The 2.7% Rule for Retirement Spending 

Retirement is now more difficult than it was in the past. I've been saving for a long time instead of investing, and right now I only have about $400K. considering all the inflation, i'm thinking of investing in stocks, i dont just have idea on market strategieS.

Instead of letting your lifespan, an unknowable, influence your withdraw rate, we might also consider a novel approach where you let your portfolio depletion event inform your end-of-life timing. This eliminates all risks and is a favorable strategy.

If you ditch your financial advisor, you can add 1-2% or more

But this information makes me angry, so it must be wrong.

Thank you Ben for making me fearful of my own longevity risk

"Wow, you're a millionaire? You are rich!" "Yes, I'm off to enjoy my 27k a year"

For me, I believe 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 wife 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.........

These videos are high quality with many research data supported, which requiring a lot of time to prepare and to produce. It is one of the best learning sources for DIY investors, as the channel names it, Common Sense! Thank you

I just watched my first episode of the Rational Reminder podcast the other day and it made me want to watch several more immediately after. Thanks for putting out all this good RU-vid content!

10:30 Love the bullet-riddled bomber pop-up on survivorship bias.

I listened to your whole rational reminder episode on this topic and really appreciate how you make these videos accessible so I can flip them to people who can't go down the rabbit hole. Am in Ottawa as well and will refer folks to PWL as long as you're there. Keep up the great work

Ben.. with hair? I'm shook. 😱 It looks so good though!

Thank you Ben! We appreciate your channel. Happy holidays sir.

As an aspiring Pl. Fin. , your videos and investing philosophy are THE most helpful on RU-vid

Holy hair growth 💇💇🙆🙅

Always perfect content with more references than we can ever want! One of the few channels one can trust nowadays! Thanks so much Ben 👏

That channel is amazing. Best one by far.

How did I just now find out you have a podcast... 200+ episodes for me to catch up on at work. Hell yeah!

A video about the superior variable spending rules would be great 😇

Great video, glad your back!!

Ben, I cannot thank you enough for the value your channel provides. My favorites videos are 'picking stocks' and 'bear markets'. Remind me of how I used not to unserstand the absolute basics :) You most probably saved my retirement, and definitely saved the present me a lot of doubts and time. Greetings from Poland, Merry Christmas!

Ben thank you for the informative video, I'd love to hear more on variable spending rules, I know you mentioned them during past videos but a deep dive would be great

Yet another amazing video, Ben!

is there a Hair Growth ETF - looks promising

Always such great research, references, and unbiased info. Your vidoes are extremely informative and I really enjoy the content! Merry Christmas!!!

Hi Ben, I just wanted to say that your videos are outstanding and you deserve more recognition. Your videos made a huge difference in my view on investing and I sincerely want to thank you for providing all this information. Wishing you the best!

Excellent video, glad to have found your channel

you're such a good presenter! great speaking voice too

Another great video! Thanks Ben.

Subscribed! Thank you, Ben!

Thank you for being Canadian and including a Canadian view to your analysis!

At the moment here in the UK, Legal & General are offering a 6% annuity for 65yrs or older. Of course I do realise there are other factors that may make someone want to do a drawdown. But a 6% annuity sounds like a very good deal to me and you won't need to worry about investments, or stock markets anymore, sleep soundly

I plan on using financial guardrails which adjust spending based on market returns along with having a cash buffer for down years. Couple that with a well diversified portfolio including value, blend, growth, reits and bonds and a 4-5% withdrawal rate for 40 years is doable. Then throw some part time work in and you are golden. Many different models show this is possible. Of course we cannot predict the future but don’t be afraid to spend money in retirement. Much more than 2.7%

I love the term “longevity risk” :)

Hey Ben, amazing video! Nice haircut!

Great value here, thanks Ben!

Easily one of the most important videos on this channel. Thank you!

The two papers mentioned in the video, but not listed in the video description: Choi, James J. "Popular personal financial advice versus the professors." Journal of Economic Perspectives 36.4 (2022): 167-192. David Blanchett, C. F. P. "Exploring the retirement consumption puzzle." Journal of Financial Planning 27.5 (2014): 34.

Thank you for another year of perspective. Happy season, Ben.

So weird to see you with so much hair😄! Great stuff though. love your channel and your takes are some of the takes I currently hold in the highest esteem on financial matters. Keep it up, please!

This is a good example as to why rules in finance need to be analyzed, and considered in the present time, rather than blindly followed. Thank you Ben for your thorough analysis

A video on variable withdrawal rates would be greatly appreciated.

Ben you're the best. I could pull that trigger right now (and still work pt). I'm scared to though!!

I love to get my dreams shattered. Nothing better than a good dose of reality check to finish off the day. Jokes aside, I really appreciate this. With the FIRE movement on fire these days (no pun intended) I hope this video gets the recognition you have been deserving for so many years. Nice hair!

The assumptions on age are wrong for the elderly! I agree on the need to consider a slightly lower withdrawal rate to make it 30 years. BUT, he minimizes the fact that he is talking ONLY about the portfolio. There are other sources of income outside the portfolio primarily Social Security and hard assets such as your home. Planning for the 95th percentile of longevity is folly. 65 plus 30 is 95! For older folks be aware that life expectancy has been declining not increasing. I don’t know anybody that is 95 years old. When I was working in geriatrics till last year, meeting a 100 year old was as frequent as meeting a celebrity. I know lots of people in my circle dead by 75 and 80. How many homeless people do you know who are 90? They don’t exist. The reality is that for almost all couples one person will be dead by 85 which is a 20 year horizon, then spending drops a lot due to age and being single. Sure healthcare can rise at the end of life, but it does not need to be self funded, so it is often not relevant, in fact those without a surviving portfolio will receive care for “free” while those with a portfolio will be asked to self fund!. Most seniors live on only Social Security when they are old, so any portfolio balance is nice, but not necessary when very old. I’m not advocating for not having savings, just for keeping it real and not scaring people so that they die with large portfolios because they were too afraid to enjoy their money while they were alive! You don’t need a 100% chance of success. 80% is probably fine for most.

Thank you so much for sharing this!

Amazing content! Thanks

I just finished the CIFP Retirement planning course and I loved learning about the assumptions used and not what I keep hearing online LOL

Yes can you do a video on international diversification? Thanks, very informative video.👍😊

Thanks, ive adjusted my calculations and now retire comfortably at 106 👍

Thank you. Just what I needed to watch. My hubby and I are directors of our farm business and own property, plus small pensions. I am nearly 62, hubby is 65. We have started to save to retire from the farm, and possibly live on rental income, I'd really appreciate you go LIVE and talk about how to earn passive income online and retire comfortably, let’s say $1M consider financial planning. It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into financial advisors for a strategy that suits your timing

Ben, your content is excellent as always. You also look like a different person with the change in hair. Looks good man!

Would be interesting to do more of pwr as it takes out the question of when to retire. Then also compare to practice at endowments. This is much more relevant to people that have higher absolute spending and can easily adjust annual spending by just reducing eg travel. Then also compare to buying direct inflation-adjusted annuities in the market. Thanks

Ben, hope you’re keeping well. Thank you for all the information.

I found the thinking interesting about why older data is surprisingly just as useful given modern technology, but maybe could be simplified to the musing that technology doesn't make any given investment more valuable than any other since all investors are basically competing with the same edge (better information). e.g. Biff's future stock price book was only useful in the past - if everyone'd had it, then not so much

Good Job Ben. Besides using life expectancy is also flawed as 50% will outlived pass that age. Inflation is also a killer.

Thank you Ben!

In this case, I see many advantages of having a high dividend ETF (distributing). Every year you get whatever the distribution is while the principal remains always untouched.

Very helpful, thank you....

I think if you use some guardrails, your withdrawal rate could be about double that. Use it during the “go-go” years when you can enjoy it!

I bet the most frequent comment down here won't be about personal finance..

Hair looking good on you Ben!

Great video, thought-provoking insights galore! I'm seconding what another commenter said about variable spending rate, not so much taking the markets into consideration but taking the age of the retiree instead. Meaning, a 65 year old will be healthier than an 85 one to do more fun (ie: expensive) things! And can't insurances help to reduce the risks elaborate on the video?

Well done 👏

Great advise Thank you

Hi Ben, your videos are great! I was wondering what software you use to create them and do the images? Many thanks in advance.

Factoring japan into investment decisions always strikes me as sanitizing expectations a bit too much. When the PE ratios were like in the 60's, yeah that's gonna take a good few decades to straighten out. And the chances of the U.S. being invaded is so much lower than a lot of other countries east of it. I think that's a solid reason why the US stock market has performed so well.

Rigorous, thank you.

I would love a channel like you for EU person.

Great video particularly the variability of draw down which warrants much greater exploration.

I’d rather not live in a state of fear of a dire scenario. 5-6% withdraw rate on mostly equities is fine. And if it isn’t, adjust your spending for a year or two or get a temp part time job. That sounds like a better option that working fulltime for an extra 10 years or whatever to save for a 2.7% withdraw rate.

Ben, Thanks for another great video. Does the life expectancy of a couple mean at least one lasts 25 years, or do both last that long?

Sounds like the yield of a large cap dividend stock portfolio. All that research and we've come full circle.

I always enjoy these objective analyses. I'm glad you mentioned SWR is theoretical and probably irrelevant to most people. In the real world, let's face it - the vast majority of people don't save remotely "enough" by any measure - and yet are somehow fine.

In my opinion, there is another major factor that decreases the safe withdrawal rate. By definition, the probability of retiring increases with the asset price and, consequently, is at its highest just at the top of the bubbles. Computing statistics looking at at historical data starting on a sample of equally weighted years ignores the inherent bias of asset prices on retirement probability, thus increasing the estimated safe withdrawal rate.

Please make a video on stock options. I’ve often heard selling put contracts on the market has outperformed the market

That's a big difference!

Thank you Ben for letting me know that I will work until I die

I can't help but think these retirement calculations are completely backwards, especially the aspect of putting a specific age for retirement for everybody. To me, you should work less and less as you save more and more, with no specific date for retirement, the specific date being whenever you're ready given the circumstances of your life. Don't ask me to be more specific, because it's very hazy in my mind, but I don't think this philosophy of "retire at 65 and withdraw x% every year" is what people should strive for.

Ben, let me explain. If you split up investments either using the same fund using different accounts and each time you open a new account, you don't reuse the same S&P 500 index fund in an older account other than the most recent, you will be able to withdraw money on a straighter line than if you threw all the money in the same account. That's the whole idea. And I came up with a system just in my mind where you can go 1234-01 1234-02 and so on say every year. So that way you add to a normal S&P 500 fund in that account. Now if you decide you are not going to have enough money for early retirement, then you add to bonds or if someone wants to be more risky, in the older accounts you can add money to a normal S&P 500 fund, but the fund is marked as higher risk because the term is not long enough. Splitting up investments does not have any effect on the rate of increase. But the problem is you can't find the corresponding dividend re-investment buy orders when you lump everything into one fund under the exact same account number.

Great Video - Have a look at the retirement research of Wade Pfau and he came up with very much of the same numbers re drawdown rates and outliving one's capital..

Great video, as usual. I do find the inclusion of the Cuban Missile Crisis a bit bizarre, however. If things had gone wrong, it wouldn't have just been a catastrophic outcome like the other example you used, but the whole world would have been destroyed. So, it's not like you would gain anything from not taking on the risk. Either your assets appreciate in value if the crisis is averted or you and everyone else is dead anyway. Asset allocation choices don't matter when it comes to the end of the world.

US not facing huge economic downturns could be the case of good governance and monetary policy, with a healthy entrepreneurial environment compared to other countries. This doesn't need to be random chance.

Ben when are you making a video on “investing in art”, have seen adds for it everywhere and I can only roll my eyes

When withdrawal rates drop so much that you can only afford yearly haircuts...

Hey Ben, are you guys selling that beanie in the Rational Reminder store?

Do you use a modeling software for plans ; like Money Guide?

Anyone listening to this should also listen to many other opinions AND know their own expenses well. Know what your current expenses are and what your future expenses are (most likely mortgage will be paid off at retirement or soon after and travel will decrease through the years). Decreased expenses mean that you may naturally spend less through the years so you can easily start off with at least a 4% withdrawal rate. In the early years of retirement, the Go-Go years, you will probably spend the most, then the Slow -Go years, you will spend less and the final 10-15 years of your life, the No-Go years, the least of all. As one ages, it is common to feel less interested in going new places or spending money on new homes, cars, furniture, etc so the expenses dwindle. Also, social security and other forms of income, possibly, should be taken into consideration. Some forms of income, such as social security, increase with the cost of living year by year--not a lot, perhaps, but at least some.

Brilliant

The podcast segment at the end has lower volume than the main video. Would be great to equalize the volume for future videos.

@BenFelixCSI Have you ever discussed how currency exposure should be used in a portfolio? What % of your portfolio should be in assets listed in your "home" country? Should you consider whether any international ETF exposure is hedged to your home country currency or not? Should your come country portfolio as a % of total portfolio be different depending on which country you live in? Should it be different depending on how you expect to use the portfolio i.e. if you expect to spend it down to zero or close to zero before you die should the home country currency % be higher than a situation where Monte Carlo simulations would suggest you will always pass on a portfolio to your next of kin and perhaps increasing international exposure will increase overall return in the long term. Would love it you could cover this in a video or podcast.

hair growing nicely brother

"account for the risk of living a long life" This really spoke to the millennial in me.

This wig looks so natural. Where to get one??

I'm using .2% per month and it's perfectly fine. I recommend it.

we are at the end of a long time debt cycle, do you think the same rule applied to the last 70-80 years will apply in the next 10-20 years ? to be clear, I am referring to the bond market .

Thanks for content, I have a question, is it your investing decision to have four children? Or just parenting is your passion? If you have already created such video, sorry, I'm new to this channel

Does the 2.7% include "dividends". I.e if im in vt or s and p 500. And get the 2-3% annual dividend should that be included in the 2.7% safe withdrawl rate or no. It was confusing thanks

Thank you for the great video!

Bringing up the world wars and cuban missile crisis to say the outperformance of US stocks was luck is a baseless argument. Even now, the US stock market consistently outperforms other markets. Feel free to compare the MSCI ACWI ex U.S. index to the performance of the S&P 500. I ran the backtest on the ETFs based on the indices which goes back to April 2008 (before the crash). The average annual return of the international ETF was 1.95% vs 10.12% for the USA ETF. That is so outlandishly different, it's ridiculous. Not only were the returns lower, but the volatility (standard deviation) and largest crash (maximum drawdown) were higher. You love to advocate for value and small-cap stocks because of their historical outperformance and yet, value stocks and small-cap stocks have yielded lower return for some time now. Why is that not a historical fluke? US stocks are still leading the way. Additionally, a market-cap weighted ETF for developed countries' returns would barely be different from a USA only counterpart since the vast majority of all the large companies in the developed world are American. The 17th largest company in the world is the largest company from a developed country that isn't the USA, Louis Vuitton. Lastly, your idea is dumb because the US is the dominant force in the world. Whenever the US economy takes a dives, the whole world takes a dive. Some countries get hit even harder than the US even if the crash was caused primarily due to a problem limited to the US (*cough cough* 2008). On the other hand, when a random country takes a dive, the US doesn't. The 2nd largest economy in the world, China, is almost back to the lowest point it was at after 2008. No developed country is as much of a force as the US. The US is the centre of innovation of the world. There are zero to only a couple of solid companies each in other countries, depending on the country, that you should consider investing in.