Some people work for 40yrs to have $1M in their retirement, meanwhile some people are putting just $10K into trading from just few months ago and now they are multimillionaires
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
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 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!
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!
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
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.
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.
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 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
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.
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 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.
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!
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 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.
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 UA-cam 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.
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.
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.
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
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. :)
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 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.
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).
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 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.
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
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.
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.
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.
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!
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 %.
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 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).
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.
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.
Hey Erin! Hope you are doing well. Have you looked into the longevity of people who retire completely? It might be interesting to learn about people who retire but then go back to work not because they have to but they want to continue to contribute to society and do the specific work they choose. I am slowly coming closer to financial independence and am looking forward to continuing work when I feel like I am most impactful.
That’s exactly what I thought when I watched. But Erin is still right in that it doesn’t get the attention that it deserves. The 4% rule is crap in comparison to many other withdrawal strategies today.
@@scottmetzger7621. Not crap. No. It gave a good indication of a 30 year run for a withdrawal strategy that could offer sustainability for many. From there - new options rose. This theory was the first when pensions were yanked. Late Boomers and early X’ers are the first to navigate these uncharted waters. This was solid advice - it is changing as American retirement strategies change. So no - not crap
Why is it crap? It works and is ultra simple. The amount may not work for most people but the principle is fine. Personally I'm going with 5-6% and adjusting year by year.
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 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.
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!!
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.
You have mis-represented the 4% withdrawal rule. It is not a consistent 4% of the portfolio. It is an initial 4% that is then adjusted to keep up with inflation. So in year 1 the 4% rule withdrawal is the initial 40,000 times the 3% inflation = $41,200 not the $42,400 shown.
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.
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.
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!
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
Being unemployed and turning 39 has left me feeling lost. What chances for passive income do I have with $425,000 saved for an early retirement at the age of 50, $10,000 in an HSA, and a property that could provide an additional $200,000
I’m confused about whether to combine all my investment accounts into one. If I decide to do this, how should I go about it, and will there be any consequences I should be aware of? I also intend to sell my property, which could add an extra 200K overtime. Should I consolidate everything into one investment account, or diversify across several sectors?
These are important questions for a financial planner. I met mine at a NYSE event, and she helped my wife and i rebalance our 1.7 million portfolio between a traditional IRA and a brokerage account. She has been trading with our permission and has managed to recoup our financial losses thrice over again. We keep and manage the market cautiously.
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.
In retirement, I will have a combination of traditional and Roth assets. My thought was to use a withdrawal strategy as you've explained, and only use the Roth assets to cover taxes (both income & property). Can you talk about this matter in a future video?
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!)
I’m seeing people take out their annual living expenses and then just putting it in a regular savings or checking account. People really need to keep most of it in a HYSA or the brokerage cash account where it can actually earn money while it sits. Just have a couple of months cash automatically transferred into your checking account as you need it. People miss out on hundreds of dollars leaving their money in their checking account. 40,000 x 4% is $1600.00. Granted you’ll likely only get about $1000 as the amount reduces each month.
Good information. Did Vanguard mention how this strategy applies to RMD withdrawals? Most people I know have money in traditional IRA's and 401k's and their minimum withdrawals are dictated by set rules.
If your RMD is more than you want to spend, you roll it into your taxable brokerage. You pay taxes on that RMD, sure, but your net withdrawal is only the cost of the taxes. Just because you got a big RMD doesn't necessarily mean "oh, noes, I have to buy diamonds and a Danube River cruise now!" Of course, if you're in your RMD years (74 now) and facing big RMDs... you probably should take the cruise! (Diamonds are still geologic garbage).
I keep it simple and sleep well. Before RMD age, spend the dividends and reinvest the capitol gains. After RMD age, reinvest all dividends and capitol gains and live on the RMD amounts which increase every year. On a quarterly basis I check for any investment that paid out more in RMD then was reinvested. If the IRA paid out more in RMD then was reinvested I have a non IRA account with similiar investments and I add money to those personal mutual fund accounts (total paid out minus dividends reinvested). I'm 74 now and the investments are maintaining and gaining in value. It helps to invest in safer investments as you get older. Pay off the mortgage and have no outstanding debts when you retire. Do I care that I could spend a lot more money. Not really, the piece of mind and no stress mean more to me. I'm definitely not rich, just comfortable. All the best to you and your investments and enjoy life while you can.
3:14 Odd you would cover this in this video. I was just contemplating the feasibility of a similar system using the 4 to 5% base withdrawal and then a percentage of anything realized above 4% during the past 12 mos. possibly using past c12 mos. figures as calculated in November.
With a million dollar portfolio, I'd be living off of growing dividend yield payments. Only selling growth stocks to rebalance towards dividend investments. And reinvesting what I didn't need to increase the dividends. Never touching the portfolio value.
Thx I enjoy your content: why does no one acknowledge that with each retirement decade you tend to see spending decline ( provided no huge unplanned healthcare costs ) so - withdraw as follows- 62-72 = 6% , 72-82 =5%, 82-92=4% ?? Portfolio must average 6.5-7% returns- thoughts?
Tweaking retirement spending plans is basically a last resort that is only needed if you haven't saved up enough to fund retirement comfortably, or decide to retire 'too early'. And when you both want to spend the absolute maximum possible during retirement to both not run out of money AND to 'die with zero'. If you saved and invested a higher percentage of disposable income than most people while working, and didn't 'retire early' ,then you can end up with more than sufficient retirement savings to fund your desired level of retirement spending while only needing to pull out a modest percentage of your retirement savings, and might also have some other non-retirement investments sitting around that you could utilize during retirement if needs be. There is nothing wrong with accumulating more savings and investments than you 'need' -- and leaving an estate is a perfectly fine goal to have (rather than the old 'die with zero' mentality -- which is really just a continuation of the 'spend as much as possible' conspicuous consumerism trap that many people fall into while working).
Shouldn't you consider what tax bracket you end up with this strategy? Maybe up your withdrawal to fill up a lower bracket before rates go up in the future? Also why not go all equities while selling some covered calls for market volatility?
Good strategy but I feel it should be based on more real time value. If the previous year was very good but your portfolio is down 10% when you go to withdraw, it doesn't make sense to increase your withdrawal
Maybe it’s a nitpick but I disagree with the math at 6:45 - $1.06m would only be correct if you withdraw the $40k on December 31 which doesn’t make sense if that’s meant to be living expenses for year 1. If you assume taking the $40k at the start of year 1 then the end of year 1 balance would be $1.056m. This is definitely a nitpick but it doesn’t matter what “the market” does, it matters how your investments perform. No one should base their withdrawals on “the market”.
Is the amount that the market up or down taken before or after inflation? If market is up 5% but inflation is 3% does that mean the market is up only 2% in real spending power?
I have been retired for about 20 years and try not to touch the principal at all. I put most of it in over time into muni's, no tax and over the last 10 years I have done this I have always earned at least 4% overall (usually more) so principle has not been touched.
You have the go go younger years when you spend more in retirement & then you have the slow slow years when your spending goes down...depending on medical requirements.
You didn't seem to address the inflation assumption you made. My understanding with this method is you take your withdrawal dollar amount from the previous year and adjust it by inflation, then calculate the ceiling and floor based on that inflation adjusted amount. If your fixed percentage withdrawal based on the end of year balance (what's left after spending & market fluctuations) falls within the inflation-adjusted ceiling & floor then that is your new withdrawal amount. Otherwise the inflation-adjusted ceiling or floor are used.
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..,
Some people work for 40yrs to have $1M in their retirement, meanwhile some people are putting just $10K into trading from just few months ago and now they are multimillionaires
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
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 😂😊
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!
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!
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
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.
Hi Erin, great video! Love all the graphs you took time to make. We should all call you professor Erin! And LOVE your bloopers! 😂
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.
Always look forward to your videos on Fridays! Hope you have a great weekend!
Wow. That was a lot and you did a great job with your presentation.
Thank you so much!
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 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
I watch for the bloopers! J/K! Another great vlog Erin.
Engagement comment, keep up the great work, Erin.
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.
Do you have a minimum or maximum withdrawal in mind in case the market ups and downs don’t meet or exceed your core spending needs?
How long have you been following this approach and how has your portfolio value looked?
Excellent explanation/summary. Thank you!
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 plan to adjust withdrawals based on previous year’s market performance. I have a pension as well which greatly reduces risk.
Somebody has been working out!!!🎉🎉🎉
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.
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.
Thank you, Erin!
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!
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 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.
Great video and a strategy to continue. Thanks Erin. I love that Peanut got in the last word…😊
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 UA-cam 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
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.
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.
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
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. :)
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 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.
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).
I spent 50% of my gains when the market is up...and zero % when is down... so far so good
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.
Learned something new! thanks!
This video was amazing! Thank you. The visuals helped as well!
I’m so glad!!! 😃
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.
very informative, thanks
I Really enjoy your information!
I'm so glad! 🙂
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
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.
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.
OH.. I should add.. It is not easy doing these long diatribes word perfect.. You do these very well Erin..:)
Nicely done. I do have a question, how do you determine what to set as your ceiling and floor percentages?
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.
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!
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 never viewed 4 percent as a fixed rule, but a guide, sometimes more sometimes less depending on the market
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 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).
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.
Great information. Thanks.
I am so glad I became interested in money and retirement in my 30's, I never would have found the gorgeous woman Erin.
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.
Hey Erin! Hope you are doing well. Have you looked into the longevity of people who retire completely? It might be interesting to learn about people who retire but then go back to work not because they have to but they want to continue to contribute to society and do the specific work they choose. I am slowly coming closer to financial independence and am looking forward to continuing work when I feel like I am most impactful.
Excellent explanation, how this strategy WORKS with RMD.
So basically Vanguard is a proponent of a guardrails withdrawal strategy.
That’s exactly what I thought when I watched. But Erin is still right in that it doesn’t get the attention that it deserves. The 4% rule is crap in comparison to many other withdrawal strategies today.
@@scottmetzger7621. Not crap. No. It gave a good indication of a 30 year run for a withdrawal strategy that could offer sustainability for many. From there - new options rose. This theory was the first when pensions were yanked. Late Boomers and early X’ers are the first to navigate these uncharted waters. This was solid advice - it is changing as American retirement strategies change. So no - not crap
Why is it crap? It works and is ultra simple. The amount may not work for most people but the principle is fine. Personally I'm going with 5-6% and adjusting year by year.
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!!! 😊
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.
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!!
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.
You have mis-represented the 4% withdrawal rule. It is not a consistent 4% of the portfolio. It is an initial 4% that is then adjusted to keep up with inflation. So in year 1 the 4% rule withdrawal is the initial 40,000 times the 3% inflation = $41,200 not the $42,400 shown.
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.
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.
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.
Great info Erin...Question for you?. How do you know so much about this?
I mean what qualifications do you have? Just curious😮
Great video
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
Thanks!
I can never disassociate the word "strategy" in relation to money and finances from gambling.
This is why I believe in just living off dividends it takes the guess work out of withdraws
Being unemployed and turning 39 has left me feeling lost. What chances for passive income do I have with $425,000 saved for an early retirement at the age of 50, $10,000 in an HSA, and a property that could provide an additional $200,000
It makes sense to consider hiring a financial advisor at this point, but delaying retirement for a bit might be a more prudent choice
I’m confused about whether to combine all my investment accounts into one. If I decide to do this, how should I go about it, and will there be any consequences I should be aware of? I also intend to sell my property, which could add an extra 200K overtime. Should I consolidate everything into one investment account, or diversify across several sectors?
These are important questions for a financial planner. I met mine at a NYSE event, and she helped my wife and i rebalance our 1.7 million portfolio between a traditional IRA and a brokerage account. She has been trading with our permission and has managed to recoup our financial losses thrice over again. We keep and manage the market cautiously.
That is impressive! my portfolio has remained stagnate. Who is guiding you please?
Monica Lisa Payne. She is well known, so you can look her up online
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.
In retirement, I will have a combination of traditional and Roth assets. My thought was to use a withdrawal strategy as you've explained, and only use the Roth assets to cover taxes (both income & property). Can you talk about this matter in a future video?
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!)
Peanut Buttercup! Love it!! 🙂
I’m seeing people take out their annual living expenses and then just putting it in a regular savings or checking account. People really need to keep most of it in a HYSA or the brokerage cash account where it can actually earn money while it sits. Just have a couple of months cash automatically transferred into your checking account as you need it. People miss out on hundreds of dollars leaving their money in their checking account. 40,000 x 4% is $1600.00. Granted you’ll likely only get about $1000 as the amount reduces each month.
Something else that would help me spend more money in retirement is to understand how VA disability money can help you or hurt you and your planning?
Sounds alot like Guyton-Klinger guardrails
I was thinking the same.
I twas thinking the same thing. It's a similar dynamic spending model but not quite the same as what was described here.
It is.Instead of this long winded talk,just google it.
Great vid
Hey Erin, what strategy are you leaning towards for you to use when you retire?
Good information. Did Vanguard mention how this strategy applies to RMD withdrawals? Most people I know have money in traditional IRA's and 401k's and their minimum withdrawals are dictated by set rules.
Consider Roth conversions.
If your RMD is more than you want to spend, you roll it into your taxable brokerage. You pay taxes on that RMD, sure, but your net withdrawal is only the cost of the taxes. Just because you got a big RMD doesn't necessarily mean "oh, noes, I have to buy diamonds and a Danube River cruise now!" Of course, if you're in your RMD years (74 now) and facing big RMDs... you probably should take the cruise! (Diamonds are still geologic garbage).
Do a story on the reverse glide path. That is gaining traction. I am using it
I keep it simple and sleep well. Before RMD age, spend the dividends and reinvest the capitol gains. After RMD age, reinvest all dividends and capitol gains and live on the RMD amounts which increase every year. On a quarterly basis I check for any investment that paid out more in RMD then was reinvested. If the IRA paid out more in RMD then was reinvested I have a non IRA account with similiar investments and I add money to those personal mutual fund accounts (total paid out minus dividends reinvested). I'm 74 now and the investments are maintaining and gaining in value. It helps to invest in safer investments as you get older. Pay off the mortgage and have no outstanding debts when you retire. Do I care that I could spend a lot more money. Not really, the piece of mind and no stress mean more to me. I'm definitely not rich, just comfortable. All the best to you and your investments and enjoy life while you can.
3:14 Odd you would cover this in this video. I was just contemplating the feasibility of a similar system using the 4 to 5% base withdrawal and then a percentage of anything realized above 4% during the past 12 mos. possibly using past c12 mos. figures as calculated in November.
With a million dollar portfolio, I'd be living off of growing dividend yield payments. Only selling growth stocks to rebalance towards dividend investments. And reinvesting what I didn't need to increase the dividends. Never touching the portfolio value.
Thx I enjoy your content: why does no one acknowledge that with each retirement decade you tend to see spending decline ( provided no huge unplanned healthcare costs ) so - withdraw as follows- 62-72 = 6% , 72-82 =5%, 82-92=4% ??
Portfolio must average 6.5-7% returns- thoughts?
Tweaking retirement spending plans is basically a last resort that is only needed if you haven't saved up enough to fund retirement comfortably, or decide to retire 'too early'. And when you both want to spend the absolute maximum possible during retirement to both not run out of money AND to 'die with zero'.
If you saved and invested a higher percentage of disposable income than most people while working, and didn't 'retire early' ,then you can end up with more than sufficient retirement savings to fund your desired level of retirement spending while only needing to pull out a modest percentage of your retirement savings, and might also have some other non-retirement investments sitting around that you could utilize during retirement if needs be. There is nothing wrong with accumulating more savings and investments than you 'need' -- and leaving an estate is a perfectly fine goal to have (rather than the old 'die with zero' mentality -- which is really just a continuation of the 'spend as much as possible' conspicuous consumerism trap that many people fall into while working).
Year one, would you withdraw at the beginning of the year?
Shouldn't you consider what tax bracket you end up with this strategy? Maybe up your withdrawal to fill up a lower bracket before rates go up in the future? Also why not go all equities while selling some covered calls for market volatility?
Good strategy but I feel it should be based on more real time value. If the previous year was very good but your portfolio is down 10% when you go to withdraw, it doesn't make sense to increase your withdrawal
Maybe it’s a nitpick but I disagree with the math at 6:45 - $1.06m would only be correct if you withdraw the $40k on December 31 which doesn’t make sense if that’s meant to be living expenses for year 1. If you assume taking the $40k at the start of year 1 then the end of year 1 balance would be $1.056m. This is definitely a nitpick but it doesn’t matter what “the market” does, it matters how your investments perform. No one should base their withdrawals on “the market”.
Is the amount that the market up or down taken before or after inflation? If market is up 5% but inflation is 3% does that mean the market is up only 2% in real spending power?
I have been retired for about 20 years and try not to touch the principal at all. I put most of it in over time into muni's, no tax and over the last 10 years I have done this I have always earned at least 4% overall (usually more) so principle has not been touched.
My withdrawal strategy is to only take the dividends. Sell nothing.
You have the go go younger years when you spend more in retirement & then you have the slow slow years when your spending goes down...depending on medical requirements.
You didn't seem to address the inflation assumption you made. My understanding with this method is you take your withdrawal dollar amount from the previous year and adjust it by inflation, then calculate the ceiling and floor based on that inflation adjusted amount. If your fixed percentage withdrawal based on the end of year balance (what's left after spending & market fluctuations) falls within the inflation-adjusted ceiling & floor then that is your new withdrawal amount. Otherwise the inflation-adjusted ceiling or floor are used.