's which one might have to take and those are also driven by the past years market performance, and will typically also get larger most years.
Making a 20-year budget and applying an even more flexible dynamic strategy while tracking my portfolio has made all the difference, allowing me to retire early and withdraw at a 12+% rate for now (prior to SS). YOLO!
I have time to change it, if I find a better model. But, I plan on having 3-5 years in cash/cash equivalents and then replenishing based upon market performance. My percentage is based upon the intersection of expenses vs likelihood of not running out before death (running simulations).
We are doing a more go-go, slow-go, no-go approach. More now, due to the ability to go and do and see travel. As we age our travel will slow and our budget will reduce.
This is how we are doing it too. Also, since we are delaying SS for the first five years of retirement, we will take more out. Once we start taking SS, we will probably only need to take out the RMD's from then on.
Thanks for sharing this portfolio withdrawal strategy! I did a spreadsheet on our portfolio and found the strategy you described provides adequate income for us for as long as we are likely to need it. The modest increases (5%) and decreases (-2.5%) per year from market performance should require relatively easy adjustments in our lifestyle. Lots of other strategies out there are more complex, or require using a financial advisor that has access to proprietary software to calculate guardrails. Thanks for bringing this to the channel’s attention
I back tested the guardrail strategy using real market returns where adjust for inflation and you take out initial 5.3%. If your next year's withdraw is more than 20% of your account, you decrease by 10% or if less than 20% of your account you increase by 10%, otherwise you stay the same. This rocked it in every real market back tested case.
4% rule is a very conservative approach designed for dummies who do not understand much of Finance. Adjusting up or down little bit based on market conditions of course is definitely a better strategy. Even before retirement, spending differs from year to year for the same household. Same concept applies after retirement. You need absolute minimum spending (floor) then adjust how much extra as discretionary spending depending on conditions at that time.
@@you1jay Or, you could live off of Dividends and leave the base amount alone for posterity. If you have your wealth in ROTH accounts, you don't need to worry about RMDs. Best advice is to sit down with a fiduciary financial planner specializing in retirement and work out a plan. Not all planners are fiduciaries so make sure yours is.
I like this strategy. It allows for customization and creativity. It is based more on market performance rather than a strict number or percentage and that seems more practical and logical.
It's interesting learning about withdrawal strategies. The blind spot that I think these discussions have are relating the strategies to one's expenses. What if expenses are more than your floor? What if 4% doesn't cover expenses? What do you do with the extra money that doesn't get spent because your ceiling raised? I suppose adding these questions to a withdrawal strategy adds another layer of complexity and therefore isn't conducive to a RUclips video. Thanks for the video! Always good to get new ideas percolating!
My plan regarding unspent extra money is to either put in a cash account , or reinvest it in my brokerage account depending on circumstances at the time. As to the floor and expenses, either reduce spending, or set the floor at expenses for that year then re-evalute expenses and adjust accordingly for the future. I will have %20-%25 set aside in cash for adjustments and emergencies.
I like this strategy better than 4% rule. I'd like to spend a minimum that includes non-discretionary plus some discretionary expenses and a maximum that includes more discretionary expenses when my portfolio value is on target.
I agree a guardrails approach doesn’t get the attention it deserves. I get it adds a little complexity, but not much. It’s a super basic Excel file to keep track year over year. Another great video!
@jnewby74 I guess in a nutshell, if you are invested in the market on good years you spend more and on bad years you spend less. I'm self-employed, so I've always had to do that anyway.
excellent video and explanations. I guess this is sort of the strategy that I planned to use when I retire in 3 years, but had not heard it defined this way. I can see where this will be challenging for people who are money savvy. A lot of people get a set paycheck every 2 weeks or monthly and then they spend accordingly. Not everyone knows how to handle a variable paycheck. They want to know the same amount is coming in at a specific set interval without thought. And loved the bloopers! Poor Peanut getting all the blames.
I use the Adviice platform and model my spending, taxes, investments, dividends, income, pensions, etc for each year of my retirement. And I will revisit it at the beginning of each year. Use technology and Keep it simple folks.
I plan to use a dynamic withdrawal approach after I retire at the end of next year. I think it's a much better option than a straight 4% (+inflation) if you want to enjoy the fruits of your labor.
Great information, definitely something I am going to look into. Stop stressing about the lighting or anything else being perfect. It was a great video and the lighting and everything else was great. Thanks very much!!
Great job Erin. Agree this strategy is a good way to go, albeit a bit more complicated. Hopefully this gives some retirees more confidence to enjoy the fruits of their labors, particularly in the good market periods. I think the most common thing I hear from my retired friends is that they have begun to realize they can spend more than they thought in early retirement, which is probably because they have been prudent savers all the life, and because the market has been mostly good for a while now. Personally I use the various strategies as checkpoints rather than spending rules, knowing that my annual spending will likely go down when I get past the “go-go” years, which will come pretty quick. Thanks for your great communications.
I really like the bounded strategies like the one you described here. Guardrails based on percentage or risk allow me to be more comfortable with a higher starting withdrawal. I want to allow myself to spend the most I safely can while I can get the most our of it.
Erin, we're about 4 months into full retirement, and one thing that I've not seen *any* retirement strategy address is personal need for retirement funds. I know this is "common sense", but we're not pulling more than we need out of our IRAs, and actually are using our IRAs for some "bucket list" items. Are we going above the 4% rule for this year? Yep. But next year we're anticipating not pulling anything out. And when the market adjusts, we have enough cash reserves to not pull anything for 2 years. I guess what I'm saying is that while investing can be put into a plan for someone in the accrual part of their careers, pulling funds out during retirement is a combination of needed funds and discretionary funds, which is unique to each individual. One of the reasons for having a pro investor in your corner during retirement. Another great segment; thanks!
Doesn’t that put the amount of taxes on a roller coaster? The big money years having taxes take a big bite out of you? I would think if you could flatten the curve a bit the taxes would be less.
Most rich people stay rich by spending like the poor and investing without stopping then most poor people stay poor by spending like the rich yet not investing like the rich but impressing them. People prefer to spend money on liabilities, Rather than investing in assets and be very profitable
Financial education is what we need right now for more than 70% of the society in the country as very few are literate on the subject. Thanks to Jihan Wu, the man that changed my financial life.
I like this concept and you explained the plan well. I like that it gives me another option to talk with my financial advisor about. In practice though, if things go as well as planned, we can live on my plumbers pension and SSI. I am more interested in reducing the tax burden on my IRA caused by RMD’s by making Qualified Charitable Contributions to causes that we feel called to support financially.
Hi Erin. Good explanation of this approach and I agree that it doesn't get the attention it should. Unfortunately, human natured being what it is, people tend to look for what is easy and expected. My preference are the guardrails of the dynamic withdrawal approach. While it takes a little extra effort, it provides you the opportunity to spend more in some years and also easily cut back a little to keep your plan on track. Good bloopers as usual as well. I hope you had a great birthday and have plans for a special weekend to celebrate. Have a great weekend and upcoming week Erin! I'll see you on the next one 😊 Larry, Central Valley, Ca.
I use a straight 4 % rule no inflation adjustment. If my portfolio goes up, I get more out of my retirement accounts. If I don't need it all I save the xtra for the years the market goes down. And since it is a straight 4% if the market goes down it will automatically cut the amount I receive.
I won’t have a strong opinion on what’s right until I’m 90 and reviewing in hindsight. But for now, we’re keeping our base life “needs” within SS and the remnant of my truncated pension. The tax deferred account gets spent as our “wants” require. I use 4% only as a gage to understand if I’m considering spending a little or a lot. I also have built a detailed financial projection model so I can see the effects of our spending rate on RMDs that are still nearly a decade away. I’m not claiming that I’m doing an optimal spending amount plan. We’re comfortable and can afford the active experiences that we enjoy. Basically, our habits and planning for physical fitness and finances had worked out perfect for us so far. The biggest problem we have is the large amount of time and little bit of money it is costing us because of immediate family that failed to plan for their own senior phase of life. I’m actually getting bitter feelings towards “loved ones” for how their poor life choices has put them in poor health and vulnerable circumstances with nobody but me to keep them from lonely demise in deteriorating circumstances. In other words, their failure to plan has undermined my otherwise thorough planning.
thats kinda what im thinking too. seems simple and with this you can never run out of money (of course, you could get very little to spend!). that, and probably just like some ad hoc. like if need an extra expenditure like for a car and things are looking good, i'll just pull the money, without any rules.
That is too conservative. Seriously, the normal 4% rule is already very conservative and I would argue even simpler. Fix 4% in year and simply increase that absolute amount with inflation yearly. Even then the chance of ending with a portfolio worth 5 times your original value, is much higher than running it down to 0. Your approach leads to more volatility and a much higher portfolio value. Also spending on average goes up every year so you will have most buying power at 85 close before death.
@@bryanc8275 I am 100% in stocks and etfs and my portfolio keeps growing. I have been doing this for about 3 years now. But I have a younger wife and a young daughter. So I haven't stopped trying to grow my investments.
Similar to the Guardrails strategy you typically see on retirement planning apps. I think a dynamic strategy is by far the most realistic approach and mirrors what the majority of retirees end up doing. People aren't going to fly their plane into the ground, they'll attempt to course correct. My plan will probably be constantly updating as my expenses and goals are liable to change many times over a 30 year retirement.
Excellent explanation - I'm following a very similar spending strategy 3 years into my early retirement. (And I really encourage EVERYONE to stay to the end of the video. The outtakes are hilarious! 😁)
The outtakes are interesting and somewhat revealing. The concern over the lighting seems to show an attention to near perfection. I interpret that as a need, not a want, for precision. Precision is one of your most important and branding characteristics. Simply said, you're a nerd. :)
One main problem with these sorts of calculators is larger one-off purchases like a car or new roof. Not all living expenses are averaged out on a year to year basis.
Using the phrase "willing to adjust our spending up" really made this hard to apply to my planning style. I'd recommend using inflation, market return, and special event spending needs to provide retirement advice. The "guard rail" approach is a nice one presented here, and more simplistic, and I like the "withdraw what is best for you" that is woven in towards the end. That is what is key, if you need an extra $20k for health care in year 2, or want to take a bucket list trip with your kids in year 4, recalc the model and check your percentage success rate with planned withdrawals, adjusted for inflation and projected investment returns based on historical averages, and just keep recalcing it to adjust your spending plans.
You answered my question! I'm starting to withdraw out of my IRA and thinking about the proper amount to take out per year. his helps greatly, and I'll use as a guide starting next year. Thanks!
OK so Iove your channel, one of the best. I have a criticism. I usually save it for the likes of Hugh Jackman or Taylor Swift. There is a level of perfect that really makes the rest of us feel insecure. No one should be this perfect, smart, talented, photogenic, pretty, knowledgeable. Thank god for the bloopers at the end so us mortals don't really feel completely inadequate. Do you sing and dance too. Seriously, i get so much useful info from your channel and your presentation, please keep up the great work.
Hahaha!!! I sing poorly! And an interesting fact about me is that I make it a point to learn every fad dance that exists out there 😂 my latest one was the dance that went along with the bar song by Shaboozey (and keep those bloopers in mind, none of us are perfect!)
It's not just the media that doesn't like flexibility in a retirement plan. Most people really want a fixed rule set to follow and trust. Unfortunately, life doesn't work that way, and we all need to be able to adjust to changes that come our way.
Exactly! If you have big ticket repairs come up, something needs to be replaced, medical bills, an opportunity to do something you want to do, the list goes on or if the market takes a downturn and you want to ride it out, that changes how much you withdraw.
There’s a lot of people out there with very little common sense . Why do you think there’s tons of “ gurus” , experts , etc lining up to tell you how to run your life ?? lol!
Nice presentation. One thing that should have been clarified is that the decision to increase, decrease or stay put for any individual is their personal net worth , not how the market as a whole performed.
When you say, when the market is up 10%, you really mean, when your portfolio is up 10%. Just because the markets up doesn’t mean your 60/40 portfolio is up 10%.
you have a good point. At the same time it looks like it doesn't matter how much and what is going up. The increase (or decrease) of the market (and likely of the portfolio) is ignored in this strategy. Up 1, 5, 10, 20 percent it's all the same for the strategy. Same when it's down.
We use the Vanguard dynamic withdrawal strategy in conjunction with the 3 bucket strategy. After 9 years in retirement, we have changed to two buckets, cash and stocks. For the dynamic strategy, we have been able to preserve capital and adjust the withdrawals to convert from tax deferred to exempt in an effort to not only reduce taxation but also RMDs in a few years. We still have over 30% more than the capital we started from. You could say the capital now has adjusted for inflation or not. Great video.
Correct - we know Erin meant “your portfolio”, but that’s not what she said. The math is also misleading/faulty - the growth should be added after the withdrawal, not before it (you can’t spend it if you don’t withdraw it until the end of the year).
very helpful, this was my strategy as i have several income streams. thanks for detailing how to execute the ceiling/floor- as i didn’t know how to execute
Whenever discussions like this get started, I always envision some 75 year old retiree worrying over a spreadsheet: "I'm running out of money, but I set my withdrawal strategy 10 years ago and now I don't know what to do! I don't even need half of what I withdrew, but my strategy says I have to take it!" Which is to say, this model is the "don't be stupid" amendment that should be implied in every model. Take what you need. If your portfolio is doing really well, take more. If it's doing poorly, don't. If it's doing REALLY poorly, find ways to spend less this year.
Thanks for sharing this strategy. The good part is it’s basic and brings in a lagging approach into the plan but need to justify the upper and lower control limits. I think there are assumptions behind it: like you can live within these means and no SS or pension is needed? When would Roth conversion take place, IRMA, healthcare, taxes? It also takes away a Monte Carlo probability of success and well as looking forward to saying the next year is a down year like in a risk assessment. Overall I think it keeps things simple and worth using knowing other factors noted previously. Great video to think about.
Erin - This was possibly 'the most informative" retirement withdrawal strategy I've had the opportunity to view ... Super Informative .... Also, loved the 'bloopers' at the end ... I've subscribed & liked the channel!
This makes sense, but I think there's one more piece missing: only withdraw what you need for that year. Just because you /can/ withdraw up to (last year * 1.05) doesn't mean you have to. If you don't have reason/need to spend more money, don't.
I think most people believe the “percent rules” mean that you are multiplying the percentage against your full portfolio each year. That is not true, it’s actually similar to this strategy. Except you’re always increasing your initial withdrawal by inflation. So with the 4% rule it would be 40,000*1.03 … if inflation increases by 3%. I don’t see a big difference in complexity. One asks if your portfolio went up or down. The other asks what inflation is.
Yes! This is my plan as well, basically! I just need to figure out how to adjust if there are multiple down years in my first 5 years of retirement, because that could wreck the whole plan.
I think is just a rebranding of the guyton Klinger withdrawal or guardrail strategy. It was described as being between the fixed percentage, extremely tight guard rails no room to move fixed withdrawal % of total balance and no guardrails of the classic 4% withdrawal where you don't change at all to market conditions. How wide or narrow of guardrails is the determining factor
Interesting video and easy to follow. It seems a bit difficult to choose a "good" ceiling and floor for the average investor. I like the idea but the customization seems a bit dangerous if you start too aggressive. That's why I think people prefer the 4% guideline. Simplicity and no guesswork.
I come from a farming family. I spend my retirement like we did with yearly farm income. In good years spend 5% of the returns. In bad years spend little to nothing. So far so good.
I've just retired have a very simple approach. I've tracked spending for years, so I have a good handle on my yearly expenses. That's the base number I need to survive- it even includes some fun, eating out, and some non-essential purchases. It's not bare bones. Then I ran Monte Carlo and other retirement simulations to see the max amount I could add to that base number and still have an 80% probability of success. That additional money has many potential uses- travel, large expenses, emergencies, and perhaps most importantly, to not be spent during bad markets. Some years, some money will roll over and in some years, I may have to grab from the next year (if, for example, I used the whole sum on travel and then had an emergency in December). Is this a thing? I've never seen anyone talk about an approach like this.
This makes so much logical sense. I'm prepping exactly the same way. So called over saving to make sure I have plenty of buffer room. And when I have about twice what I "need" (which I'd define as my expenses PLUS my wants, like entertainment, travel, and toys), then really, does it matter what withdrawal strategy I employ? That's my accumulation strategy, to make my withdrawal strategy irrelevant.
I’m finalizing my plan using a very similar approach using Boldin (New Retirement). Their software builds everything using expenses as the starting foundation, which makes far more sense than starting from withdrawal %.
The only problem with all that is life is not guaranteed. With a recent cancer diagnosis this is top of mind for me. So glad I retired at 52 seven years ago. No one can take those 7 years ago from me. All the calculations and numbers go right out the door when this happens to someone. Bloopers are back!
Another great video Erin! Definitely food for thought. A video that thoroughly explains the SSA spousal benefit would be great. -If your looking for topics
I like the idea of a Monte-Carlo (MC) based spending rate. Every year you update the inputs and find the 85% (or other probability you desire) Probability of success (POS) spending rate and set that as this years annual spending limit. If the market is down then this years limit goes down. If up, then up. If you pick lower POS then you should probably find a way to validate the process. The MC program I use allows you to input future spending goals like future car purchases, new house or one time incomes. What I don't like about what you've just explained is that how would I know the conditions I've chosen are a valid set of conditions that have a basis of working. Too many uncoordinated inputs.
I can never disassociate the word "strategy" in relation to money and finances from gambling. ooh, you are getting close to 100K. Just like saving, the first 100k subs seems to be the toughest.
I like this approach; makes a lot of sense. Does it impact how much we need to retire based on the market at the time of retirement? For example if the market is in a recession on our retirement year, and 2.5% + S.S isn't enough to cover expenses, do we need more than 25X of our yearly expenses? I assume yes, but just wanted to verify.
It is interesting to see withdrawal strategies being discussed. My wife and I always discussed the 4% as a start point. But starting in January I will receive my first SS deposit. That is going to be somewhere about $4300 net after Medicare and such. What is funny is that with my wife's income, she won't retire for another 7+ years, and my SS we really don't need much if anything from my retirement accounts. We have gotten along on her income and our savings reserve for the last 2+ years. This can't go on forever though. I have seen this 4% + guardrails before and I am not sure what the heck I would do with the money from my retirement account. Yes I could put it in an investment account or something like it but then why did I save it for? I guess it is simply that I am not dealing with this retirement phase of my life very well.
Sock it into a CD or money market account for easy access or just reinvest it. My brother has been retired for a few years and pretty much lives off of just his SS even though he has a couple more income streams. He said that his biggest expense that went away was maxing out his 401k every year. I never really thought about that but he makes a good point
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
For the average person, the strategies are fairly demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time
All these withdrawal strategies suggest one is living a static - I'd say, sterile - lifestyle. But you have previously described the 3 sequential post-retirement lifestyles for most of us: initially adventurous & more expensive, then more routine, and finally the least spending, driven by physical & health circumstances. And these formulae also ignore the impact of RMDs.
Great video. I’m retiring at the end of the year and think this is what I’m going to do. Do you have a video on the pros and cons of Vanguard and Fidelity to keep my 401K? It’s currently in Fidelity, my company’s choice. Love the outtakes and the pup. 12:57
The 4% rule has always been too conservative. Most people that follow it die with way more money than they started out with in retirement. I agree we should be flexible in retirement. 5.5% is much more resonable and I agree you should be flexible to withdraw less in severe bear markets. If you stay 100% in stocks your portfolio will perform much better in the long run!!!
@@dantheman6607 : You have to be able to handle the swings and you must have some flexibility. If you have no debt including no mortgage, then you will have much more flexibility. So in years when the market tanks 40% you have to lower your withdrawals temporarily. In the long run you'll have better results going with 100% stocks!!
@@feldhdleh, I'm not retired, but I've been in the market for decades and I've ridden the ups and downs and because of this I could retire if I wanted to, I have the money.
My wife and I are debt free and our monthly expenses is $4,000 a month and we are pretty happy in our very low cost state. In 10 years, if using the 4% rule, I really can't see how we would spend $20,000 a month in today's dollars when we start drawing down our retirement funds. That is a lot of money!
Good video but your nomenclature is incorrect. The examples you gave, you stated that they would increase their spending by 5% and decrease their spending by 2.5%. You should’ve used the word “to” in place of “by”. Another way of stating this is they would increase their spending by 20% (from 4 to 5%) and decrease their spending by 38% (from 4 to 2.5%)
If there are people who pick 6% as their number, they could very well run out of money. So it is important to run some Monte Carlo simulations on this if your strategy is sustainable.
Same. Coming from three generations of frugal, poor families, I’m trying to figure out what to do with abundance (including giving away 1/3 of our annual income for charitable causes) 😅😊
I think you forgot that wealthy people accumulate more wealth to pass down to their family. Not so they can spend it all before they leave this earth. So you can great a Greater Generational wealth if you would like to.
Take family and friends out to dinner or vacation. I took my extended family on a beach vacation. It was a $10,000 beach house. Beautiful memories made
Thank you for the informative videos. I am a little confused on the "when the market is up" comment. In this example does the market need to be up any percentage over .1 we would withdraw 5% or does the market need to be up to certain level as in at least 3%? Thanks
Great video as always. It seems like most of the strategies are geared toward someone that is going to take out a starting amount and index it (the index might be variable). That doesn't really work for me as I'm not planning on taking SS as soon as I retire so my spending will be much higher initially and then drop because I'll get SS. At least they are looking at ways to address under spending (or needlessly sacrificing). Personally, I like a modified bucket strategy where you look at what expenses you're expecting in the next 3-5 years but it also needs to take into account if you're projected to be under or over spending.
Retired four years and this strategy is spot on
I never viewed 4 percent as a fixed rule, but a guide, sometimes more sometimes less depending on the market
There's an optimal planning to retire at your own pace, I'm 59 and turning 60 soon. I got laid off with a bunch of other people at my firm. I was a little down (for about a day) because I was one of those people who did the right thing over the last 30 years. I'm now retired and love it. my assets being supervised for 8years plus has impacted a lot of exposure in nest egg (in excess of 2.8m), I say that because over those 30 years I was a personal finance junkie and listened to all my mentors (John Bogle, Warren Buffett, David Bach, sometimes Dave Ramsey) haven't spent any of my 401k, Roth IRA, or brokerage cash account. My SS and pension is so far adequate to meet my expenses. I don't want for anything, anyway. My kids will get my swag.
Lowery999 Cheers I love your viewpoint, I need a way to get ahead of my expenses and create more revenue exposure, I know for a fact that there's a lot of people that simply don't make enough, I make roughly hundred plus a year and in California, rent inflation alone eat up almost all of what I make, with dependents and other obligations included, it's easy to end up with zero. however it’s a good time to add to existing asset holdings as follow -on opportunities how did you go about touching base with yours, kudos on your growth so far.
Melii you only have to put in the simplest terms to help you understanding tax, mortgage, emergency funds for cashflow interest. If you're looking for nest egg options or if you have any questions about financing your next property or assets building.
Then feel free to write Suzana markasevic her incredible earning interest will support you in making your home buying and benefits journey as smooth and stress-free as possible.
Good luck staying debt free as much as possible in the future.
I like the reward tip! My wife and I are working on paying off our mortgage fast, and I think that will help motivate us. I can't wait to be mortgage free! We have a plan, and should be able to get there in 5 years or so, with extra effort.
Making my guardrail system simple. If portfolio goes up more than 5% in a year, I take out 5% the next. If it goes up 0-4% in a year, I take out 4% the next. If it goes down, I take out 3% the next and supplement a little with cash equivalents, if needed. Can do semi-annual periods, if desired.
This makes much more sense than anything else I have read about setting a withdrawal amount.
Wow!!!! There are a lot of things I like about this video. The biggest thing I like is that you call it the "dynamic withdrawal strategy" instead of the "dynamic withdrawal rule". I think having a plan based on rules helps to make better choices. But calling it a "rule" implies that there is a consequence for breaking it. There are times when you might need to spend more than the ceiling would allow... and that's okay, because it's your money and your choice. The other thing I really like about this video... This is literally the strategy I came up with... on my own... having never heard about the "vanguard dynamic withdrawal strategy". I had ready about the other strategies that you listed... and found there to be drawbacks and weaknesses in each of them.... and I came up with this idea. I didn't call it a ceiling or floor... I called them growth and loss limits, but it's the same basic idea. I was actually looking for your video talking about the different strategies so I could post "My Strategy" in a comment.... when I found this video.
Have in the pass and will considered and today, implementing this strategy as a withdrawal method in my retirement. Just another tool in my financial tool box. I love the freedom of tailoring it accordingly.
Case study: FT world traveler/early retiree (greetings from Zaragoza, Spain!). Actually calculate the percent of my portfolio after a "retirement year" completes. My first 4 years of retirement have been averaging 3.25%. This year I was thinking 5% (higher cost countries mostly: Norway, Switzerland, Oz, NZ), but the market is killing it at the moment. Would be classified as long time (much younger partner I want to provide for), more aggressive, more flexible & high risk. Focused on $ for decades, now I hardly think about it. Life is good.
I like customization! Since I retired early this year, I am not taking any large or unnecessary withdrawals to hold my marginal tax bracket down. Starting next year. I will withdrawal what I need to meet my goals for fun, travel, education, etc, whatever hat number is. I think by chance it may be around 4 percent. I have found myself in the fortunate situation that I need to spend aggressively to avoid leaving a large estate.
Wow. This popped up in my feed and it's perfect! Thanks Erin. I like the thinking on this withdrawal strategy. I'm not retired yet, I'm 61, plan on retiring at 67, watching this has made my decision on what to do when the time comes. Great job! Perfecto! Thanks again. I'll be watching more of you! Next up is your video on how much will I get from Social Security.
Thank you Erin - this was helpful. I’ve got 3 pensions generating about $160K/yr, so that more than satisfies my monthly expenses. Also have a $1.3M portfolio. My “dilemma” is how to spend down the portfolio. My initial thought was/is to wait each year to determine the performance of the portfolio and then spend the “appreciation/profit” from the previous year. I haven’t done this yet because I retired about 8 months ago. Hence my need to educate myself on the different established withdrawal strategies - hence my watching your video. I’ve started watching your work about 18 months ago & have always appreciated the content, so thank you for all your advice.
I have 401k account invested in Vanguard 2050 retirement index. It’s long way to go before retirement but my account grows well so far. 20% return on average
Retired almost 6 years & using the "Dynamic" style. I was not aware Vanguard had this system but just my own financial background led me this way. I am discovering I need to increase my "micro adjustments" though. I am an aggressive investor but conservative spender. My portfolio has grown substantially in the 6 years and am going to face required RMD's that may hurt. Not only tax brackets but Medicare insurance as well. My crystal ball was a little cloudy & did not predict this strong Bull mkt. If we could only predict the future it sure would make these decisions easier!
Don't worry about using numbers and stuff, that is what I suspect most folks watching want to see. The theory put to actual case numbers that make the scheme or plan take on a real feel. A withdrawal plan like this can also be complicated or complimented by all the RMD's which one might have to take and those are also driven by the past years market performance, and will typically also get larger most years.
Making a 20-year budget and applying an even more flexible dynamic strategy while tracking my portfolio has made all the difference, allowing me to retire early and withdraw at a 12+% rate for now (prior to SS). YOLO!
I have time to change it, if I find a better model.
But, I plan on having 3-5 years in cash/cash equivalents and then replenishing based upon market performance.
My percentage is based upon the intersection of expenses vs likelihood of not running out before death (running simulations).
We are doing a more go-go, slow-go, no-go approach.
More now, due to the ability to go and do and see travel. As we age our travel will slow and our budget will reduce.
This is how we are doing it too. Also, since we are delaying SS for the first five years of retirement, we will take more out. Once we start taking SS, we will probably only need to take out the RMD's from then on.
Thanks for sharing this portfolio withdrawal strategy! I did a spreadsheet on our portfolio and found the strategy you described provides adequate income for us for as long as we are likely to need it. The modest increases (5%) and decreases (-2.5%) per year from market performance should require relatively easy adjustments in our lifestyle. Lots of other strategies out there are more complex, or require using a financial advisor that has access to proprietary software to calculate guardrails. Thanks for bringing this to the channel’s attention
I back tested the guardrail strategy using real market returns where adjust for inflation and you take out initial 5.3%. If your next year's withdraw is more than 20% of your account, you decrease by 10% or if less than 20% of your account you increase by 10%, otherwise you stay the same. This rocked it in every real market back tested case.
I plan to adjust withdrawals based on previous year’s market performance. I have a pension as well which greatly reduces risk.
I did not know Vanguard had this, but it is a good tool. Thanks for the effort you took to explain it the way you did.
4% rule is a very conservative approach designed for dummies who do not understand much of Finance. Adjusting up or down little bit based on market conditions of course is definitely a better strategy. Even before retirement, spending differs from year to year for the same household. Same concept applies after retirement. You need absolute minimum spending (floor) then adjust how much extra as discretionary spending depending on conditions at that time.
@@you1jay Or, you could live off of Dividends and leave the base amount alone for posterity. If you have your wealth in ROTH accounts, you don't need to worry about RMDs. Best advice is to sit down with a fiduciary financial planner specializing in retirement and work out a plan. Not all planners are fiduciaries so make sure yours is.
I like this strategy. It allows for customization and creativity. It is based more on market performance rather than a strict number or percentage and that seems more practical and logical.
It's interesting learning about withdrawal strategies. The blind spot that I think these discussions have are relating the strategies to one's expenses. What if expenses are more than your floor? What if 4% doesn't cover expenses? What do you do with the extra money that doesn't get spent because your ceiling raised? I suppose adding these questions to a withdrawal strategy adds another layer of complexity and therefore isn't conducive to a RUclips video.
Thanks for the video! Always good to get new ideas percolating!
My plan regarding unspent extra money is to either put in a cash account , or reinvest it in my brokerage account depending on circumstances at the time. As to the floor and expenses, either reduce spending, or set the floor at expenses for that year then re-evalute expenses and adjust accordingly for the future. I will have %20-%25 set aside in cash for adjustments and emergencies.
You set the floor keeping in mind your budget. Try it in a calculator to test your parameters: the online calculator I use is called FI Calc
I like this strategy better than 4% rule. I'd like to spend a minimum that includes non-discretionary plus some discretionary expenses and a maximum that includes more discretionary expenses when my portfolio value is on target.
Engagement comment, keep up the great work, Erin.
I agree a guardrails approach doesn’t get the attention it deserves. I get it adds a little complexity, but not much. It’s a super basic Excel file to keep track year over year.
Another great video!
@jnewby74 I guess in a nutshell, if you are invested in the market on good years you spend more and on bad years you spend less. I'm self-employed, so I've always had to do that anyway.
excellent video and explanations. I guess this is sort of the strategy that I planned to use when I retire in 3 years, but had not heard it defined this way. I can see where this will be challenging for people who are money savvy. A lot of people get a set paycheck every 2 weeks or monthly and then they spend accordingly. Not everyone knows how to handle a variable paycheck. They want to know the same amount is coming in at a specific set interval without thought. And loved the bloopers! Poor Peanut getting all the blames.
I use the Adviice platform and model my spending, taxes, investments, dividends, income, pensions, etc for each year of my retirement. And I will revisit it at the beginning of each year. Use technology and Keep it simple folks.
I plan to use a dynamic withdrawal approach after I retire at the end of next year. I think it's a much better option than a straight 4% (+inflation) if you want to enjoy the fruits of your labor.
Great information, definitely something I am going to look into. Stop stressing about the lighting or anything else being perfect. It was a great video and the lighting and everything else was great. Thanks very much!!
Great job Erin. Agree this strategy is a good way to go, albeit a bit more complicated. Hopefully this gives some retirees more confidence to enjoy the fruits of their labors, particularly in the good market periods. I think the most common thing I hear from my retired friends is that they have begun to realize they can spend more than they thought in early retirement, which is probably because they have been prudent savers all the life, and because the market has been mostly good for a while now. Personally I use the various strategies as checkpoints rather than spending rules, knowing that my annual spending will likely go down when I get past the “go-go” years, which will come pretty quick. Thanks for your great communications.
I really like the bounded strategies like the one you described here. Guardrails based on percentage or risk allow me to be more comfortable with a higher starting withdrawal. I want to allow myself to spend the most I safely can while I can get the most our of it.
Erin, we're about 4 months into full retirement, and one thing that I've not seen *any* retirement strategy address is personal need for retirement funds. I know this is "common sense", but we're not pulling more than we need out of our IRAs, and actually are using our IRAs for some "bucket list" items. Are we going above the 4% rule for this year? Yep. But next year we're anticipating not pulling anything out. And when the market adjusts, we have enough cash reserves to not pull anything for 2 years.
I guess what I'm saying is that while investing can be put into a plan for someone in the accrual part of their careers, pulling funds out during retirement is a combination of needed funds and discretionary funds, which is unique to each individual. One of the reasons for having a pro investor in your corner during retirement.
Another great segment; thanks!
Doesn’t that put the amount of taxes on a roller coaster? The big money years having taxes take a big bite out of you? I would think if you could flatten the curve a bit the taxes would be less.
@@13Voodoobilly69 Not really, we just pull the extra amount of funds out to pay the taxes, then pay estimated taxes for that quarter.
Hit 401k today. Appreciate you for all the knowledge and nuggets you had thrown my way over the last months. Started with 24k in July 2024..,
Most rich people stay rich by spending like the poor and investing without stopping then most poor people stay poor by spending like the rich yet not investing like the rich but impressing them. People prefer to spend money on liabilities, Rather than investing in assets and be very profitable
You are so correct! Save, invest and spend for necessities and a few small luxuries relatives to one's total assets ratio
Waking up every 14th of each month to £210,000 it’s a blessing to I and my family… Big gratitude to Jihan Wu🙌
Hello how do you make such monthly?? I'm a born Christian and sometimes I feel so down 🤦♀️of myself because of low finance but I still believe in God
Financial education is what we need right now for more than 70% of the society in the country as very few are literate on the subject. Thanks to Jihan Wu, the man that changed my financial life.
I like this concept and you explained the plan well. I like that it gives me another option to talk with my financial advisor about. In practice though, if things go as well as planned, we can live on my plumbers pension and SSI. I am more interested in reducing the tax burden on my IRA caused by RMD’s by making Qualified Charitable Contributions to causes that we feel called to support financially.
Roth conversion is another option if you have heirs.
Hi Erin. Good explanation of this approach and I agree that it doesn't get the attention it should. Unfortunately, human natured being what it is, people tend to look for what is easy and expected. My preference are the guardrails of the dynamic withdrawal approach. While it takes a little extra effort, it provides you the opportunity to spend more in some years and also easily cut back a little to keep your plan on track. Good bloopers as usual as well. I hope you had a great birthday and have plans for a special weekend to celebrate. Have a great weekend and upcoming week Erin! I'll see you on the next one 😊 Larry, Central Valley, Ca.
Videos like this are so helpful to reassuring me that i can spend more than i currently am. 😊
I use a straight 4 % rule no inflation adjustment. If my portfolio goes up, I get more out of my retirement accounts. If I don't need it all I save the xtra for the years the market goes down. And since it is a straight 4% if the market goes down it will automatically cut the amount I receive.
I won’t have a strong opinion on what’s right until I’m 90 and reviewing in hindsight. But for now, we’re keeping our base life “needs” within SS and the remnant of my truncated pension. The tax deferred account gets spent as our “wants” require. I use 4% only as a gage to understand if I’m considering spending a little or a lot. I also have built a detailed financial projection model so I can see the effects of our spending rate on RMDs that are still nearly a decade away.
I’m not claiming that I’m doing an optimal spending amount plan. We’re comfortable and can afford the active experiences that we enjoy.
Basically, our habits and planning for physical fitness and finances had worked out perfect for us so far.
The biggest problem we have is the large amount of time and little bit of money it is costing us because of immediate family that failed to plan for their own senior phase of life. I’m actually getting bitter feelings towards “loved ones” for how their poor life choices has put them in poor health and vulnerable circumstances with nobody but me to keep them from lonely demise in deteriorating circumstances. In other words, their failure to plan has undermined my otherwise thorough planning.
thats kinda what im thinking too. seems simple and with this you can never run out of money (of course, you could get very little to spend!). that, and probably just like some ad hoc. like if need an extra expenditure like for a car and things are looking good, i'll just pull the money, without any rules.
That is too conservative. Seriously, the normal 4% rule is already very conservative and I would argue even simpler. Fix 4% in year and simply increase that absolute amount with inflation yearly. Even then the chance of ending with a portfolio worth 5 times your original value, is much higher than running it down to 0. Your approach leads to more volatility and a much higher portfolio value. Also spending on average goes up every year so you will have most buying power at 85 close before death.
How long have you been following this approach and how has your portfolio value looked?
@@bryanc8275 I am 100% in stocks and etfs and my portfolio keeps growing. I have been doing this for about 3 years now. But I have a younger wife and a young daughter. So I haven't stopped trying to grow my investments.
A great strategy and explained very well. Your channel is awesome 👏
Never been introduced to this model before...… thanks for the video
Similar to the Guardrails strategy you typically see on retirement planning apps. I think a dynamic strategy is by far the most realistic approach and mirrors what the majority of retirees end up doing. People aren't going to fly their plane into the ground, they'll attempt to course correct. My plan will probably be constantly updating as my expenses and goals are liable to change many times over a 30 year retirement.
This describes how i do it, didnt realize it was a defined strategy!
Excellent explanation - I'm following a very similar spending strategy 3 years into my early retirement. (And I really encourage EVERYONE to stay to the end of the video. The outtakes are hilarious! 😁)
I love to hear that you follow this type of strategy! And I love that you encourage everyone to stay until the end of the video 😂😊
Wow. That was a lot and you did a great job with your presentation.
Thank you so much!
I watch for the bloopers! J/K! Another great vlog Erin.
The outtakes are interesting and somewhat revealing. The concern over the lighting seems to show an attention to near perfection. I interpret that as a need, not a want, for precision. Precision is one of your most important and branding characteristics. Simply said, you're a nerd. :)
You’re not a nerd Erin, you’re beautiful. Are you single, asking for a friend….
Excellent explanation/summary. Thank you!
One main problem with these sorts of calculators is larger one-off purchases like a car or new roof. Not all living expenses are averaged out on a year to year basis.
Using the phrase "willing to adjust our spending up" really made this hard to apply to my planning style. I'd recommend using inflation, market return, and special event spending needs to provide retirement advice. The "guard rail" approach is a nice one presented here, and more simplistic, and I like the "withdraw what is best for you" that is woven in towards the end. That is what is key, if you need an extra $20k for health care in year 2, or want to take a bucket list trip with your kids in year 4, recalc the model and check your percentage success rate with planned withdrawals, adjusted for inflation and projected investment returns based on historical averages, and just keep recalcing it to adjust your spending plans.
That’s an interesting way to think about it. I need to read more about it. Thanks, me’ lady.
You answered my question! I'm starting to withdraw out of my IRA and thinking about the proper amount to take out per year. his helps greatly, and I'll use as a guide starting next year. Thanks!
Great video and a strategy to continue. Thanks Erin. I love that Peanut got in the last word…😊
OK so Iove your channel, one of the best. I have a criticism. I usually save it for the likes of Hugh Jackman or Taylor Swift. There is a level of perfect that really makes the rest of us feel insecure. No one should be this perfect, smart, talented, photogenic, pretty, knowledgeable. Thank god for the bloopers at the end so us mortals don't really feel completely inadequate. Do you sing and dance too. Seriously, i get so much useful info from your channel and your presentation, please keep up the great work.
Hahaha!!! I sing poorly! And an interesting fact about me is that I make it a point to learn every fad dance that exists out there 😂 my latest one was the dance that went along with the bar song by Shaboozey (and keep those bloopers in mind, none of us are perfect!)
It's not just the media that doesn't like flexibility in a retirement plan. Most people really want a fixed rule set to follow and trust. Unfortunately, life doesn't work that way, and we all need to be able to adjust to changes that come our way.
Exactly! If you have big ticket repairs come up, something needs to be replaced, medical bills, an opportunity to do something you want to do, the list goes on or if the market takes a downturn and you want to ride it out, that changes how much you withdraw.
ehh, every spending plan has tradeoffs though, rob berger has explained that. there isnt really one perfect plan or anything.
There’s a lot of people out there with very little common sense . Why do you think there’s tons of “ gurus” , experts , etc lining up to tell you how to run your life ?? lol!
Nice presentation. One thing that should have been clarified is that the decision to increase, decrease or stay put for any individual is their personal net worth , not how the market as a whole performed.
When you say, when the market is up 10%, you really mean, when your portfolio is up 10%. Just because the markets up doesn’t mean your 60/40 portfolio is up 10%.
you have a good point. At the same time it looks like it doesn't matter how much and what is going up. The increase (or decrease) of the market (and likely of the portfolio) is ignored in this strategy. Up 1, 5, 10, 20 percent it's all the same for the strategy. Same when it's down.
We use the Vanguard dynamic withdrawal strategy in conjunction with the 3 bucket strategy. After 9 years in retirement, we have changed to two buckets, cash and stocks. For the dynamic strategy, we have been able to preserve capital and adjust the withdrawals to convert from tax deferred to exempt in an effort to not only reduce taxation but also RMDs in a few years. We still have over 30% more than the capital we started from. You could say the capital now has adjusted for inflation or not. Great video.
Correct - we know Erin meant “your portfolio”, but that’s not what she said. The math is also misleading/faulty - the growth should be added after the withdrawal, not before it (you can’t spend it if you don’t withdraw it until the end of the year).
Love the outtakes at the end!
very helpful, this was my strategy as i have several income streams. thanks for detailing how to execute the ceiling/floor- as i didn’t know how to execute
Whenever discussions like this get started, I always envision some 75 year old retiree worrying over a spreadsheet: "I'm running out of money, but I set my withdrawal strategy 10 years ago and now I don't know what to do! I don't even need half of what I withdrew, but my strategy says I have to take it!"
Which is to say, this model is the "don't be stupid" amendment that should be implied in every model. Take what you need. If your portfolio is doing really well, take more. If it's doing poorly, don't. If it's doing REALLY poorly, find ways to spend less this year.
I could not agree any stronger. The problem is people want extremely easy answers for very complex problems that need to be reevaluated consistently.
Simple,have cash for Sequence risk.
What do you do with money you withdrew but don't need it or really want it ?
Thanks for sharing this strategy. The good part is it’s basic and brings in a lagging approach into the plan but need to justify the upper and lower control limits. I think there are assumptions behind it: like you can live within these means and no SS or pension is needed? When would Roth conversion take place, IRMA, healthcare, taxes? It also takes away a Monte Carlo probability of success and well as looking forward to saying the next year is a down year like in a risk assessment. Overall I think it keeps things simple and worth using knowing other factors noted previously. Great video to think about.
I've been implementing a dynamic spending / withdrawal strategy long before it was cool.
Erin - This was possibly 'the most informative" retirement withdrawal strategy I've had the opportunity to view ... Super Informative .... Also, loved the 'bloopers' at the end ... I've subscribed & liked the channel!
Welcome to the channel! 😊
This makes sense, but I think there's one more piece missing: only withdraw what you need for that year. Just because you /can/ withdraw up to (last year * 1.05) doesn't mean you have to. If you don't have reason/need to spend more money, don't.
I think most people believe the “percent rules” mean that you are multiplying the percentage against your full portfolio each year.
That is not true, it’s actually similar to this strategy. Except you’re always increasing your initial withdrawal by inflation.
So with the 4% rule it would be 40,000*1.03 … if inflation increases by 3%.
I don’t see a big difference in complexity. One asks if your portfolio went up or down. The other asks what inflation is.
Yes! This is my plan as well, basically! I just need to figure out how to adjust if there are multiple down years in my first 5 years of retirement, because that could wreck the whole plan.
OH.. I should add.. It is not easy doing these long diatribes word perfect.. You do these very well Erin..:)
Thank you, Erin!
I think is just a rebranding of the guyton Klinger withdrawal or guardrail strategy. It was described as being between the fixed percentage, extremely tight guard rails no room to move fixed withdrawal % of total balance and no guardrails of the classic 4% withdrawal where you don't change at all to market conditions. How wide or narrow of guardrails is the determining factor
Very informative, thanks!
Interesting video and easy to follow. It seems a bit difficult to choose a "good" ceiling and floor for the average investor. I like the idea but the customization seems a bit dangerous if you start too aggressive. That's why I think people prefer the 4% guideline. Simplicity and no guesswork.
This video was amazing! Thank you. The visuals helped as well!
I’m so glad!!! 😃
I come from a farming family. I spend my retirement like we did with yearly farm income. In good years spend 5% of the returns. In bad years spend little to nothing. So far so good.
I've just retired have a very simple approach. I've tracked spending for years, so I have a good handle on my yearly expenses. That's the base number I need to survive- it even includes some fun, eating out, and some non-essential purchases. It's not bare bones. Then I ran Monte Carlo and other retirement simulations to see the max amount I could add to that base number and still have an 80% probability of success. That additional money has many potential uses- travel, large expenses, emergencies, and perhaps most importantly, to not be spent during bad markets. Some years, some money will roll over and in some years, I may have to grab from the next year (if, for example, I used the whole sum on travel and then had an emergency in December). Is this a thing? I've never seen anyone talk about an approach like this.
This makes so much logical sense. I'm prepping exactly the same way. So called over saving to make sure I have plenty of buffer room. And when I have about twice what I "need" (which I'd define as my expenses PLUS my wants, like entertainment, travel, and toys), then really, does it matter what withdrawal strategy I employ? That's my accumulation strategy, to make my withdrawal strategy irrelevant.
I’m finalizing my plan using a very similar approach using Boldin (New Retirement). Their software builds everything using expenses as the starting foundation, which makes far more sense than starting from withdrawal %.
I Really enjoy your information!
I'm so glad! 🙂
very informative, thanks
Hi Erin, great video! Love all the graphs you took time to make. We should all call you professor Erin! And LOVE your bloopers! 😂
The only problem with all that is life is not guaranteed. With a recent cancer diagnosis this is top of mind for me. So glad I retired at 52 seven years ago. No one can take those 7 years ago from me. All the calculations and numbers go right out the door when this happens to someone.
Bloopers are back!
Another great video Erin! Definitely food for thought. A video that thoroughly explains the SSA spousal benefit would be great. -If your looking for topics
It's in the works!!! 😊
I am so glad I became interested in money and retirement in my 30's, I never would have found the gorgeous woman Erin.
I like the idea of a Monte-Carlo (MC) based spending rate. Every year you update the inputs and find the 85% (or other probability you desire) Probability of success (POS) spending rate and set that as this years annual spending limit. If the market is down then this years limit goes down. If up, then up. If you pick lower POS then you should probably find a way to validate the process.
The MC program I use allows you to input future spending goals like future car purchases, new house or one time incomes.
What I don't like about what you've just explained is that how would I know the conditions I've chosen are a valid set of conditions that have a basis of working. Too many uncoordinated inputs.
a very good video !!!
I can never disassociate the word "strategy" in relation to money and finances from gambling. ooh, you are getting close to 100K. Just like saving, the first 100k subs seems to be the toughest.
Always look forward to your videos on Fridays! Hope you have a great weekend!
I like this approach; makes a lot of sense. Does it impact how much we need to retire based on the market at the time of retirement? For example if the market is in a recession on our retirement year, and 2.5% + S.S isn't enough to cover expenses, do we need more than 25X of our yearly expenses?
I assume yes, but just wanted to verify.
Learned something new! thanks!
It is interesting to see withdrawal strategies being discussed. My wife and I always discussed the 4% as a start point. But starting in January I will receive my first SS deposit. That is going to be somewhere about $4300 net after Medicare and such. What is funny is that with my wife's income, she won't retire for another 7+ years, and my SS we really don't need much if anything from my retirement accounts. We have gotten along on her income and our savings reserve for the last 2+ years. This can't go on forever though.
I have seen this 4% + guardrails before and I am not sure what the heck I would do with the money from my retirement account. Yes I could put it in an investment account or something like it but then why did I save it for? I guess it is simply that I am not dealing with this retirement phase of my life very well.
Sock it into a CD or money market account for easy access or just reinvest it. My brother has been retired for a few years and pretty much lives off of just his SS even though he has a couple more income streams. He said that his biggest expense that went away was maxing out his 401k every year. I never really thought about that but he makes a good point
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
For the average person, the strategies are fairly demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time
Please who is the consultant that assist you with your investment and if you don't mind, how do I get in touch with them?
I've been working with Vivian Jean Wilhelm, and her performance has been consistently impressive. She’s quite known in her field, Look her up.
All these withdrawal strategies suggest one is living a static - I'd say, sterile - lifestyle. But you have previously described the 3 sequential post-retirement lifestyles for most of us: initially adventurous & more expensive, then more routine, and finally the least spending, driven by physical & health circumstances. And these formulae also ignore the impact of RMDs.
Great video. I’m retiring at the end of the year and think this is what I’m going to do. Do you have a video on the pros and cons of Vanguard and Fidelity to keep my 401K? It’s currently in Fidelity, my company’s choice. Love the outtakes and the pup. 12:57
Glad this popped up on my feed. Subscribed! What program do you use to generate your graphics? Like them!
The 4% rule has always been too conservative. Most people that follow it die with way more money than they started out with in retirement. I agree we should be flexible in retirement. 5.5% is much more resonable and I agree you should be flexible to withdraw less in severe bear markets. If you stay 100% in stocks your portfolio will perform much better in the long run!!!
I think 100% stocks is to bold especially when the market tanks 40% 😂 and you’re retired.
And you're retired? And for how long?
@@dantheman6607 : You have to be able to handle the swings and you must have some flexibility. If you have no debt including no mortgage, then you will have much more flexibility. So in years when the market tanks 40% you have to lower your withdrawals temporarily. In the long run you'll have better results going with 100% stocks!!
@@feldhdleh, I'm not retired, but I've been in the market for decades and I've ridden the ups and downs and because of this I could retire if I wanted to, I have the money.
My wife and I are debt free and our monthly expenses is $4,000 a month and we are pretty happy in our very low cost state.
In 10 years, if using the 4% rule, I really can't see how we would spend $20,000 a month in today's dollars when we start drawing down our retirement funds. That is a lot of money!
If you have the funds to spend $20k a month based on the 4% rule, you already have a lot of money! You cannot take it with you upon death, live it up.
@@livingontheedge8680 20k a month or 240k a year means 6M in retirement savings - I agree live it up!
Good video but your nomenclature is incorrect. The examples you gave, you stated that they would increase their spending by 5% and decrease their spending by 2.5%. You should’ve used the word “to” in place of “by”. Another way of stating this is they would increase their spending by 20% (from 4 to 5%) and decrease their spending by 38% (from 4 to 2.5%)
Excellent explanation, how this strategy WORKS with RMD.
Great presentation style 👍
If there are people who pick 6% as their number, they could very well run out of money. So it is important to run some Monte Carlo simulations on this if your strategy is sustainable.
All I know is I have to figure out how to spend more money.. and not be scared to do so! Not easy when you grew up in poverty!
Charitable donation can be a great way to break that barrier!
Same. Coming from three generations of frugal, poor families, I’m trying to figure out what to do with abundance (including giving away 1/3 of our annual income for charitable causes) 😅😊
I think you forgot that wealthy people accumulate more wealth to pass down to their family.
Not so they can spend it all before they leave this earth.
So you can great a Greater Generational wealth if you would like to.
Yeah that's one of My fears also because I want to leave enough for my family so they don't struggle when I'm gone
Take family and friends out to dinner or vacation. I took my extended family on a beach vacation. It was a $10,000 beach house. Beautiful memories made
Thank you for the informative videos.
I am a little confused on the "when the market is up" comment. In this example does the market need to be up any percentage over .1 we would withdraw 5% or does the market need to be up to certain level as in at least 3%?
Thanks
Great video as always. It seems like most of the strategies are geared toward someone that is going to take out a starting amount and index it (the index might be variable). That doesn't really work for me as I'm not planning on taking SS as soon as I retire so my spending will be much higher initially and then drop because I'll get SS. At least they are looking at ways to address under spending (or needlessly sacrificing). Personally, I like a modified bucket strategy where you look at what expenses you're expecting in the next 3-5 years but it also needs to take into account if you're projected to be under or over spending.
Great information. Thanks.