Flexible Spending and Early Retirement: A Perfect Match or Just a Myth?

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Can one retire early if they have the ability to significantly cut back on discretionary spending during retirement if they must? A recent article on the MadFientist blog claims that following a Discretionary Spending Rule in retirement can significantly increase a retirees Safe Withdrawal Rate. And with a higher SWR, one can retire early.
Karsten Jeske (Big ERN) of Early Retirement Now responded with his own article. He called flexibility in retirement a myth, and detailed why he thinks the Discretionary Spending Rule won't work.
In this video I give my take on both articles. We also look at a free Safe Withdrawal Calculator you can use to model your own retirement plan.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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29 сен 2024

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Комментарии : 59

@Raymondjohn2 9 месяцев назад

High prices for everything have severely affected my plan. I'm concerned if people who went through the 2008 financial crisis had an easier time than I am having now. The stock market is worrying me as my income has decreased, and I fear I won't have enough savings for retirement since I can't contribute as much as before.

@bob.weaver72 9 месяцев назад

It's recommended to save at least 20% of your income in a 401k. You can use online calculators to estimate how much you should save based on your age and income. Saving at least 20% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. By saving this much, you can take advantage of investing in the stock market and potentially grow your retirement savings over time.

@martingiavarini 9 месяцев назад

Considering the increased complexity since the 2008 crash and COVID, I suggest diversifying your financial portfolio. I hired an advisor and successfully grew my portfolio by over $150K during this turbulent market using defensive strategies that protect and profit from market fluctuations.

@hermanramos7092 9 месяцев назад

Could you kindly share the contact details of your investment advisor? I really need one urgently.

@martingiavarini 9 месяцев назад

‘’Natalie Lynn Fisk’’ is my adviser and she is highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversity and is considered an expert in the field. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.

@hermanramos7092 9 месяцев назад

Thanks for sharing this. I did my own little research, and your advisor looks advanced and experienced. I wrote her and dialed her twice but she didn't pick up so I scheduled a phone call.

@royprovins7037 Год назад

This is why I bought a QLAC that kicks in at 80 with a small portion of my retirement money. I want a zero percent fail rate

@mrallan8063 Год назад

If you don't have any flexibility in spending, you aren't ready to retire early.

@Farmwald853 10 месяцев назад

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 Husband 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.

@SallyW414 10 месяцев назад

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...

@AustinButler-kd4ny 10 месяцев назад

Interesting . I think this is something I should do, but I've been stalling for a long time now. I don't really know which firm to work with; I feel they are all the same but it seems you’ve got it all worked out with the firm you work with so i surely wouldn’t mind a recommendation..

@SallyW414 10 месяцев назад

I definitely share your sentiment about these firms. When I was starting out, I checked out a couple of freelance investors online, so you could do the same. I personally work with Catherine Morrison Evans, and she's is widely recognized for her proficiency and expertise in the financial market. With a comprehensive knowledge of portfolio diversification, she is acknowledged as an authority in this field...

@AustinButler-kd4ny 10 месяцев назад

Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.

@EJJ-EvArms 2 месяца назад

These are all bots. IGNORE SCAM

@Bluponi Год назад

Great video... I actually like the Guyton -- Klinger guardrails, only withdraw 4% when we are in a bear market, and in good times, you can withdraw 6 %... When Social Security kicks in at 65, you can supplement your income and cut your withdraw percent down to 2%... You don't have to make your income last for 30 years, social security provides a nice margin, especially if you retire overseas in the Philippines, or Vietnam, where the cost of living is 50% of that in the United States

@mlhundt2064 Год назад

No one has a crystal ball. Most retirees have an income and expenses just like when you were working. If you want to spend more than your income you have to dip into savings just like when you were working. Unless you are trying to work down to zero, your discretionary spending should still be looked at as when you were working. Just because you are retired does not mean you don't keep a comfortable cushion. Only certainty is prices will always go up regardless of who's in the White House.

@rickwalker8763 Год назад

I retired early and plan to withdraw over 10% annually until the mortgage is paid off and SS kicks in. By embracing flexibility and dynamically adjusting withdrawals when necessary I've also made the plan fail proof (0% failure rate). My portfolio will last no matter how long I live (I'm not a fan of scheduling my own demise). I won't be leaving a ton of money to anyone else--my wife and I will be spending most of it and enjoying retirement to its fullest while we are able. Like Rob said, flexibility makes a huge difference.

@jshoe2490 Год назад

Another excellent analysis and comparison of current thinking, with clearly labelled opinions and extensive context clarity. Well done, Mr. Berger, well done. This kind of content is why I subscribe to your newsletter and your RU-vid channel. Thanks.

@shaynebowen5436 Год назад

Incisive, clear, thoughtful, I love your analysis week after week. You bring a great deal to the table. Context, alternative ways of looking at papers, tools to use, just fantastic work!! BRAVO BRAVO!!!

@williamfusselman2260 Год назад

Big Ern's use of CAPE adjusted withdrawal rates has a certain mathematical elegance.

@TwoSidesOfFI Год назад

Great analysis as always, Rob. Thanks for the shout out!

@joekuhnlovesretirement Год назад

Hard rules break down in reality….. example: what if your portfolio was up 50% last year and down 20% this year. Portfolio still up. So decrease spending in your young and able. Mistake. Great content Rob.

@Mike-123 Год назад

The falling bridge in that photo is actually a classic. It's referred to as Galloping Gertie. I remember it from my engineering intro class in college. I'm not a civil or mechanical engineer, but I did joke with one about it years later, and he said "yeah" that's a classic example that all construction-oriented engineers have all heard about (and he knew much more of the history behind it than I did).

@camaro6810 Год назад

Rob, really enjoy your videos, I've watched them all. Could you do a video or two about protecting assets as we age. I'm not quite 40 yet, and a new father so it has be thinking about transfer of assets in the future. I've known a couple people that had pretty sizeable nest eggs in the later years, only to become ill, enter a home and have them drain the assets (home, accounts) to the tune of $10-15k+/mo....even with millions, an extended stay, dementia etc..where you could need care for 3-5 years...or more...will drain an inheritance pretty quick. Obviously there is long term care insurance, gifting before you get to the later years at the max/yr allowable tax free...and trusts...what do you recommend or what is your take on it? I grew up well below the poverty line and would hate to spend a lifetime building wealth only to have it consumed by a mediocre care facility where Im drooling on myself being fed applesauce by a CNA getting $9/hr while they charge me $15k/mo. Irrevocable trust? I dont care if Im in control of the funds when Im 80+ yrs old...if something terrible happens younger, hopefully its quick and I dont rack up a mountain of medical bills. Just dont want to be a burden on loved ones and would like to leave them as much as possible.

@EJJ-EvArms 2 месяца назад

Rob, after watching many of your vids, I enjoy how you can dig deep into minutae and small details, while also being able to see the big picture, and the forest through the trees. I don't always agree with you (though I usually do), but I've learned much from you, and I greatly respect your approach. Kudos & thanks.

@canyonoverlook9937 Год назад

I would have liked this compared to the Wellington fund. That goes back to 1929. I would also like to see Wellesley used in this. Wellesley started in 1970.

@randolphh8005 7 месяцев назад

Honestly at the margins this is all mental mast……. The fact is that the majority of people will not want to draw a steady percent every year. Income needs are dynamic for most and vary with other income streams. Our needs vary from 6% to 2%. And ALL necessary costs are covered by SS at age 70.

@briankelly7632 11 месяцев назад

Question: would anyone in the world actually follow those burdensome, detailed, granular dynamic spending guidelines as they related to bear markets, etc? The plan seems so unwieldy as to be useless, IMO. Just have a budget, withdraw what you need, and tighten your belts in tough market years. Use good old fashion division to see how many years of expenses you have and when you need to tighten.😊

@MrBass5er Год назад

I agree with Rob's point of view, I saw the reference to these articles on his newsletter, read them, and also thought both articles had some aspects to consider, but not blindly, some personal analysis is always a good/necessary thing. Rob, Thanks for sharing! PS: About the “absolutes”, using a Star Wars reference "Only a Sith deals in absolutes" 🤓🤣

@willharris5562 Год назад

Rob, if you don’t mind sharing, what spending rule do you prefer overall (understanding that it may not work for everyone)?

@larssmith2170 Год назад

Great video. As someone who follows both ERN and Mad FI this is some of your best work.

@ThisIsGoogle Год назад

You need to stop using english terms that only apply to your system. You are losing subscribers.

@pware9643 Год назад

Average Retiree Investor that had 80 percent stocks would panic and sell out (at the wrong time of course) after a historic bad year.. Not sure how many advisors would put their retiree clients in a 80/20 set up. When bonds and guaranteed money is paying more than historic inflation, wouldn't it be prudent to load up on them? 6.25% on a 7 yr cd from insurance company with your state's insurance comm providing a backstop.. (myga).. is very compelling. Waiting until 70 with Social Security allows you to have some inflation protection and lower your risk ratio too. Planning to have your house and cars paid off at retirement means inflation won't affect you as much also. The S&P 500 is not what it used to be.. top 15 companies control the returns, making it more volatile.

@1jet55 Год назад

I recall a few Mondays ago you stated that the SEC yield on a bond fund will hold ( more or less) for the period of time calculated by the effective duration, multiplied by 2 and subtracting 1. Not sure if I got that correct but using VCLT as an example with an "effective duration of 13.32 x 2 + 26.64 - 1 =25.6 years at the yield of 5.46%. Did I get that right and why/how is the 2 multiplier arrived at, seems like a high rate for a long long time.

@denniskirschbaum9109 Год назад

Someone got an Apple Watch Ultra!

@paulbiel517 Год назад

Great analysis Rob--you're my favorite speaker on retirement issues as you get to the point, provide factual data and analysis, have nothing to sell, and offer thought-provoking insights. Based on your reading--I'm curious about your thoughts on asset allocation. Based on your own investments and the 3-fund portfolio, it doesn't seem like you think it needs to be very much. Your own stock investments seem to be just in a handful of stocks you are interested in, an all stock index fund, small cap index fund, and international index fund. No REITS or commodities and very small exposure to a dividend focused index fund.

@daveschmarder-1950 Год назад

How do I know when I'm halfway through retirement?

@alex182618 Год назад

When viagra stops helping.

@george6977 Год назад

Use life expectancy tables

@travis1240 Год назад

Just like when you start your retirement, you take an educated guess on when you are going to die. Or you can ask a carnival fortune telling machine.

@daveschmarder-1950 Год назад

@@alex182618 That train has left the station.

@johnbrown1851 11 месяцев назад

Rob, how do you have a lower P/E ratio than the S+P 500 in your portfolio?

@rootedrotor525 7 месяцев назад

Small caps I'm guessing. They're 20% off their all-time high.

@brianjp18 Год назад

I would love for you to make a video on big ERN’s spreadsheet to review any potential flaws in using it as well as explaining some of the more detailed parts of the spreadsheet!

@scott1441 Год назад

I compare the P/E ratio based on my stock in the specific sector not the current S&P P/E.

@zenfishbike Год назад

Man, Rob is good

@VICKIKENNEBEC Год назад

HMMM

@jdthompson5778 Год назад

The one thing this whole discussion is lacking esp if you are evaluating retiring early is how much (%) of your essential expenses will be covered by SS, pension, annuities, etc. in x number of years vs your portfolio. If say 80% of your “essential” spending is covered by these guaranteed sources you may only need some higher % of withdrawals over 4% your first 5 or 10 years of retirement to meet discretionary goals that will be sharply reduced once you collect SS or pensions, annuities start etc. In this sense this type of flexible approach on some discretionary items could indeed help you retire earlier than a simple calculation of 4% rule on investments would reveal. For some who retire in their 50s or early 60s and delay SS it’s possible RMDs starting at 75 are actually not even needed to meet annual spending due to SA, pensions, annuities, reverse mortgages, etc. Would be nice to realize that and plan before you slave away another year or 10 that you could have spent on family, hobbies, etc.

@TwoSidesOfFI Год назад

Big ERN covers this well in his own work and the SWR Toolbox Rob showed here has functionality that lets you model those kinds of additional inflows which you mention. That makes it easy to determine your SWR net of these factors.

@ArthurDentZaphodBeeb Год назад

Ah, nothing like paralysis by analysis. I find Big Ern and all the other vloggers with their 238 part series on financial minutia hard eye-roll-back-in-my-head nonsense. These so-called FIRE bloggers never seem to actually to be retired, never seem to follow their own advice, and always seem to be 1%ers who could go back to work if stuff hit the fan. Of course, they bloviated ad nauseum about the necessity of owning bonds. Yet when the first correction hits, their advice was worse than terrible (they oh-so-confidently used historical data to 'prove' bonds were necessary to smooth volatility). They blindly ignored the 600 lb gorilla - that 40 years of falling rates wasn't a realistic data set. The only rational conclusion was bonds were going to implode as soon as rates - inevitably - rose, and to avoid them like the plague (stay in cash). And thus the first test of these oh-so-confident portfolio recommendations (20-30-40% bonds) was a disaster - 2022 suffered worst bond performance in history. They all shrugged and said 'who could have guessed'? Ironically, now is a decent time to get into bonds - after they've blown up.

@simonk8257 Год назад

Great points 👌🏼

@george6977 Год назад

What if you get Alzheimers and need to go into care? It's about £50,000 a year in the UK.

@bradk7653 Год назад

That is a what if, but in reality, it does not affect most people, probably less than 15% of the population. That being said it did occur with my mom, she had it for the last 4 years of her life, costs averaged about 60k per year in the US in memory care facility. So not cheap, but if someone owns their home the equity will often cover their long term care costs.

@twhite8308 Год назад

Do I include taxes I need to pay in the total withdraw. In other words, does the 4, 5 or 6 percent include the taxes I will need to pay. A larger withdraw may kiick me into a higher tax rate...

@bradk7653 Год назад

Yes, the 4% rule includes your taxes. Taxes are just another expense in your budget.

@hanwagu9967 Год назад

your total withdrawal rate covers all your expenses, which includes taxes. A larger withdraw wouldn't necessarily push you into a higher tax bracket, because it would dependon which assets you are withdrawing (e.g. tax deferred, tax exempt, cap gains).