This New Retirement Withdrawal Strategy Is Changing the Game

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This early retirement withdrawal strategy can help you have more confidence in your plan to retire early.
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[@peaceofcake8464]

The main reason that Income Lab shows better results in the papers vs Guyton-Klinger is that Income Lab includes "economic context" when setting the guardrails. You can see this in the stagflation era chart where Income Lab is *increasing* the withdrawal rate in 1986 to over 10% in anticipation of the outstanding market returns of the late 80's and 90's. It's up to you to decide if such economic forecasting is a reasonable approach. (It works for historical back-testing, but going forward, who knows?) If you turn off "economic context", you get similar results between Guyton-Klinger and Income Lab. The key benefits of Income Lab over Guyton-Klinger are that it can handle changes in income sources over time and it also recognizes that the withdrawal rate can rise as remaining years of life expectancy decrease.

[@jack91522]

It would be good to have a video that goes into the risk based guardrail math

[@wdeemarwdeemar8739]

Part time job… that is A big no beuno. What software do you use for the guardrails? Nice stuff!

[@MCalcagno]

Income lab!

[@jeeplife5262]

Why does your static withdrawal rate scenario not match the original paper results? The paper said 4% passed all scenarios for 30 years.
It looks like you used 60/40 stock/bond split versus the 50/50 split in the paper. Is that the difference?

[@asdd5033]

It's because he uses a Monte Carlo simulation rather than a strictly historical result method. Bengen used historical results only.

[@nateCA]

Nice video! In your example, why do you increase withdrawals up 5% if your portfolio only go up 5%, but decrease 5% if your portfolio goes down 28%? I didn't see where these upper and lower guardrails get these numbers from.

[@MCalcagno]

Thanks for watching!
Here's how it works:
We will adjust your spending based on risk, longevity, inflation, and market assumptions.
1. If the risk of not spending enough becomes too high, we'll increase your income by 5% to balance it out (don't want to live a life of regret and spend too little).
2. If the risk of spending too much becomes too high (like if a 28% drawdown were to happen), we'll decrease your income by 5%.
3. With the initial income plan, we purposefully set a higher chance of not spending enough (more conservative), so it takes less of a portfolio change to increase your income. On the other hand, because we started with a lower chance of overspending, there's more of a buffer before we need to reduce your income. (ie it will take more risk to the plan like a bigger drawdown to have to reduce income).
It's a bit complex, but I hope this clarifies things!

[@nateCA]

@@MCalcagno Hi, thanks for the detailed explanation ! Yes, thanks makes sense! New subscriber, so look forward to more great videos 😀