Overcome the RETIREMENT Income DEATH SPIRAL
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- Опубліковано 26 кві 2024
- ✅ FREE RETIREMENT ASSESSMENT ✅ www.foundryfinancial.org/reti...
Are you worried about outliving your retirement savings? In this video, we dive deep into the concept of the Retirement Income Death Spiral and what it means for your financial future. Learn about the common mistakes to avoid and strategies to ensure that your retirement funds last throughout your golden years.
Why Watch This Video?
-Discover Critical Pitfalls: We explore the biggest risks that can deplete your retirement income faster than expected.
-Learn Effective Strategies: Get actionable advice on how to manage your retirement funds wisely to avoid falling into the income death spiral.
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ABOUT ME
I’ve always been passionate about personal finance, investing, real estate, and helping people find the freedom to live their life with purpose. But when my dad died in 2015, I tried to help my Mom find an advisor to sort out her finances. Instead of a helping hand, I found an industry of financial advisors dominated by glorified salespeople working on commission - pushing products that were not in my mother’s best interest. Or advisors with minimums that shut-out all but the ultra wealthy. Disappointed with the options, I took matters into my own hands and launched Foundry Financial, a wealth management firm with transparent pricing that specializes in helping provide clarity around money - so you have the confidence to make smart decisions.My goal is to help a million people retire without worry!
📅 THE BASICS OF RETIREMENT PLANNING
Retirement planning has several steps, with the end goal of having enough money to quit working and do whatever you want. Our goal is to help people master retirement and retire without worry.
Step 1: Know when to start retirement planning. When should you start retirement planning? The earlier you start planning, the more time your money has to grow. That said, it’s never too late to start retirement planning. Even if you haven’t so much as considered retirement, don’t feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically investing could mean you won't be playing catch-up for long.
Step 2: Figure out how much money you need to retire, The amount of money you need to retire is a function of your current income and expenses, and how you think those expenses will change in retirement.
Step 3: Prioritize your financial goals. Retirement is probably not your only savings goal. Lots of people have financial goals they feel are more pressing, such as paying down credit card or student loan debt or building up an emergency fund.Generally, you should aim to save for retirement at the same time you're building your emergency fund - especially if you have an employer retirement plan that matches any portion of your contributions.
Step 4: Choose the best retirement plan for youA cornerstone of retirement planning is determining not only how much to save, but also asset allocation. It can make a massive difference in your retirement plan.
Step 5: Select your retirement investments. Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk. It’s often helpful to talk with an adviser to discover the right mix of stocks and bonds.
❣ SPONSORED No, this video was not sponsored.
⚠️ "DISCLAIMER:⚠️This is not financial or investment advice. This Channel is meant for EDUCATIONAL AND ENTERTAINMENT PURPOSE only. None of this is meant to be construed as investment advice, it's for entertainment purposes only. #retirementplanning #retirement #passiveincome
I misspoke around 7:30. The math is right but I said negative 8 for year five. It’s positive. My editor just copied me and didn’t catch it.
- Year 1: +5%
- Year 2: -3%
- Year 3: +10%
- Year 4: -7%
- Year 5: +8%
The sum of positive changes = 5% + 10% + 8% = 23%
The sum of negative changes = 3% + 7% = 10%
So, MoRo = 10% / 23% ≈ 0.435 or 43.5%
publications.investmentsandwealth.org/iwmonitor/november_december_2023/MobilePagedArticle.action?articleId=1940618#articleId1940618
There’s also a lot of data that shows that spending decreases over time. Most people spend less as they get older. Less travel, less buying new things etc.
Yes, there’s inflation, but the lack of spending more than offsets.
I'm glad you understand this. 😊
The MoRo mitigation concept seems to be sort of a 'guardrails with market memory' approach. I always appreciate seeing a formal method like this tested across different time periods. Thanks!
Ramsey is not doing people any favors by recommending that they pull 8% a year from their retirement funds. He may be rich enough to do it himself but most are not in his position. Be careful folks and don't heed his advice.
Retiring with $1 million in 1957 is the same as retiring with $11.16 million today. Not attainable for most people. Pulling $50 thousand a year in 1957 is $557,914 today. Who needs that much income? Adding 3% a year to your withdrawal rate is clearly insane. If inflation is high then just go without an increase in the withdrawal rate for a few years. A bit of "belt tightening" in retirement will not kill you. The real "death spiral" is the constant increase in the withdrawal rate.
Thanks for explaining it so clearly. Math is not my forte but I get the concept.
The best withdrawal rate is the “I live in the real world withdrawal rate”
It works very much like compounding interest / gains ... only in reverse. Anyone wo has built their own portfolio from scratch should recognize this process. Thanks for this version of an explanation. The Chaos Theory bit is not as well grounded, imo. It's really just arithmetic, Jr HS stuff really, but over a very long period of time. Very small adjustments, early on, solve to problem completely.
I kind of agree on Chaos Theory. That was just what the author said. I was more trying to explain, not evaluate. I had a couple of issues with his paper.
Live small, even before retirement, pay off your mortgage any any other debts, and then when you do retire only spend the interest or the inflation adjusted gains on the principal, don't spend the principal. Use it as the basis of a perpetual money machine.
It’s funny how most CPA’s refuse to address this , they assume you aren’t invested in solid dividend paying stocks which have decades of raising their dividend . They assume you have to sell part of your portfolio in order to make withdrawals and it’s fear mongering and dishonest .
I solved this problem by not taking my SS until I turned 70 plus since I love my job I have no plans on retiring anytime soon :-)
Delaying Social Security is a great way to help solve this issue.
@@foundryfinancial I also had another reason … my Wife is 6 years younger so if something happens to me she collects mine which is almost 2 1/2 times the amount she is getting. I am getting literally only a few hundred dollars from the max that SS allows ;-)
With 5% withdrawal and 1.5% fees, the model portfolios in the paper are effectively taking out 6.5%. That's a lot.
Yeah, it’s a lot, which is why it fails more - but the general principles work.
Yes, and is rising when you apply inflation!
If you ran the same set up but used the guardrails strategy would it have worked out the same?
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
(Hemingway novel)
I wish I would have included this. Ha. Great quote.
Thank you for this video. Rob Berger just covered it also. People must be concerned for a significant depression/recession.
Oh, the death spiral? I’ll have to watch it. I’m a big fan of Rob’s, but I missed this.
My plan is the ability to pull back spending to below social security along with a bucket strategy. Besides, our wonderfully frugal lifestyle doesn't cost much anyway and I'm not concerned about maximizing our spending.
Sounds like you’ll be fine.
@@foundryfinancial Oooh yeah!
How is this different from sequence of return risk ? Ty
It’s not really that different, just a different way of approaching it. Also, I liked the idea of the momentum ratio to evaluate the health of the income stream.
A bad sequence of return causes the "death spiral."
Adding a portion of your assets in a FIA to increase your guaranteed income is insurance for this.
It is one way you can help protect, especially early on.
Interesting, but quite an odd analysis. Make the fixed withdrawal rate high enough (5% is considered high be some), don't adapt in bad return years, and every account will dive to zero quickly under unfavorable sequence of returns.
I think what I found most interesting is that the erosion is slow and then accelerates and without care - it can catch you by surprise. I also like the momentum ratio as a way of evaluating risk.
Yes variable withdrawal strategies can protect from this. The concept of a steady withdrawal rate actually makes little sense for many retirees.
For us portfolio “needs” vary tremendously from year to year, due to other income streams and a variability in income needs. We will need 5 years of high withdrawals(bucketed) to get me to age 70 and SS. Then much lower withdrawal needs after full SS kicks in, then gradually lower rates in our 80’s. The back end is protected with real estate. Thus, our portfolio only needs to last for 20 years! So while these concepts still matter, reality is completely different.
We expect to use a variable withdrawal “rate” based on actual wants beyond needs. Meaning $20k for travel vs $40k for travel at then current projections.
Didn't even watch video, but have the answer. Do what I am doing, work into your late 70s.
Wait til everyone watches Greg Foss talk about the "debt spiral" #Bitcoin
You lost me at 7:30 when you stated a portfolio loss of -8% in year 5, but then added it as a +10% gain when you created the loss/gain ratio. So is the gain/loss ratio .435 as you stated or is it 1.2? Kinda makes everything after that point a big question mark.
That’s supposed to be positive 8. I misspoke and the editor just copied what I said. The math is right if you use positive 8. Glad you caught it.
- Year 1: +5%
- Year 2: -3%
- Year 3: +10%
- Year 4: -7%
- Year 5: +8%
The sum of positive changes = 5% + 10% + 8% = 23%
The sum of negative changes = 3% + 7% = 10%
So, MoRo = 10% / 23% ≈ 0.435 or 43.5%
So, 100k, at the end of the 5 years would be $112,527, right? About a 2.3887% annualized return.
If you do your homework, and know these numbers, and watch the market you can draw 4-4.5 % without a problem if you stay vigiliant. Yes the early 70's were THE WORST possible time to retire (beacuse of losses and the inflation being wosre than any other time in US history.) Cherry picking will always cause the worst scenario..... You are making this too hard for most people to understand. sorry
I re-ran a similar scenario in beginning in 1999. I could have also chosen other points and had similar outcomes. The challenge is we don’t know what the future holds and I talk with way too many people who are moving into retirement with unrealistic expectations. Even your 4% worked for people in the US, but not a lot of other countries and what happens if the next 50 years isn’t like the last 100. People need tools to help navigate what for many will be a forty year journey.
@@foundryfinancial I agree I can't speak to other countries, but depending on when this person retired in 1999, they came at the beginning fo the DOT COM bubble. again cherry picking. Now NONE of us know what will happen going forward, I agree we must always plan for the worst, but FEAR MONGERING is ridiculous.
thx for the video. I love the conversations :)
@@foundryfinancial Kevin, I understand many other countries may not work out long term, but I am talking about the US, We all know the 4% rule has worked throughout our history. I realize that this could in fact change, but after over 100 years here in the US it never has. THAT IS ALL I AM SAYING.
thx very much for the dialogue.
@FirefightersFinancialToolbox I don't think he's fear mongering. It's better to be prepared for the worst situations and hope for the best. Then, to be unprepared, or even worse thinking life is always going to be roses and unicorns.
@kevin, error in data presentation at 07:30 for MoRo, the year 5 data on screen shows down 8% and your verbal narration assumes up 8%.