That bit at 14:00 is the smartest thing I've heard all day. "The only cost free way to address uncertainty is to do work that you love in a lifestyle friendly way." - Outstanding.
Rob! This was one of my favorite videos of yours. SOOOO helpful! Thanks so much. It gave me more clarity, took a load off my mind, and gave me a potential solution that I’m already happily implementing and hope to continue with for years to come. //. I have been meaning to read the 12-page Trinity Study PDF but I haven’t yet, and your VISUAL of how the 4% rule was arrived at (by Bill Bengen) was one of the most helpful parts for me.
Another well presented topic! The amazing value we all get from Rob and a few other excellent RUclips channels is incredible. As a retired engineer, one thing I tell young engineers is use RUclips to further your education. The amount of great content and knowledge available at your fingertips exceeds nearly anything you can get through formal education.
Excellent video / analysis Rob! Summary at the end is absolutely spot on. I am doing exactly that and can advocate / attest to it's legitimacy on all fronts.
Great video, Rob. I'm a big fan of the 4% rule. If you get into a bind, you can always adjust this percentage down in a bad year(s). Keep em coming! FYI, the Bruins are getting ready to take over the Big 10! :)
Great info Rob. It seems the hard and fast rules of retirement and not hard and fast. We fear the uncertainty that certainly will come. Btw we’re set up at 60/40
This is my fifth year after retirement. I’e been following the 4% rule thing I saw on a youTube channel, but this isn’t really how hard I expected things to be. After I cashed out a lump sum, I still have about $760k left, but at this rate, and with how the market is (we were putting money away in an index fund), I’m starting to get really worried.
It’s amazing you were able to save that much during your active years. Not a lot of people are able to save that much in a lifetime. But now you are retired and depend on your investment, it’s best you redistribute your capital, so you are not left devastated during a market crash or recovery. To simplify the process, you could allocate your resources with the help of a financial advisor.
Yeah, I’m also closing in on retirement, and I have benefitted much from using a financial advisor. I didn’t really start early, so I knew the compound interest of index fund investing would not work for me. Funny how I pulled in more profit than some of my peers who have been investing for many years.
Call me cynical but it’s in the interest of the mutual fund world to get us to be conservative and underspend. This way they will maximise assets under management and get the most fees. It’s one of the few industries where planning for the worst is almost expected. Can you imagine living all facets of life in this way. You would never leave the house.
Hi Rob, great video as always. I will be starting retirement at the end of this year. We will be using the 4% rule with some guardrails in place. My wife taking SS and I will delay until age 70 (we are 64 now). My question is, which inflation measure should I use (CPI, PCE, etc) for future withdrawals? I know they differ, but maybe it's too small a difference to matter.
Hi Rob, you mention worrying about the 4% rule is worrying about the extreme, but if I recall, the 4% rule works in 98% or so of cases, so there are 2% of cases, even if low, where the 4% did not pass. It may still be considered the extreme, but that is not foolproof.
Excellent video Rob. I read this article when it first came out. I’m a subscriber to the WSJ. The quality of most of the regular news articles have been pretty poor. And they show lots of bias. So I’m not surprised at your take on this. Jason Zweig is still awesome though!
Great information Rob. Your withdrawal rate really depends on a lot of factors. One being the amount of money you have saved over your working years. Another being the amount of debt you have during your retirement years. If you only need 40k a year from retirement savings then a 1 million dollar savings account could easily get you 20 years. Most of the retired people I know don’t have 500k dollars but they are living a normal lifestyle. Weird thing is that life can be so volatile, that any plan could fail. The best strategy is to accumulate as must money as possible and very little to no debt during your working lifetime.
Does this lend more support for considering a guardrails distribution approach? When using 4% (+inflation) withdrawals, there is such a wide range of potential outcomes, with many ending balances above the beginning balance and some substantially above and a few showing you run out of money. The other interesting fact is the difference of outcomes if you have more down markets at the beginning rather than later in retirement. The down markets later in retirement have a much less severe impact on negative outcomes but those down markets early in retirement can be problematic.
This is fantastic, very informative. Any chance you could address modeling of different longevity ages for couples in an upcoming video? I've found research that the average age women are widowed is 59 (!), and average duration of their lives as widows is an additional 12+ years. So using different longevity ages in NR is important-- and leads to VERY different outcomes.
Thanks Rob! I think of the 4% not as a rule but just an observation made from 100 years of data. Who knows, maybe 30 years from now they will determine the 2024 max safe to be 8% ! Also I read recently the average retirement is 18 years ( you are correct to say the 30 year is an outlier).
great comment ... its also been pointed out that the study was done in 1994 ... so we dont know if it will work for people who retired 24 years ago in 2000 yet ... in 2030 we may find out that 2000 was a worse time to retire than 1966 ... or maybe 2022 will be the worst time ever to retire in history ... but like you i think , im guessing 4% will work for most every retirement period , especially those who dont even last close to 30 years ... some may need to adjust spending a bit if they live longer than 30 years into retirement , but id guess its very few and by very little
Thanks for the video Rob! One thing I'd love to pick your brain about is what you made of the optimal asset allocation chart on Fig.1 of Wade Pfau's paper you linked. Not many of the optimal fixed asset allocations include a lots of bonds outside the 20s-30s era. Some in the 60s and 70s include a fair amount of T-bills but doesn't that chart contradict a bit the usual message that a 60-80/20-40 stock/bond portfolio is optimal?
Love your content Rob. But when watching on my surround sound, I think someone is walking in my house. But it's your house! Do you have a grandchild walking around? LoL. Keep up the great content.
Rob - thanks for stating clearly that a 30 year retirement period is uncommon and perhaps unrealistic. For most, a 15 year retirement window is more likely statistically. 90 is simply not the average life expectancy, which incidentally is decreasing recently for men.
@@GoKU-xx2vg maybe, but I doubt it. Childhood obesity rates are now about double of what the total population obesity rates were in the year that I was born. Unless we start regulating our food system to eliminate highly addictive processed foods, our children and grandchildren will see their life spans shorten.
Most people as their balances decrease eventually cut back on spending as they see their nest egg decrease. They don't just keep running it down to zero. They instead cut their standard of living. The same goes for any withdrawal strategy that leads someone's investable asset base to decrease faster than they expected and the balance is much lower than they expected it to be. I don't see it as catastrophic as much as impactful to the persons standard of living (this goes for any withdrawal strategy that may go awry).
Having watched my parents go through this, the ability to spend on luxury items like travel, or desire for things like a new car or remodeled bathroom or new furniture or clothes, really dies off in your 70s. So there is going to be that natural diminishment in spending, which people who study such things call the "smile curve" of spending. In the case of my parents, this happened even though their nest egg was growing, rather than decreasing.
@@howardfriedman7077 everyone's situation will be different. I can tell you in the case of my parents, they had a paid off home, about $90k they inherited from their parents, and social security and a pension, all totaling less than $3k a month. They were fine. Not living it up by my standards, but fine. So when you say "can't cut enough" I'd say that there is always a way to cut more. Even for my parents, they could have lived off social security alone if they needed to do so. Or they could have sold their house and moved into an average rent apartment. For them the house proceeds (about $150k) could have carried a median market rent in their area for at least 15 years - even if their money was earning 0%. They are in their mid-80s. 15 years is a long time at that age. There are always solutions.
Absolutely, managing withdrawals and adjusting spending are crucial for sustaining retirement funds. How do you think individuals can best prepare for these adjustments to maintain financial stability?
Trying to sell a 2,5% withdrawal rate is just telling people to give up and spend it all now. If the 4% rule fails you’ll likely be old enough that it won’t matter anyway
Was that article in the printed Wall Street Journal? The online version puts a lot of rabbit holes to click onto. That’s not in the print. Beware reading anything that’s not in the printed version. Overall, I agree with your opinion we’re all different and deal with the retirement in different ways .
Tks Rob for covering this. Can we throw out the fact that bonds are "safe" now? The last couple of years have really crushed a lot of folks retirement accounts because they thought they were "safe" with their bonds (like TLT).
Absolutely, the perception of bonds as "safe" has definitely been challenged recently. Given the current market conditions, what strategies are you considering to balance risk in your portfolio?
I have been retired for five years now. Although I've been adhering to the 4% rule, things are challenging as I did not anticipate. 30% of the $600K I invested in st0cks is lost to the market. How can I diversify my portfolio for retirement
Now you are retired and depend on your investment, it’s best you redistribute your capital. To simplify the process, you could allocate your resources with the help of a financial advisor.
1. Any study that says, "if you invest in outer Mongolia your safe withdrawal rate is 0.02%" is useless. 2. If one's primary income is from the 401k/ira, then taking SS early allows one to keep more of the ira $$ invested for longer, especially in the early "sequence of return risk" time period. So I don't understand how waiting for SS & taking more from the ira early is helpful. At 5% return, the break even is about age 93. If one is living off a pension, that's different.
Agree on finding some work you don't hate and can do well into retirement. Especially if retiring early and withdrawing 3%, finding a way to earn $30K is the equivalent of saving another million dollars.
Absolutely, finding fulfilling work can significantly boost your retirement security. What strategies have you found effective for transitioning to work that supports your long-term financial goals while enjoying the process?
@@StressLessFinancial Personally, I have a business that I can scale up or down. Now I work at it full-time, but in "retirement," I'll scale down and maybe earn $50K/year hopefully forever while only having to work about 1 hour/day.
Rob, the probability of running out of money should be multiplied by the probability of reaching age 90 to get the risk. If you don't live until 90, ou are much less likely to run out of money.
I think with the recent high bond rates it makes sense to go abit heavier in it than some of the old advice would suggest. 6-8% safe returns are appealing
@@marek9930 obviously 6X what you started with will be worth less in 30 years , but its still a ton of money ... if you retired in 1994 with $300k , today 30 years later youd have $1.8M .... and its def not worth what it was in 1994 , but $1.8M today is still amazing considering you took 4% out each year for 30 years and it still grew to an amount thats impressive to live on today
@@marek9930 no ... but if you retired in 1994 with $300k , and today after taking out 4% every year for 30 years you had $1.8M , i doubt youd care about inflation .... 6X is so large inflation isnt a factor
Why a fixed rate? Maybe adjust it slightly up or down every year from a default withdrawal rate depending on how it performed the year before. Example: 5% this year in a previous good year, 3% this year from a previous bad year. Can do adjustment semi-annually, instead, if desired. Not complicated.
Similarly.... If you had $1,000,000 in a dividend stock or dividend ETF you can make more than 4%. You are never drawing down. The money just keeps coming. Are you going to get rich, no, but that is not the goal, consistency and stability is the goal as well as protecting the principal while allowing it to grow over time. Personally, I would bank a year in cash and then allow the dividend payments replenish cash. Nobody wants to live "paycheck to paycheck". Depending on growth is too risky in retirement.
The subtitle says “…if markets behave differently than in the past”. This is more than obvious since the 4% approach is based on historical performance. If markets behave differently than in the past then of course any approach based on historical data is called into question.
Hi Rob, Thanks for all the great information! Wouldn't it simply be best to withdraw a flat rate of 4 or 5 percent each year. I withdraw a quarterly rate of 1.25% This way I can really ride the wave of the market. On a very bad year I may withdraw less. I know it can be difficult for someone who wants a steady income to rely on. On a 80/20 portfolio weighed a bit heavier in tech , back tested seemed to work very well.
you withdraw a constant percentage of portfolio balance , without inflation adjustment each year ? .... that would def last much longer , but youd probably be underspending quickly if staying at 4-5% annually
Rob. If one runs more Monte Carlo simulations then the likelihood of black swan events are considered. Hard to do because every possible event is not known. My view is hard assets will match inflation by definition. What we cannot know are the unknowns. I prefer assuming probability events such as regular recessions and occasional wars. One every ten years is my guess. Funding your portfolio, paying off your home, staying away from credit card debt, and a healthy lifestyle covers most of the bases. My biggest fear are natural calamities such as Yellowstone kicking off, heating into the mid hundreds, and asteroid impact by big rocks. These are unpredictable and widespread calamities that fema cannot solve.
A good approach, but future poor health and early death are ALWAYS the biggest risk, way larger than running out of money. We all have this risk, regardless of current health. Good health lowers the probability, but no where near eliminates it. World catastrophes are certainly another possibility, but we have virtually zero control over these, and no clear contingency strategies. Early death and poor health do have some contingency strategies.
@@randolphh8005 Correct on pity for poor health and early death. I would place these two as being internal while my comments were external. Just like falling on black ice like Dr Atkins, bad luck is part of the equation for life.
true, but to measure full 30-yr retirement periods the latest starting point we could include would be 1994. And I'm guessing anyone retiring in the 80's and early 90's is doing fine with 4%+
It's "New Math". Academics are always trying to reinvent the wheel, especially if they are in an established field where we know what works. We need new math because they don't like teaching the same old methods that have worked for the last 50 years. Same thing for the 4% rule.
If you are worried about running out of the money you could use the Yale Endowment stategy. That essentially does what Rob suggested in cutting back spending in down years but does it in a quantitative way.
OK so your in the US and I'm in Canada and US annuities seem like different product than we have. That said in Canada you absolutely can buy an indexed annuity. In fact for an apple's to apples comparison I would com pare monthly income from a 4% withdrawal RRIF with 2% index (Canada) to an annuity with a 2% index for the same starting Capital. For comparison purposes. And on caveat gender matters from payout standpoint. Makes me wonder how insurance companies will handle transgender people from an assumed risk persective as sex is a large determinate in product pricing (risk) currently.
most annuities are not inflation protected here in the U.S. , so if you live longer , the annuity at say 6% fixed will be paying you less than a 4% SWR thats inflation adjusted each year in the last half of a 30 year retirement ... according to U.S. market history at least
Bernstein does suggest that if you need more than 3% you should probably think about buying an annuity or tips ladder or such. He’s pessimistic going forward because returns have been long cannibalizing dividends-historical fitting that birthed the 4% rule may not apply in The future.
The exercise of determining the appropriate withdrawal rate is interesting but cannot be decided without the understanding of one’s annual expenses and other forms of income moving forward. An annual expense of $70K with $30K SS and a portfolio of $500K will dictate a much different withdrawal rate vs a portfolio $1M, $2M, etc., not to mention a potential willingness to be more aggressive with said portfolio.
Building wealth you do dollar cost averaging into broad based ETFs… then when you retire you do income and options investing….turns the 4% to the 8% rule
I’m in a good spot as being a Federal employee with the TSP as I can put an 8-10 year safe pot in the G Fund with decent returns (not great but decent) but if stocks only yield 1.65% for a decade for my equities I’m mostly screwed after that! What are these dire predictions based on and someone needs to ask the author, “When does the asteroid hit us?” 🤔
The government always talking about social security is going to run out ! (The money we paid into / they took!) But the Gov. Never talk about welfare running out !!!!
@@johngill2853Sorry but they use the words “run out” all the time. Politicians and the media use this term frequently. Just Google it. Headline after headline….”run out “. It’s true, informed people understand the nuances but the headlines are written to scare people into thinking it will run out.
@@johngill2853 agreed .... SS can never go away ... because its all that keeps poor people and the 90% of people who dont save for retirement correctly alive and supporting the economy ... they just mention the fund running low so you know ahead of time that theyll need to raise the SS tax on payroll , so it stings less in a few years ... in a few years a increase of 1% , or even less , will allow them to kick the can down the road for another 50 years until 2083
The major flaw with all of these discussions is an implicit assumption that having $0 left at death is acceptable. Its not. In the real world, people should be leaving estates to their heirs. In the real world, someone who is 5 years from dying is going to be unduly stressed if they have a balance of well less than 5 years of living expenses. No one wants to be 85 and worried that they are going to run out of money. A better starting point would be what level of spending guarantees a sizeable portfolio at death for peace of mind and to pass on. The 4% rule will fail for that target. A 2% rule is going to be closer to reality.
I'm fine with 0% or close to it, and why would you not be? My kids will inherit several vehicles, alot of guns, and a paid off house. Once all of that is sold, they will have a heck of an inheritance. More than most of us will get! Plus you will have SS, so you will never run out of money. That is b.s. fear that some of us have been brainwashed with! My 92yr old grandma has been living fine off just SS for decades. I plan on postponing SS to at least full retirement age for the increased spousal benefit
If you plan for a 4% that doesn't mean you take out 4% no matter what, it means you take out what is appropriate for that year, Some years maybe that is more some years it might be less. I don't plan on my minimum needs to require 4% I plan on far less. 4% is for me to live as I want, not what I need to survive.The bare minimum honestly would be social security value I will receive and maybe a little more since it will probably drop over time. At different points in your retirement you will require different amounts of money. Now I agree if you think 4% fixed is all you are planning for to meet your basic needs and have 100% success rate you need to be very careful, with your money. My plan is always try to shoot for 3-4x what you think you want which should be 2x more than you need at a minimum. If you can do it great. If not its a goal. Reality is this is not a problem for most people because most people have nothing saved so 4% is not even a discussion for them.
That bit at 14:00 is the smartest thing I've heard all day. "The only cost free way to address uncertainty is to do work that you love in a lifestyle friendly way." - Outstanding.
Absolutely agree.
I fully agree , this is a great philosophy. The trick is how to find it .
Rob thanks for putting things into a logical perspective , your wisdom and knowledge is always appreciated
Rob! This was one of my favorite videos of yours. SOOOO helpful! Thanks so much. It gave me more clarity, took a load off my mind, and gave me a potential solution that I’m already happily implementing and hope to continue with for years to come. //. I have been meaning to read the 12-page Trinity Study PDF but I haven’t yet, and your VISUAL of how the 4% rule was arrived at (by Bill Bengen) was one of the most helpful parts for me.
Another well presented topic!
The amazing value we all get from Rob and a few other excellent RUclips channels is incredible.
As a retired engineer, one thing I tell young engineers is use RUclips to further your education. The amount of great content and knowledge available at your fingertips exceeds nearly anything you can get through formal education.
Excellent video / analysis Rob! Summary at the end is absolutely spot on. I am doing exactly that and can advocate / attest to it's legitimacy on all fronts.
Great video, Rob. I'm a big fan of the 4% rule. If you get into a bind, you can always adjust this percentage down in a bad year(s). Keep em coming! FYI, the Bruins are getting ready to take over the Big 10! :)
Great info Rob. It seems the hard and fast rules of retirement and not hard and fast. We fear the uncertainty that certainly will come.
Btw we’re set up at 60/40
Rob Berger, keeping people sane while the world tries to make you insane. Thank you! We will continue spending.
The voice of reason!
This is my fifth year after retirement. I’e been following the 4% rule thing I saw on a youTube channel, but this isn’t really how hard I expected things to be. After I cashed out a lump sum, I still have about $760k left, but at this rate, and with how the market is (we were putting money away in an index fund), I’m starting to get really worried.
It’s amazing you were able to save that much during your active years. Not a lot of people are able to save that much in a lifetime. But now you are retired and depend on your investment, it’s best you redistribute your capital, so you are not left devastated during a market crash or recovery. To simplify the process, you could allocate your resources with the help of a financial advisor.
Yeah, I’m also closing in on retirement, and I have benefitted much from using a financial advisor. I didn’t really start early, so I knew the compound interest of index fund investing would not work for me. Funny how I pulled in more profit than some of my peers who have been investing for many years.
Call me cynical but it’s in the interest of the mutual fund world to get us to be conservative and underspend. This way they will maximise assets under management and get the most fees. It’s one of the few industries where planning for the worst is almost expected. Can you imagine living all facets of life in this way. You would never leave the house.
The mutual fund industry provides products, you are referring to the financial advice industry.
Great sensible advice Rob! I appreciate your helpful comments based on easy-to-understand sound facts.
Thanks Rob - adding a little practicality to this discussion is helpful!
Hi Rob, great video as always. I will be starting retirement at the end of this year. We will be using the 4% rule with some guardrails in place. My wife taking SS and I will delay until age 70 (we are 64 now). My question is, which inflation measure should I use (CPI, PCE, etc) for future withdrawals? I know they differ, but maybe it's too small a difference to matter.
Thank you Rob; I really appreciate and enjoy these presentations and your reasoned, logical, and the level-headed approach to presenting these data.
It’s a real feel good article. 🤣
Hi Rob, you mention worrying about the 4% rule is worrying about the extreme, but if I recall, the 4% rule works in 98% or so of cases, so there are 2% of cases, even if low, where the 4% did not pass. It may still be considered the extreme, but that is not foolproof.
Rob… an excellent presentation… intelligent and thoughtful
Excellent video Rob. I read this article when it first came out. I’m a subscriber to the WSJ. The quality of most of the regular news articles have been pretty poor. And they show lots of bias. So I’m not surprised at your take on this. Jason Zweig is still awesome though!
Honestly, this makes me more inclined to spend more money in the first decade of my retirement as long as the market is not in the tank.
Especially since I'm more able to effectively enjoy optional activities like travel than I will be later in retirement!
I always appreciate your analysis of these financial "rules" and "truths". I am staying invested in the market.
Good topic and video Rob. Now you can go back upstairs and rejoin your family.😀
Great information Rob. Your withdrawal rate really depends on a lot of factors. One being the amount of money you have saved over your working years. Another being the amount of debt you have during your retirement years. If you only need 40k a year from retirement savings then a 1 million dollar savings account could easily get you 20 years. Most of the retired people I know don’t have 500k dollars but they are living a normal lifestyle. Weird thing is that life can be so volatile, that any plan could fail. The best strategy is to accumulate as must money as possible and very little to no debt during your working lifetime.
I wish I could give this video 2 thumbs up instead of just one
Does this lend more support for considering a guardrails distribution approach? When using 4% (+inflation) withdrawals, there is such a wide range of potential outcomes, with many ending balances above the beginning balance and some substantially above and a few showing you run out of money. The other interesting fact is the difference of outcomes if you have more down markets at the beginning rather than later in retirement. The down markets later in retirement have a much less severe impact on negative outcomes but those down markets early in retirement can be problematic.
This is fantastic, very informative. Any chance you could address modeling of different longevity ages for couples in an upcoming video? I've found research that the average age women are widowed is 59 (!), and average duration of their lives as widows is an additional 12+ years. So using different longevity ages in NR is important-- and leads to VERY different outcomes.
Thanks Rob! I think of the 4% not as a rule but just an observation made from 100 years of data. Who knows, maybe 30 years from now they will determine the 2024 max safe to be 8% ! Also I read recently the average retirement is 18 years ( you are correct to say the 30 year is an outlier).
Also I am becoming a better UTuber , I spotted Charlotte Miller’s post below as a scam along with all the supporting posts
great comment ... its also been pointed out that the study was done in 1994 ... so we dont know if it will work for people who retired 24 years ago in 2000 yet ... in 2030 we may find out that 2000 was a worse time to retire than 1966 ... or maybe 2022 will be the worst time ever to retire in history ... but like you i think , im guessing 4% will work for most every retirement period , especially those who dont even last close to 30 years ... some may need to adjust spending a bit if they live longer than 30 years into retirement , but id guess its very few and by very little
Great video, thanks for sharing. Always an analytical approach.
Thanks for the video Rob! One thing I'd love to pick your brain about is what you made of the optimal asset allocation chart on Fig.1 of Wade Pfau's paper you linked. Not many of the optimal fixed asset allocations include a lots of bonds outside the 20s-30s era. Some in the 60s and 70s include a fair amount of T-bills but doesn't that chart contradict a bit the usual message that a 60-80/20-40 stock/bond portfolio is optimal?
Love your content Rob. But when watching on my surround sound, I think someone is walking in my house. But it's your house! Do you have a grandchild walking around? LoL. Keep up the great content.
Rob - thanks for stating clearly that a 30 year retirement period is uncommon and perhaps unrealistic. For most, a 15 year retirement window is more likely statistically. 90 is simply not the average life expectancy, which incidentally is decreasing recently for men.
90 could be the new 80 by the time people retire in 20, 30, 40 years.
Yvette: /a good risk strategy would be to plan for at least age 90, not because you WILL live to that age but because you MIGHT live to that age.
@@GoKU-xx2vg maybe, but I doubt it. Childhood obesity rates are now about double of what the total population obesity rates were in the year that I was born. Unless we start regulating our food system to eliminate highly addictive processed foods, our children and grandchildren will see their life spans shorten.
Most people as their balances decrease eventually cut back on spending as they see their nest egg decrease. They don't just keep running it down to zero. They instead cut their standard of living. The same goes for any withdrawal strategy that leads someone's investable asset base to decrease faster than they expected and the balance is much lower than they expected it to be. I don't see it as catastrophic as much as impactful to the persons standard of living (this goes for any withdrawal strategy that may go awry).
peter: What if you can't cut enough?
Having watched my parents go through this, the ability to spend on luxury items like travel, or desire for things like a new car or remodeled bathroom or new furniture or clothes, really dies off in your 70s. So there is going to be that natural diminishment in spending, which people who study such things call the "smile curve" of spending. In the case of my parents, this happened even though their nest egg was growing, rather than decreasing.
@@howardfriedman7077 everyone's situation will be different. I can tell you in the case of my parents, they had a paid off home, about $90k they inherited from their parents, and social security and a pension, all totaling less than $3k a month. They were fine. Not living it up by my standards, but fine. So when you say "can't cut enough" I'd say that there is always a way to cut more. Even for my parents, they could have lived off social security alone if they needed to do so. Or they could have sold their house and moved into an average rent apartment. For them the house proceeds (about $150k) could have carried a median market rent in their area for at least 15 years - even if their money was earning 0%. They are in their mid-80s. 15 years is a long time at that age. There are always solutions.
Absolutely, managing withdrawals and adjusting spending are crucial for sustaining retirement funds. How do you think individuals can best prepare for these adjustments to maintain financial stability?
Trying to sell a 2,5% withdrawal rate is just telling people to give up and spend it all now. If the 4% rule fails you’ll likely be old enough that it won’t matter anyway
Best thing money can buy is financial freedom ❤❤❤ that!
Was that article in the printed Wall Street Journal?
The online version puts a lot of rabbit holes to click onto. That’s not in the print. Beware reading anything that’s not in the printed version.
Overall, I agree with your opinion we’re all different and deal with the retirement in different ways .
Wall Street Journal has gone down hill since the Murdochs bought it……I’ve been reading it every day since 1978.
Are there any vids on the best closed-end funds that pay a monthly dividend, and the pros and cons to owning them? TIA
Tks Rob for covering this. Can we throw out the fact that bonds are "safe" now? The last couple of years have really crushed a lot of folks retirement accounts because they thought they were "safe" with their bonds (like TLT).
True for bond funds.
Most portfolio managers and 401k would have real bonds.
@@mkan38I don't and have a lot of money in my IRA and taxable account.
Government bonds are safe
Absolutely, the perception of bonds as "safe" has definitely been challenged recently. Given the current market conditions, what strategies are you considering to balance risk in your portfolio?
Thanks much Rob!
I have been retired for five years now. Although I've been adhering to the 4% rule, things are challenging as I did not anticipate. 30% of the $600K I invested in st0cks is lost to the market. How can I diversify my portfolio for retirement
Now you are retired and depend on your investment, it’s best you redistribute your capital. To simplify the process, you could allocate your resources with the help of a financial advisor.
WWI was not in Belgium in 1911 though. (WWI is 1914-18).
Good stuff.. Thanks
1. Any study that says, "if you invest in outer Mongolia your safe withdrawal rate is 0.02%" is useless.
2. If one's primary income is from the 401k/ira, then taking SS early allows one to keep more of the ira $$ invested for longer, especially in the early "sequence of return risk" time period. So I don't understand how waiting for SS & taking more from the ira early is helpful. At 5% return, the break even is about age 93. If one is living off a pension, that's different.
I read that article in today’s WSJ and thought it BS too.
Agree on finding some work you don't hate and can do well into retirement. Especially if retiring early and withdrawing 3%, finding a way to earn $30K is the equivalent of saving another million dollars.
Absolutely, finding fulfilling work can significantly boost your retirement security. What strategies have you found effective for transitioning to work that supports your long-term financial goals while enjoying the process?
@@StressLessFinancial Personally, I have a business that I can scale up or down. Now I work at it full-time, but in "retirement," I'll scale down and maybe earn $50K/year hopefully forever while only having to work about 1 hour/day.
Rob, the probability of running out of money should be multiplied by the probability of reaching age 90 to get the risk. If you don't live until 90, ou are much less likely to run out of money.
I think with the recent high bond rates it makes sense to go abit heavier in it than some of the old advice would suggest. 6-8% safe returns are appealing
Good advice.
I think Kitces said you’re more likely to have 6X your starting amount than to run out using the 4% SWR …… that’s crazy
Inflation adjusted?
@@marek9930 obviously 6X what you started with will be worth less in 30 years , but its still a ton of money ... if you retired in 1994 with $300k , today 30 years later youd have $1.8M .... and its def not worth what it was in 1994 , but $1.8M today is still amazing considering you took 4% out each year for 30 years and it still grew to an amount thats impressive to live on today
@@marek9930 no ... but if you retired in 1994 with $300k , and today after taking out 4% every year for 30 years you had $1.8M , i doubt youd care about inflation .... 6X is so large inflation isnt a factor
Why a fixed rate? Maybe adjust it slightly up or down every year from a default withdrawal rate depending on how it performed the year before. Example: 5% this year in a previous good year, 3% this year from a previous bad year. Can do adjustment semi-annually, instead, if desired. Not complicated.
Looking at a CAPE ratio based withdrawal rate retirement tool would provide you with this information.
If the 3% don‘t cut it you‘re screwd.
If we were invaded by a foreign power, my future stock market returns would be the least of my concerns haha
Try 2% or 3% withdrawals or a 40% stock to 60% bonds portfolio and live off the dividends like Vanguard Wellesley income fund
Similarly.... If you had $1,000,000 in a dividend stock or dividend ETF you can make more than 4%. You are never drawing down. The money just keeps coming. Are you going to get rich, no, but that is not the goal, consistency and stability is the goal as well as protecting the principal while allowing it to grow over time. Personally, I would bank a year in cash and then allow the dividend payments replenish cash. Nobody wants to live "paycheck to paycheck". Depending on growth is too risky in retirement.
Rules need to be flexible
Thanks
The subtitle says “…if markets behave differently than in the past”. This is more than obvious since the 4% approach is based on historical performance. If markets behave differently than in the past then of course any approach based on historical data is called into question.
Hi Rob, Thanks for all the great information! Wouldn't it simply be best to withdraw a flat rate of 4 or 5 percent each year. I withdraw a quarterly rate of 1.25% This way I can really ride the wave of the market. On a very bad year I may withdraw less. I know it can be difficult for someone who wants a steady income to rely on. On a 80/20 portfolio weighed a bit heavier in tech , back tested seemed to work very well.
you withdraw a constant percentage of portfolio balance , without inflation adjustment each year ? .... that would def last much longer , but youd probably be underspending quickly if staying at 4-5% annually
My approach is to invest in global stocks and have 5 years emergency funds.
does 4% withdraw rule include dividend you collected during the year?
why wouldn't it? Dividends are a forced sale of a portion of the stock
Rob. If one runs more Monte Carlo simulations then the likelihood of black swan events are considered. Hard to do because every possible event is not known. My view is hard assets will match inflation by definition. What we cannot know are the unknowns. I prefer assuming probability events such as regular recessions and occasional wars. One every ten years is my guess. Funding your portfolio, paying off your home, staying away from credit card debt, and a healthy lifestyle covers most of the bases. My biggest fear are natural calamities such as Yellowstone kicking off, heating into the mid hundreds, and asteroid impact by big rocks. These are unpredictable and widespread calamities that fema cannot solve.
A good approach, but future poor health and early death are ALWAYS the biggest risk, way larger than running out of money. We all have this risk, regardless of current health. Good health lowers the probability, but no where near eliminates it.
World catastrophes are certainly another possibility, but we have virtually zero control over these, and no clear contingency strategies. Early death and poor health do have some contingency strategies.
@@randolphh8005 Correct on pity for poor health and early death. I would place these two as being internal while my comments were external. Just like falling on black ice like Dr Atkins, bad luck is part of the equation for life.
Do I really need bonds in my portfolio?
Tbill have been fantastic
Set it free…
Curious: how old are you?
@@cato451Only the passed 2 years, this was an anomoly, they're no longer reliable after the Fed does their interest drops
Not enough information for us to tell you
Medicaid to deal with uncertainty? That is closing the barn door after the horses are out.
Interesting. Maybe get an updated withdrawal rate chart it's not 1980 anymore. 😊
true, but to measure full 30-yr retirement periods the latest starting point we could include would be 1994. And I'm guessing anyone retiring in the 80's and early 90's is doing fine with 4%+
@@mricrowe for sure theyre ok , if theyre still alive ... lol
It's "New Math". Academics are always trying to reinvent the wheel, especially if they are in an established field where we know what works. We need new math because they don't like teaching the same old methods that have worked for the last 50 years. Same thing for the 4% rule.
Assumptions that all the social programs mentioned are solvent
They’ve been saying future returns would be low for decades. I bought into it a decade ago and didn’t invest correctly. It’s all crapola
So...not 8% like Ramsey suggests? haha
Well, it'd better not... otherwise, what will my 8% Ramsey withdrawals lead to then?!? ( oДo)
If you are worried about running out of the money you could use the Yale Endowment stategy. That essentially does what Rob suggested in cutting back spending in down years but does it in a quantitative way.
OK so your in the US and I'm in Canada and US annuities seem like different product than we have. That said in Canada you absolutely can buy an indexed annuity. In fact for an apple's to apples comparison I would com
pare monthly income from a 4% withdrawal RRIF with 2% index (Canada) to an annuity with a 2% index for the same starting Capital. For comparison purposes. And on caveat gender matters from payout standpoint.
Makes me wonder how insurance companies will handle transgender people from an assumed risk persective as sex is a large determinate in product pricing (risk) currently.
most annuities are not inflation protected here in the U.S. , so if you live longer , the annuity at say 6% fixed will be paying you less than a 4% SWR thats inflation adjusted each year in the last half of a 30 year retirement ... according to U.S. market history at least
Bernstein does suggest that if you need more than 3% you should probably think about buying an annuity or tips ladder or such. He’s pessimistic going forward because returns have been long cannibalizing dividends-historical fitting that birthed the 4% rule may not apply in The future.
The exercise of determining the appropriate withdrawal rate is interesting but cannot be decided without the understanding of one’s annual expenses and other forms of income moving forward. An annual expense of $70K with $30K SS and a portfolio of $500K will dictate a much different withdrawal rate vs a portfolio $1M, $2M, etc., not to mention a potential willingness to be more aggressive with said portfolio.
Building wealth you do dollar cost averaging into broad based ETFs… then when you retire you do income and options investing….turns the 4% to the 8% rule
Terrible click bait that WSJ has been doing more and more of. Plus, it did a disservice to Cederberg’s paper.
4% rule has to work, Dave Ramsey say 8% and he can’t be wrong! Great job Rob.
I’m in a good spot as being a Federal employee with the TSP as I can put an 8-10 year safe pot in the G Fund with decent returns (not great but decent) but if stocks only yield 1.65% for a decade for my equities I’m mostly screwed after that! What are these dire predictions based on and someone needs to ask the author, “When does the asteroid hit us?” 🤔
Yeah 1st overall comment view like
The government always talking about social security is going to run out ! (The money we paid into / they took!) But the Gov. Never talk about welfare running out !!!!
john: No one took any money from SS and welfare has nothing to run out. It is not a funded program like SS.
Nobody ever said Social Security was going to run out
The only way it can run out is if nobody works and pays payroll taxes
It's a short fall
@@johngill2853Sorry but they use the words “run out” all the time. Politicians and the media use this term frequently. Just Google it. Headline after headline….”run out “. It’s true, informed people understand the nuances but the headlines are written to scare people into thinking it will run out.
@@johngill2853 agreed .... SS can never go away ... because its all that keeps poor people and the 90% of people who dont save for retirement correctly alive and supporting the economy ... they just mention the fund running low so you know ahead of time that theyll need to raise the SS tax on payroll , so it stings less in a few years ... in a few years a increase of 1% , or even less , will allow them to kick the can down the road for another 50 years until 2083
High low
The major flaw with all of these discussions is an implicit assumption that having $0 left at death is acceptable. Its not.
In the real world, people should be leaving estates to their heirs. In the real world, someone who is 5 years from dying is going to be unduly stressed if they have a balance of well less than 5 years of living expenses. No one wants to be 85 and worried that they are going to run out of money.
A better starting point would be what level of spending guarantees a sizeable portfolio at death for peace of mind and to pass on. The 4% rule will fail for that target. A 2% rule is going to be closer to reality.
I'm heard (second hand) that many financial advisors actually say the goal is to have nothing left at deatth. That's not my goal.
Dan, what is sizeable to you?
@@VivaciousOM How about the greater of 1/4 of the starting portfolio or 10 years of expenses?
I'm fine with 0% or close to it, and why would you not be? My kids will inherit several vehicles, alot of guns, and a paid off house. Once all of that is sold, they will have a heck of an inheritance. More than most of us will get! Plus you will have SS, so you will never run out of money. That is b.s. fear that some of us have been brainwashed with! My 92yr old grandma has been living fine off just SS for decades. I plan on postponing SS to at least full retirement age for the increased spousal benefit
If you plan for a 4% that doesn't mean you take out 4% no matter what, it means you take out what is appropriate for that year, Some years maybe that is more some years it might be less. I don't plan on my minimum needs to require 4% I plan on far less. 4% is for me to live as I want, not what I need to survive.The bare minimum honestly would be social security value I will receive and maybe a little more since it will probably drop over time. At different points in your retirement you will require different amounts of money. Now I agree if you think 4% fixed is all you are planning for to meet your basic needs and have 100% success rate you need to be very careful, with your money. My plan is always try to shoot for 3-4x what you think you want which should be 2x more than you need at a minimum. If you can do it great. If not its a goal. Reality is this is not a problem for most people because most people have nothing saved so 4% is not even a discussion for them.
You still have a dull yellow sheen to your picture.
He needs it for his teleprompter
@@GoKU-xx2vg Yes, but it is terrible.
@brutherford462 Lol I find it quite pleasing!! To each his own.
Thank You Rob 😊