It has been brought to my attention that there is an error in the summary sheet totaling the 4% rules first ten years of cumulative spending. The ACTUAL total is $458,555, NOT the $148k that is in the spreadsheet. The principles in the video remain the same - but I do apologize for the oversight in not catching the error.
I am at the beginning of my "investment journey", planning to put 85K into dividend stocks so that I will be making up to 30% per year in dividend returns. Any advice?
Investing without proper guidance can lead to mistakes and losses. I've learned this from my own experience.If you're new to investing or don't have much time, it's best to get advice from an expert.
The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. 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..
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.
The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.
True, initially I wasn't quite impressed with my gains, opposed to my previous performances, I was doing so badly, figured I needed to diverssify into better assets, I touched base with a portfolio-advisor and that same year, I pulled a net gain of 550k...that's like 7times more than I average on my own.
Carol Vivian Constable is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
Wade Pfau has a version of the guard rail strategy in his book that makes a lot of sense. It is to withdraw a fix percentage of the portfolio value every year but with a dollar amount ceiling and floor. It ties the withdraw amount to the portfolio value to a degree, relatively easy to execute, and probably supports much higher withdrawal % than 4%。
*Financial planning is like navigation. If you know where you are and where you want to go, navigation isn't such a great problem. It's when you don't know the two points that it's difficult*
If u have a large cash position for sequence of return risk,then almost none of this matters,simply take from portfolio or cash at end of year,depending if market is up or down,this allows u to have an all equity portfolio,which always comes back faster after major downturns.
Even though technically not a withdrawal strategy, would have been great to include the strategy of living only on portfolio income i.e dividends and interest.
Thanks for your video. I have been watching a lot of retirement videos, but haven't seen one that broke it down like this. It seems guard rails is a solid strategy, but I didn't understand where your value of $6,762 came from. I assume this correlates to 81k yearly which is more than I would have thought with a $1M start. Do you have a video that explains that in more detail? Thanks again.😁
thanks for this information. i totally disagree with a 4% rule. take out what you need to live on. live blow ur means as we age, enjoy life. i would never need to keep pulling more as i age. does not make sense to me, but that is just me. happy retirement to all.
Nuanced. I’ve been planning using the 4% rule and noting “excess” cash to my planned needs. I’ll have to take a closer look at Guardrails. My kids won’t need my money.
It's a bit misleading to say that you have to have 50/50 to do it "right"; that lines up with how the research results were calculated, but the rule still works as advertised for mixes with moderately more than 50% stock (but not less). Over time with more than 50% stock you'll see better results (higher end balance or higher starting withdrawal rate) up to about 75%.
If you have two instruments (withdrawal amount and equity:bond ratio) and are trying to optimise at least five outcomes (10 year withdrawal total, total withdrawal, success chance, amount left over, peace of mind), you haven’t much chance of doing it well.
I don't understand what makes the 4% so hard to follow in your opinion. Lets say I have $1,200,000 and withdraw 4% or 4k a month. I plan to save about 1k a month for bigger purchases or refilling my emergency fund of about 20k that isn't part of my 1.2M. Does this not count as the 4% rule because I am saving some of that money I am getting monthly for when I need more than 4%?
That’s fine, but in say year 11 you won’t be taking 4% of your portfolio. You’ll be taking 4% of what it was worth 11 years ago plus 11 years of compound inflation and ignoring what your portfolio is actually worth. Most people won’t do that.
Very few people will be able to plan with 100% certainty that their year 1 4% distribution will never need to be adjusted in ensuing years in retirement. The 4% rule is an example of the "best" plan based on science that very few (infinitesimally few in my opinion) will ever be able to execute in actuality. What you are describing works fine IF you don't think you will ever need to rely on more than $4k / month inflation adjusted for the remainder of your retirement. Maybe you have guaranteed income sources sufficient that this will be the case - and if so - awesome!
One thing that makes it hard to follow is the requirement each year to adjust the withdrawal for inflation. Moreover, which inflation index did Bengen use ? Is that inflation index still valid today ?
@@ericgold3840 Putting something on my calendar for once a year doesn't qualify as "hard to follow" for me. Your and my inflation rate may be different because we buy different "baskets of goods" and live in different places. For instance, I spend most of my time in Southeastern Europe, which is less expensive than the U.S. average. I have zero car expenses, as I don't own (and rarely rent) one. I rent, with no mortgage. I've been out of the U.S. for most of the last 21 years, and my monthly expense for reliable, high-speed internet has never exceeded $15. Flights in Europe are far less expensive than in the U.S.
Pro-rata might actually be the best approach if you know that your needs will never exceed the 4% rule. This would apply for the few who have more retirement savings than they'll every spend.
Is there anyone that uses a 3 bucket theory investment that withdraws a % and then put guardrails into effect to lower the % pull out when the market is underperforming? I realize my advisors should hedge against this, but I was wondering if advisors do this? I am a couple of years away from retirement and I am leaning toward Bucket theory. My financial firm that would take over my retirement thru my employer does not do this to my knowledge regardless of how the market does they would remove money hurting my money due to not caring if my funds is making or losing money when I withdraw it.
The meathead that I have decided to go with is being heavily invested in stocks with a safety net in short term bonds. I will cash out stocks when the market is going up to only slightly dropping and only withdrawing money out of the short term bonds when the market is going down. This gives me the most spending ability but still keeping a safety net. The only question is how long of a safety net do I want. In most retirement cases two years will do Ok but would I rather lose some returns just in case there is a prolonged down market.
Did I get this right-you are mixing withdrawal strategy with rebalancing target? Would it not be better to use the same rebalancing for each withdrawal strategy so as not to penalize the 4% strategy vs guardrails? The original 4% rule assumed 60/40, not 50/50 as you indicate. In any event, the 4% rule was never meant to be used as a withdrawal strategy. Its purpose is simply to answer how much money you need invested to statistically guarantee not running out of money in 30 years. If you are willing to accept an 80% probability of success for guardrails, then you should also adjust the starting withdrawal percentage for your inflation adjusted “fixed” withdrawal strategy (that’s what you are really comparing here-fixed vs variable) to also have 80% success. What’s that do to your calculations?
Part of the purpose of this vide as well as another recent 4% rule video I made is to illustrate that the 4% rule is not actually a practical withdrawal strategy. These are fair criticisms. There were issues with this video and the model I showed that I unfortunately only caught after the fact :(. But overall, the principles are correct... Most people do not use a dynamic withdrawal strategy. They use a fixed portfolio allocation or some kind of glide path and withdraw "what they need". That's why I illustrated it that way. But you are correct - this video could be done to show a more apples to apples comparison - the results would be the same, and the actual changes in 1st ten year spending, median 11 year assets, etc would be only marginally different using apples to apples asset allocations.
how do you get $148K of spending on the 1st 10 years of the 4% rule? Wouldn't it be $400K in today's dollars or ~$458K in actual dollars? It's $40K per year for 10 years. LIkewise, where do you get the $463K for the pro rata and glidepath.- you said it is take what you need, but you didn't forecast any actual needs.
Yes you are correct. I made a calculation error in the summary grid and did not catch it. The total spending amount would be $458k. The prorata and glidepath scenarios used a starting expense need of $40k out of pretax accounts, inflation adjusted for 30 years. In both scenarios the year 1 pretax distribution was $46,067 inflation adjusted each year thereafter.
Wouldn’t a reverse glide path make more sense in a lot of cases? Adjust to be more aggressive over time especially as sequence of returns risk becomes a non-issue. I see it working as a glide path into retirement to an asset allocation to minimize sequence of returns risk and then a reverse glide as you get closer to end of life.
I really don’t understand this, and fortunately I’m 40 years away from retirement. But I’m going to use my Magwitch was an example. If you have $1.5 million in mutual funds and $500,000 in IBM stock, why not just take whatever the mutual funds yield in a given year? If that’s 7% you take $105,000. Then just take the dividend from the IBM stock. It doesn’t matter if the stock goes up or down, they always give a ridiculously large dividend. Like $6,000 quarterly. And the guy has a $73,000 pension. There could be a 1929 catastrophe and he’s not going to be homeless or starve to death. The pension is guaranteed. So there he is, pulling $202,000 that year, and his $2 million stays intact. I think the big task would actually be to sit down with an accountant and see how to avoid tax consequences. Like DON’T pull that much if you don’t need to. I think the most important thing is to get a really good accountant and listen to him instead of someone on the internet.
Hey Eric, just a question: Why do you use 60% stocks / 40% bonds? Who does this? May be 90% stocks and 10% cash? My very simple strategy: I am not going to sell stocks if market is down, only when it is up. And I am going to use cash for as long as it is a bear market. My very simple plan: 5 years of cash and the rest are stocks.
Thanks for the view and thanks for the comment! 60% stock 40% bond is the most common asset allocation out there which is why I used it. but we could replicate this study using other asset allocations as well. Your plan is a fine plan!
I have a different withdrawal strategy. It is like a guardrail strategy but is it based upon a few factors. First I withdraw what I need to live. If an RMD applies I take out up to the RMD amount. If my retirement investment gain occurs then I withdraw up to the gain or a reasonable tax bracket maximum amount. For example if I need 90K to live and I have no RMD and my portfolio gain is 220K then I might withdraw up to the 201K of the married filing jointly tax bracket. The retirement investment grows in a strong bull market but I also will have plenty of play money. After a bear market year I would withdraw only the 90K or RMD as it applies. I can choose a different tax bracket if it better meets my needs or if tax brackets change. I have not tried to run a Monte Carlo simulation but this seems reasonable to me. The retirement investment will typically remain unchanged year-over-year and is only eaten by inflation and bear markets.
The information in this video is incorrect in a long of places. A x% withdrawal ratw strategy can be implemented on a portfolio with any asset allocation. The original paper may have said 30y 50/50. But you can have a 2.6% 50y strategy on a portfolio that is 100% stocks. The asset allocation is a different discussion. Maybe you could have a video saying how each strategy changes thw optimal asset allocation. Or for a given allocation, which strategt maximizes income. But this video is just all over the place and unhelpful.
I'm surprised that I like this video, since I usually start to itch when I see scorecards. Behind the scenes, I think these different strategies differ in how they handle a bad early sequence of returns. As far as the analytical method goes, if suffers from MEDIAN modeling. I cannot tell anything about the depth or duration of enforced reduced spending in the guardrails approach when an early sequence of bad returns occurs
I plan to do a much deeper solo video on guardrails that will illustrate the depth and duration of spending reductions. It will also clarify how the guardrails are changed based on a users desired "confidence level". Im glad you enjoyed the video - Overall I'm happy with it but there were some errors I made in the summary table that I am disappointed I didn't catch before releasing the video :S.. thanks for the comment!
As people age, they spend less (although a late in life medical condition could change that to a U-shaped spending curve), so why adjust for inflation? I upped the 4% rule to withdraw at 6% but stayed in the S&P and don't ratchet up each year for inflation. Very simple set and forget, and my IRA keeps growing. Might have to reset to 8%.
Yeah, so far so good, but the last 20 years have seen crazy good returns and almost no inflation. You should expect that to end at some point, and expect to adjust your rate down or adjust for inflation, depending on which way it breaks.
I hope Eric makes a video dedicated to Guardrail Strategy. I've liked the idea since reading the May 5th, 2023 article at Morningstar by Christine Benz.
I have several more detailed videos that will come out in the next 8 weeks about guardrails and how to apply it. I find it a fascinating detour from the standard withdrawal strategy narrative.
In the scenario demonstrated in this video the guardrail triggers in a +5% or -5% change in spending. The withdrawal % in this specific displayed scenario is 4.6% POST TAX. In this scenario all of the funds are in a Pre-Tax account so the Pre-Tax distribution would be roughly 5.4%. These numbers change based on the tax allocation of ones funds.
@@ThePeakFP I'm excited to watch a series on guardrails - not much good content out there on this (you're ahead of the curve already). Especially interested to see how pre-tax and taxable mix should influence practical approaches to guardrails. Thanks.
I’m looking at your Portfolio spending in the first 10 years of retirement and you have the 4% rule at $148K of $1M portfolio. How is that possibly correct? Even if you just took out $40K per year and didn’t adjust for inflation, that would be $40K x 10 = $400K. Add inflation adjustments and it will be higher and probably comparable to the other strategies.
Call me crazy, but I think it’s very irresponsible to have anything in stocks after about 70. I saw too many soon to be retirees get hammered back in 08. Retirement funds should be at minimal risk. You don’t have time to make up losses.
I retired in 2009, with 100% stock index funds. I'm 63 and still have a 100% stock portfolio. My savings at retirement was $426,470. My savings today is $2,261,360. I did receive a $103,000 inheritance and I pulled $250,000 of equity out of my house with a cash-out refinanced mortgage at a 3.75% interest rate (both in 2019). If a 70 year old lives to 95, that's 25 years. A good amount of time.
If, at the end of the year (Year N), I examine my expenses for the year, along with the anticipated expenses for the year ahead (Year N+1) and, at the beginning of the new year, I withdraw X% to cover those expected expenses, and I do this for every subsequent year, which strategy is this?
In this case it would depend on what portfolio actions you would execute in tandem - but this would be most similar to the pro-rata (inflation adjusted) method.
@@ThePeakFP Thank you; I'm glad I found your channel. "Year N" and "Year N+1" are often not the same -- beyond the inflation adjustment. For instance, in one year, there may be a car purchase or an expensive vacation -- and not in an adjacent year. I think some soon-to-be retirees think that the decisions they make at 65 -- or whenever they retire -- are the last retirement decisions they need to make -- financially, as well as where to live, how to spend their time, etc. But, retirement isn't the "end of the road"; life doesn't go on "automatic pilot" at that retirement inflection point. Plans need to be reviewed and adjusted. ("Plans are nothing; planning is everything." -- Dwight D. Eisenhower) Finances, as the rest of life itself, still require "hands on the wheel" attention and management.
How did you come up with the starting withdrawal for the guardrail strategy, it seems pretty high? If you started out with a 5% withdrawal how would that turn out?
The starting withdrawal % is determined by the guardrail strategy itself. We supply the tool with a question "What can I spend" if I want an 80% chance of underspending and 20% chance of overspending based on my portfolio's current value, my age, my estimated length of retirement, and my other income sources. This is why I like the guardrail approach - it tells you what is possible to spend based on a desired confidence interval - Monte Carlo does not supply an answer to the question of "what can I spend".
Different people have different priorities. Some people want to maximize stability and legacy. Some want to get the most spending while alive. There is a way to achieve either outcome! Thanks for the view and comment :)
I recommend investing 100% S&P 500 while working and well into retirement. It's diversified with the 500 most successful companies in America that are better equipped to handle downturns. No individual stocks which ARE risky. Imagine Elon Musk having a very bad day. With astronomic, unpayable national debts, I am not convinced that bonds are as stable as people think. A bond crash is not out of the question, in my opinion. But maintain the working safety net cash fund well into retirement to wait out bear markets. Big investors buy the dips, so corrections bounce back quickly nowadays.
When your young put it into the NASDAQ. 17% average growth each year over the long term. Only 10% since injdex inception, but 17% for the last decades.
