The 2.7% Rule for Retirement Spending
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- Опубліковано 21 гру 2022
- Meet with PWL Capital: calendly.com/d/3vm-t2j-h3p
Is the 4% rule really 2-3%?
Referenced in this video:
- Determining Withdrawal Rates Using Historical Data: www.financialplanningassociat...
- The equity premium: A puzzle: www.sciencedirect.com/science...
- Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach: papers.ssrn.com/sol3/papers.c...
- The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets: papers.ssrn.com/sol3/papers.c...
- Episode 224: Prof. Scott Cederburg: Long-Horizon Losses in Stocks, Bonds, and Bills: rationalreminder.ca/podcast/224
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If you ditch your financial advisor, you can add 1-2% or more
Instead of letting your lifespan, an unknowable, influence your withdraw rate, we might also consider a novel approach where you let your portfolio depletion event inform your end-of-life timing. This eliminates all risks and is a favorable strategy.
Love this! 😂
@cat..
So when you run out of money you just commit suicide!
Yes. Just spend your retirement as you did your life! Make money decisions based on what you have, how much you've been spending and what's coming in.
Ah, it appears I have found my GF's yt acc
Ah, it appears my retirement account has reached $0! Time to end-of-life event
Thank you Ben for making me fearful of my own longevity risk
I'm immediately taking up smoking to reduce that risk!
@@DavidYoung81 Same... and edibles.
Wait, when you said smoking you meant... nevermind. :P
@@DavidYoung81 McDonald’s would help with that too.
@@Andrew21882 Excellent idea, I'll look into that as well! 😜
Thankfully in Canada you can get euthanasia easily.
But this information makes me angry, so it must be wrong.
"Wow, you're a millionaire? You are rich!"
"Yes, I'm off to enjoy my 27k a year"
Great family and support system is what makes you rich
For a person who has their kids moved out (if they had them) and house paid off, which I'd hope someone would if they were looking at retiring, that seems pretty doable. Depends on where you live too, and definitely wouldn't be luxurious in most places, but doable in most places I'd assume.
@Novak D who cares if longevity comes with senility…
@novakd1530 There is always the option to mitigate that risk...
Wouldn't it be a bummer if you snuffed it well before time, just think how much you could have spent. Ah well c'est la vie.
Retirement is now more difficult than it was in the past. I've been saving for a long time instead of investing, and right now I only have about $400K. considering all the inflation, i'm thinking of investing in stocks, i dont just have idea on market strategieS.
At a point like this, when the pressure is already on you to retire, its best recommended you seek the services of an advisor, as this allows you make smarter investing decisions.
It's unfortunate most people don't have such information. I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $30k passively by just investing through an advisor, and I don't have to do much work. Doesn't matter if the economy is misbehaving; great wealth managers will always make returns.
Your advisor appears skilled. How can I contact them? I've recently sold property and aim to invest in stocks, seeking guidance.
*Jennifer Leigh Hickman* is the licensed advisor I use. Just search the name. You’d find necessary details to work with to set up an appointment.
Holding those $400K in cash is a mistake. Higher inflation than normal or not. Get an advisor.
For me, I believe retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My wife and I both spent same number of years in the civil service, she invested through a wealth manager and myself through the 401k. We both still earning after our retirement.........
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
These videos are high quality with many research data supported, which requiring a lot of time to prepare and to produce. It is one of the best learning sources for DIY investors, as the channel names it, Common Sense! Thank you
Always perfect content with more references than we can ever want! One of the few channels one can trust nowadays! Thanks so much Ben 👏
I just watched my first episode of the Rational Reminder podcast the other day and it made me want to watch several more immediately after. Thanks for putting out all this good UA-cam content!
As an aspiring Pl. Fin. , your videos and investing philosophy are THE most helpful on UA-cam
I just wrote the final exam for that. It was tough. I hope I passed!
@@BenFelixCSI PL.Fin in Quebec ;) congrats to you both
@@vonb2792
Quebec? Congrats! You must be fluent in French w/new language laws.
Thank you Ben! We appreciate your channel. Happy holidays sir.
I listened to your whole rational reminder episode on this topic and really appreciate how you make these videos accessible so I can flip them to people who can't go down the rabbit hole. Am in Ottawa as well and will refer folks to PWL as long as you're there. Keep up the great work
Holy hair growth 💇💇🙆🙅
6.8% hair growth to keep pace with inflation.
He has since returned to primarily investing in hair value.
@@wcg66😂😂
Always such great research, references, and unbiased info. Your vidoes are extremely informative and I really enjoy the content! Merry Christmas!!!
10:30 Love the bullet-riddled bomber pop-up on survivorship bias.
How did I just now find out you have a podcast... 200+ episodes for me to catch up on at work. Hell yeah!
A video about the superior variable spending rules would be great 😇
That video about intl diversification would be good too.
I think this is what Paul Merriman teaches, right? In bull years you could pull more, and in bear years you spend less and hunker down. Sounds good in theory, but I just wonder how many folks have the proper financial situation to be able to under spend in those down years.
@@jamesandersonwalsh Good point. Take this year for example, markets are down but CPI is way up. I don't think most people would succeed in reducing spending this year by much.
Rebalancing portfolio based on asset allocation (say 60:40) shall achieve this automatically. Plus we only make equity withdraw to fund debt and debt withdraw to fund life.
Exactly! Ben spoke multiple times about the variable spending and it really seems like a smart thing to do. Too bad there is no video about it, I'd love to find out more. What I'm especially curious about is how it affects failure rate and how much less capital does one need comparing to constant spending.
Ben.. with hair? I'm shook. 😱 It looks so good though!
Thank you!
That's not Ben. Clearly... That's his evil hairy twin who comes to crush our Safe Withdrawal Rate dreams!
That channel is amazing. Best one by far.
Ben thank you for the informative video, I'd love to hear more on variable spending rules, I know you mentioned them during past videos but a deep dive would be great
Great video, glad your back!!
Ben, I cannot thank you enough for the value your channel provides. My favorites videos are 'picking stocks' and 'bear markets'. Remind me of how I used not to unserstand the absolute basics :) You most probably saved my retirement, and definitely saved the present me a lot of doubts and time. Greetings from Poland, Merry Christmas!
Do what everybody else is doing if you are okay with only having what everybody else has.Information that will pay you everyday, you've got to stop saving all your money.
Venture into investing some, if you really want financial stability.
Choose to grow and elevate your mind by studying audios, videos, attending conferences that will give you the edge!
Yet another amazing video, Ben!
is there a Hair Growth ETF - looks promising
I love the term “longevity risk” :)
So weird to see you with so much hair😄! Great stuff though. love your channel and your takes are some of the takes I currently hold in the highest esteem on financial matters. Keep it up, please!
At the moment here in the UK, Legal & General are offering a 6% annuity for 65yrs or older. Of course I do realise there are other factors that may make someone want to do a drawdown. But a 6% annuity sounds like a very good deal to me and you won't need to worry about investments, or stock markets anymore, sleep soundly
Excellent video, glad to have found your channel
I plan on using financial guardrails which adjust spending based on market returns along with having a cash buffer for down years. Couple that with a well diversified portfolio including value, blend, growth, reits and bonds and a 4-5% withdrawal rate for 40 years is doable. Then throw some part time work in and you are golden. Many different models show this is possible. Of course we cannot predict the future but don’t be afraid to spend money in retirement. Much more than 2.7%
No gold? I know it seems like a waste but it actually helps a lot in bringing up withdrawal rates by smoothing out the volatility of a portfolio and reducing drawdowns. Read up on PortfolioCharts "Three Secret Ingredients of the Most Efficient Portfolios"
Hi Ben, I just wanted to say that your videos are outstanding and you deserve more recognition. Your videos made a huge difference in my view on investing and I sincerely want to thank you for providing all this information. Wishing you the best!
Thank you for being Canadian and including a Canadian view to your analysis!
A video on variable withdrawal rates would be greatly appreciated.
Easily one of the most important videos on this channel. Thank you!
Another great video! Thanks Ben.
Hi Ben, your videos are great! I was wondering what software you use to create them and do the images? Many thanks in advance.
Subscribed! Thank you, Ben!
Ben, your content is excellent as always.
You also look like a different person with the change in hair.
Looks good man!
This is a good example as to why rules in finance need to be analyzed, and considered in the present time, rather than blindly followed. Thank you Ben for your thorough analysis
They should be labeled as Guidelines, not Rules.
Agreed. Also always DYOR, critically/ independently and do what’s best and right for you. Be a student not a follower esp a blind one. Cheers
you're such a good presenter! great speaking voice too
I bet the most frequent comment down here won't be about personal finance..
I love to get my dreams shattered. Nothing better than a good dose of reality check to finish off the day.
Jokes aside, I really appreciate this. With the FIRE movement on fire these days (no pun intended) I hope this video gets the recognition you have been deserving for so many years.
Nice hair!
Every time I see a "successful" story of someone doing FIRE it's someone who had a really well paying job (something barely anyone can achieve) and later severly cut down expenses to a degree that's sometimes below middle class.
I'm not sure what the point of struggling through life is just so you're "independant"
@@tomlxyz Define "really well paying". Something like a third of American households bring in six figures and a quarter of individuals do. I think most people believe a six figure income amounts to being pretty well paid.
@@tomlxyz of course not everyone can achieve retirement by 45 or something crazy. But the core aspects of the FIRE movement (be responsible, live frugally, save aggressively so you can spend less time working) can apply to a lot, if not the majority of working Americans.
I just finished the CIFP Retirement planning course and I loved learning about the assumptions used and not what I keep hearing online LOL
Yes can you do a video on international diversification? Thanks, very informative video.👍😊
The two papers mentioned in the video, but not listed in the video description:
Choi, James J. "Popular personal financial advice versus the professors." Journal of Economic Perspectives 36.4 (2022): 167-192.
David Blanchett, C. F. P. "Exploring the retirement consumption puzzle." Journal of Financial Planning 27.5 (2014): 34.
Great value here, thanks Ben!
Hey Ben, amazing video! Nice haircut!
Thank you so much for sharing this!
Ben, Thanks for another great video. Does the life expectancy of a couple mean at least one lasts 25 years, or do both last that long?
If you look into the header of the on-screen table being referenced at the time (onscreen around 5:28), it states that the life expectancy is "in years of the last survivor from a ... heterosexual couple". So that would mean at least one lasts 25 years.
@@Krashoan cool thanks. I missed it!
Thank you for another year of perspective. Happy season, Ben.
I found the thinking interesting about why older data is surprisingly just as useful given modern technology, but maybe could be simplified to the musing that technology doesn't make any given investment more valuable than any other since all investors are basically competing with the same edge (better information). e.g. Biff's future stock price book was only useful in the past - if everyone'd had it, then not so much
Ben you're the best. I could pull that trigger right now (and still work pt). I'm scared to though!!
Amazing content!
Thanks
Thank you. Just what I needed to watch. My hubby and I are directors of our farm business and own property, plus small pensions. I am nearly 62, hubby is 65. We have started to save to retire from the farm, and possibly live on rental income, I'd really appreciate you go LIVE and talk about how to earn passive income online and retire comfortably, let’s say $1M consider financial planning.
It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into financial advisors for a strategy that suits your timing
Love our Canadian farmers! Thank you. Not easy. Agree not what you earn it’s what you keep. Wealth is also about good health. It can cost a lot as you get over 65 yo incl Canada (search longterm care costs) and w/o it you can’t enjoy life nor can those who love you and worry. Best of luck.
The assumptions on age are wrong for the elderly! I agree on the need to consider a slightly lower withdrawal rate to make it 30 years. BUT, he minimizes the fact that he is talking ONLY about the portfolio. There are other sources of income outside the portfolio primarily Social Security and hard assets such as your home.
Planning for the 95th percentile of longevity is folly. 65 plus 30 is 95! For older folks be aware that life expectancy has been declining not increasing. I don’t know anybody that is 95 years old. When I was working in geriatrics till last year, meeting a 100 year old was as frequent as meeting a celebrity. I know lots of people in my circle dead by 75 and 80. How many homeless people do you know who are 90? They don’t exist.
The reality is that for almost all couples one person will be dead by 85 which is a 20 year horizon, then spending drops a lot due to age and being single. Sure healthcare can rise at the end of life, but it does not need to be self funded, so it is often not relevant, in fact those without a surviving portfolio will receive care for “free” while those with a portfolio will be asked to self fund!. Most seniors live on only Social Security when they are old, so any portfolio balance is nice, but not necessary when very old.
I’m not advocating for not having savings, just for keeping it real and not scaring people so that they die with large portfolios because they were too afraid to enjoy their money while they were alive! You don’t need a 100% chance of success. 80% is probably fine for most.
Thank you Ben!
Thanks, ive adjusted my calculations and now retire comfortably at 106 👍
In this case, I see many advantages of having a high dividend ETF (distributing). Every year you get whatever the distribution is while the principal remains always untouched.
I think if you use some guardrails, your withdrawal rate could be about double that. Use it during the “go-go” years when you can enjoy it!
Very helpful, thank you....
Would be interesting to do more of pwr as it takes out the question of when to retire. Then also compare to practice at endowments. This is much more relevant to people that have higher absolute spending and can easily adjust annual spending by just reducing eg travel. Then also compare to buying direct inflation-adjusted annuities in the market. Thanks
I always enjoy these objective analyses. I'm glad you mentioned SWR is theoretical and probably irrelevant to most people. In the real world, let's face it - the vast majority of people don't save remotely "enough" by any measure - and yet are somehow fine.
Depends upon your definition of fine. Having to work as a greeter at Wal mart when you are 85 isn't my idea of fine.
Well done 👏
When withdrawal rates drop so much that you can only afford yearly haircuts...
Great video, thought-provoking insights galore! I'm seconding what another commenter said about variable spending rate, not so much taking the markets into consideration but taking the age of the retiree instead. Meaning, a 65 year old will be healthier than an 85 one to do more fun (ie: expensive) things! And can't insurances help to reduce the risks elaborate on the video?
Hey Ben, are you guys selling that beanie in the Rational Reminder store?
The problem with this is it only accounts for the success rate of the retirement spending plan and doesn't allow for flexibility in the withdrawal rate. If you have a paid for house and no consumer debt, you can live on relatively little. If markets are down, you scale back your lifestyle and draw from cash savings. When markets are back up you replenish these savings. This allows for a higher average withdrawal rate because you cut back on it when necessary, and are not needing to service a mortgage, car payments or consumer debt.
we are at the end of a long time debt cycle, do you think the same rule applied to the last 70-80 years will apply in the next 10-20 years ?
to be clear, I am referring to the bond market .
Rigorous, thank you.
Thanks for content, I have a question, is it your investing decision to have four children? Or just parenting is your passion? If you have already created such video, sorry, I'm new to this channel
Do you use a modeling software for plans ; like Money Guide?
Good Job Ben. Besides using life expectancy is also flawed as 50% will outlived pass that age. Inflation is also a killer.
Factoring japan into investment decisions always strikes me as sanitizing expectations a bit too much. When the PE ratios were like in the 60's, yeah that's gonna take a good few decades to straighten out.
And the chances of the U.S. being invaded is so much lower than a lot of other countries east of it. I think that's a solid reason why the US stock market has performed so well.
Ben, let me explain. If you split up investments either using the same fund using different accounts and each time you open a new account, you don't reuse the same S&P 500 index fund in an older account other than the most recent, you will be able to withdraw money on a straighter line than if you threw all the money in the same account. That's the whole idea. And I came up with a system just in my mind where you can go 1234-01 1234-02 and so on say every year. So that way you add to a normal S&P 500 fund in that account. Now if you decide you are not going to have enough money for early retirement, then you add to bonds or if someone wants to be more risky, in the older accounts you can add money to a normal S&P 500 fund, but the fund is marked as higher risk because the term is not long enough. Splitting up investments does not have any effect on the rate of increase. But the problem is you can't find the corresponding dividend re-investment buy orders when you lump everything into one fund under the exact same account number.
The whole idea is the system right now that's an idea will give the investor more confidents and make better decisions.
Ben, hope you’re keeping well. Thank you for all the information.
"account for the risk of living a long life"
This really spoke to the millennial in me.
Great advise
Thank you
*advice
Sounds like the yield of a large cap dividend stock portfolio. All that research and we've come full circle.
I can't help but think these retirement calculations are completely backwards, especially the aspect of putting a specific age for retirement for everybody. To me, you should work less and less as you save more and more, with no specific date for retirement, the specific date being whenever you're ready given the circumstances of your life. Don't ask me to be more specific, because it's very hazy in my mind, but I don't think this philosophy of "retire at 65 and withdraw x% every year" is what people should strive for.
Hair looking good on you Ben!
@BenFelixCSI Have you ever discussed how currency exposure should be used in a portfolio? What % of your portfolio should be in assets listed in your "home" country? Should you consider whether any international ETF exposure is hedged to your home country currency or not? Should your come country portfolio as a % of total portfolio be different depending on which country you live in? Should it be different depending on how you expect to use the portfolio i.e. if you expect to spend it down to zero or close to zero before you die should the home country currency % be higher than a situation where Monte Carlo simulations would suggest you will always pass on a portfolio to your next of kin and perhaps increasing international exposure will increase overall return in the long term. Would love it you could cover this in a video or podcast.
Ben when are you making a video on “investing in art”, have seen adds for it everywhere and I can only roll my eyes
If the “safe” withdrawal rate is only 2.7% then it’s time to consider an annuity.
How did the paper address inflation? Assume a constant average inflation? Or did the bootstrap include inflation data?
Great video, as usual. I do find the inclusion of the Cuban Missile Crisis a bit bizarre, however. If things had gone wrong, it wouldn't have just been a catastrophic outcome like the other example you used, but the whole world would have been destroyed. So, it's not like you would gain anything from not taking on the risk. Either your assets appreciate in value if the crisis is averted or you and everyone else is dead anyway. Asset allocation choices don't matter when it comes to the end of the world.
you're assuming that if things had gone worse, it would have led to all-out nuclear war, which is just an assumption.
My husband was on the ground there during the Cuban Missile Crises, straight out of Marine Corp Paris Island Boot Camp….
Great video particularly the variability of draw down which warrants much greater exploration.
In my opinion, there is another major factor that decreases the safe withdrawal rate.
By definition, the probability of retiring increases with the asset price and, consequently, is at its highest just at the top of the bubbles.
Computing statistics looking at at historical data starting on a sample of equally weighted years ignores the inherent bias of asset prices on retirement probability, thus increasing the estimated safe withdrawal rate.
The podcast segment at the end has lower volume than the main video. Would be great to equalize the volume for future videos.
Please make a video on stock options. I’ve often heard selling put contracts on the market has outperformed the market
Video: All about retirement.
Comments: OMG hair!
hey ben, what do you think of the book a non-random walk down wall street by andrew lo? i heard the book shows evidence of 2/3 of actively managed funds out performing the market for some 30 years ending in the 1990s, might be good for you to look at it ben
Brilliant
Does the 2.7% include "dividends".
I.e if im in vt or s and p 500. And get the 2-3% annual dividend should that be included in the 2.7% safe withdrawl rate or no.
It was confusing thanks
Thank you Ben for letting me know that I will work until I die
US not facing huge economic downturns could be the case of good governance and monetary policy, with a healthy entrepreneurial environment compared to other countries. This doesn't need to be random chance.
2.7% of everyone reading this will actually get to retire.
Great!
The number should be much higher for people who watch these videos.
Yup
@@NickVetter Yes, there’s a great sample bias here with a self selected group of financially literate people. I guess more than 90% of us will retire comfortably.
@@TheSteinbitt Ah, just the confirmation bias I was looking for! Thanks
I would love a channel like you for EU person.
I would love to see and in depth review of inflation causes. I know Milton Friedman was a big proponent of all inflation being monetary in nature. Yet both the inflation of the 70's (oil supply shock) and the 2022's (covid supply shock) were supply side in nature and not really purely monetary causes. The US has been trying to create inflation for decades with no luck. It took a supply shortage to materially change the inflation curve. Thoughts?
This wig looks so natural. Where to get one??
Question: does the 4%, 2.7%, etc rule apply to the % of the retirement market value at the very beginning of retirement? Regardless of how much the portfolio has gained or loss goong forward? Or do you readjust it every year?
the SWR is designed to cover the ups and downs of the market each year