I like this a lot, an Agile/iterative approach to managing your FI/Retirement pot. There's no way that any person smart and committed enough to build an FI pot and begin drawing down from it would blindly start drawing down at 4%, they would always do something like this approach. Nice to see a framework for such an approach demonstrated here, thanks!
What's to address? If your RMD is more than your particular withdrawal method allows, you reinvest the surplus withdrawal into a brokerage account. Unless I misunderstood your comment?
Interesting approach, but I prefer a more dynamic spending model. Specifically, something like Bob Clyatt's "Work Less, Live More"; or Jonathan Guyton and William Klinger's guardrails. Vanguard published a nice overview, "setting-a-strategy-for-retirement-withdrawals". For example, each year figure 5% of your portfolio, and 95% of what you spent the previous year, and spend the larger number. This is simple (the hardest part may be tracking your annual spending) and will gradually reduce your spending during prolonged bear markets to avoid early depleting your assets. If you add 5% guard rails, you would keep your spending to plus or minus 5% of the previous year to also avoid increasing too fast during boom years. Edit: As previously covered by Next Level Life, thanks for that!
What about a rule keep enough cash to cover two years withdrawals so in a down market you are not selling at a loss and withdraw dividends plus a small amount of your stock holding rule??
I reviewed this video three times to try to capture the message. It appears that either withdrawal process is successful when using the 'moderate' method. Your video says the advantage to ratcheting is buying power effect over time. I failed to follow the thought process. It would be nice to see examples for the ratchet process in the moderate scenario. In my opinion after seeing this video, the ratchet approach is not that clear and that is an important criteria. Perhaps the author has a website to explain it a different way.
I wonder how these results work out for longer time horizons without ratcheting back down at some point. Also Bengen has (somewhat) recently re-run the tests on the original 4% rule and now proposes 4.5% as the new safe withdrawal rate.
In short, eventually you'd run out of money (assuming you'd didn't update the historical safe withdrawal rate to account for the longer time horizon) since there is no way for you to ratchet back down your withdrawals using the strategy as intended [though obviously in reality we could if we really needed/wanted to :)]. If you did update the SWR for the longer time horizon, it would play out the same as it did over a 30-year period (with the ratcheting approach delivering equal or better performance depending on the start date in question), just with a smaller starting income level due to the lower SWR. As far as the safe withdrawal rate proposal goes, you are correct, but there are a couple of things that need to be kept in mind. The first is what the threshold for "success" is. For instance, the 4.5% withdrawal rate survived roughly 96% of 30-year periods according to Bengen. For a lot of people these would be good enough odds to be worth the extra income, but for others they'd want something that had survived 100% of historical cases. The second is what asset allocation was used. The asset allocation Bengen used to determine a 4.5% SWR was (slightly) different than the one used for the 4% SWR. If memory serves the 4.5% rate was achieved using a 30% large cap stock, 20% small cap stocks, and 50% intermediate US treasury bonds. Small cap stocks tend to have superior long-term returns even amongst stocks, which helped buoy the portfolio enough to raise the SWR. As I've covered in previous videos, changing your asset allocation can influence what the historical safe withdrawal rate would be quite a bit (for instance in one video we found that, based on history, a 70/15/15 small cap value stock/total bond/gold allocation had a SWR of ~5% before taxes and expenses), so that's important to keep in mind. 4% was (and according to the data I have access to anyway, still is) the historical safe withdrawal rate for the balanced allocation of stocks and bonds that the rule was originally based on. But other historical SWR figures can be achieved using different allocations (and for that matter withdrawal assumptions [i.e. financial guardrails, cash buffers, spending floors and ceilings, whether the money is in a taxable or tax-free account, etc]). Hope this clears things up :) Thanks for the comment!
@@NextLevelLife That's just as I suspected. Without ratcheting (even though you most certainly could) it makes sense that over a longer timeframe one's best egg would eventually wither away. It's a great overall approach, but needs careful execution (and/or a degree of flexibility) if it were going to be used for a 40+ year retirement. As for Bengen's new 4.5% rule; you make some very good points. It isn't a 100% safe withdrawal strategy, although I'd consider 97% plenty good for myself, but as you stated that's not ok for some people. Also when comparing a 20 small / 30 large / 50 bond (yes, your memory served you right) portfolio to a 60/40 portfolio, it's not exactly a fair comparison. There's a reason I chose to have a small cap tilt after all :) I'm still a few years from retirement and I still haven't decided which drawdown method I'm going with, but at least I've got plenty of time. So far I'm leaning towards a floor and ceiling approach, starting at 4% withdrawal (sequence of returns risk and whatnot) then ramping up to 4.5% with new floor and ceiling after the first few years. More research is required though before I actually make a serious decision.
I don't have a video dedicated specifically to the Fixed Percentage approach (i.e. just withdraw 4% [or whatever percentage you choose] of your income annually [or 4%/12 each month as you suggested] regardless of external factors), but I do cover it in an older video I made going over a few of the popular withdrawal strategies that are out there. So its not structured in the same way the videos in this series are (and is not as in depth), but if you want to take a look at it I'll leave a link to it below. It is the third strategy covered in the video (starting at roughly 4 minutes and 43 seconds in). Link: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-5zLvSMPPVTI.html&ab_channel=NextLevelLife Thanks for the comment :)
Okay, I reviewed your video twice more and not understand it. The Moderate approach has the highest success rate. But what are its components? I assume it is a stock and bond mix such as 60/40 or 70/30. But what are the stocks and the bonds composed of? Can you respond by providing the tickers for them? And percentages? Example would be spy/tlt. 60/40.
No one is going to lay out a stock portfolio for you, that would be impractical. What is typically discussed is what category of equity they are referencing, ie: Small, Medium or Large Cap and the numbers are then derived from said groupings indices, Ie: S&P500 or Russel 1000, etc
@@METVWETV Yes. It is easy to compare anything to something else. I do it often for sectors. I ask specifics S I like to know other perspectives. It helps me to reconsider my own.
