It has been years, maybe decades since I've looked at this piece of Jack Bogle wisdom but, I remember Jack knew his people well enough to know that they were very unlikely to spend everything they have coming their way. I consider myself one of his people and I look at it as the plan is just looking at what numbers could do. There are going to be years you don't spend it all and there are going to be years when it seems like everything in you life needs to be repaired or replaced. Jack Bogle was a very valuable person but, he didn't sell his value for the highest dollar. He didn't own Vanguard even though he created it and he worked for a salary much lower than what he was worth as CEO of Vanguard. Jack knew that rich wasn't a number, it was having enough. I think he was very much one of those people that found his happiness by giving rather than receiving.
I plan to use the variable withdrawal strategy throughout my retirement years. The fact that I have a very good pension removes a great deal of the risk of doing so.
Yes, once your expenses are covered, you just need to cover the rest, vacations, gifts, etc.... Very different position to be in than those living off of their Portfolio
Great info. I am using a dynamic withdrawal based on market value and discretionary spending. My guaranteed income will cover my non-discretionary spending. I also plan to take more market risk as I age. There is no way to plan a retirement out to 20-30 years. Not even 10 years. I plan out 5-6 years and adjust annually.
Thanks for covering a new-to-me strategy. As with all strategies, it is easy to develop a rule and table that results in a nice curve. But, as we will find in retirement, we have to make personal choices and endure fluctuating returns, inflation, and government. This strategy is another good tool for people to use and understand as they determine the boundaries of their personal decision and actions.
I enjoyed your outtake about living under an airport. I grew up under the glide path in to ORD. I still remember playing my sand box and having a large jet fly over about every minute. They were low enough I could see the windows on the side of the plane. It was so normal that I didn't even know there were people who lived in places where this wasn't a reality!
I didnt learn the 4% to adjust the % to account for inflation. I learned you let the growth adjust for inflation. I.E. a $1m fund withdraws $40k year 1. But since the fund returned 10%, year 2 the fund has $1.06m and you withdraw $42,400. Year 3 you withdraw $44,900, etc. I personally plan to withdraw 4-8% depending on year unless there is a significant downturn, in which case I'll take nothing or the RMD and use the 3 year cash account. I want to be able to take more money out when I'm younger and able to travel. I dont think I'll need as much when I'm 80 as when I'm 60.
A great topic! I have been planning to follow something similar to your Variable Withdrawal Strategy by relying on the RMD withdrawal table - about 2/3 of my portfolio is in before tax investments. At age 73, I am required to take /26.5 - or about 3.8%. The percentage rises yearly in conformance to declining life expectancy. If more that the RMD amount is needed, withdraw up to the RMD percentage from your after tax, otherwise, add to the after tax any unneeded RMD withdrawals.
Most people don’t realise it, but the secret to retiring comfortably is finding a way to make returns while your money works for you. My dad, as I remember, started saving for retirement quite late, but I know he was making more than 10k returns from his investment monthly and it was completely passive.
Haha. Investing enthusiast? Not really. Our family got introduced to a financial advisor about four years before my dad retired. That was what changed things. I've been using the same now and I think my retirement income would be on the right track.
I'm intrigued by this. I've searched for financial advisors online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?
I really don't like making such recommendations, because everybody's situation is unique. But there are many freelance advisors you could check out. We have been working with Melissa Terri Swayne, and she's really, really good. If she meets your discretion, then you could go ahead with her. I endorse her.
thank you for this tip , I must say, Melissa appears to be quite knowledgeable. After coming across her online page, I thoroughly went through her resume, and I must say, it was quite impressive. I reached out to her, and I have booked a session with her.
Hi Erin. Great video and presentation of the material. I am confident this will be helpful to many of your viewers. I like the VPW approach as it responds to current conditions. Today's bloopers were pretty entaining 😉 Have a blessed week and weekend. Larry, Central Valley, Ca.
If there's interest a follow-up video on how to deal with things like required minimum distributions would be helpful. Following rules for a variable withdrawal rate can get complicated when the government requires a specific amount based on your tax deferred balances.
No it doesn't. These are two separate and distinct items. 1. You determine what you need to live on. ___________________ 2. From your IRA, You take what is "Required" then a. If the RMD isn't enough to meet your expenses, You take more. Or b. If the RMD is more than you need, you put the surplus back into a Brokerage account. You're needlessly confusing yourself, These are two separate categories. Look at the RMD as your salary. You either have extra to invest or You need more to meet your expenses. Hope that helps
Thanks for covering such an interesting topic, one idea came to mind to address the variability that comes with having yearly income based on market conditions. Simply have a cash buffer account to make up for down years (creating that floor for income) And it seems like it would grow bigger later in life and become a non-issue)
Thank you for sharing the information so clearly and precisely. I have seen and explored this before but never fully understood it 100% now its crystal clear and i will potentially look at implementing this.
Glad VPW is getting some more attention. Planning on using this strategy at early retireme. You do need to have a large amount of discretionary spending in your budget though so you can afford to cut spending by 50% in a worst case scenario.
And? More and more people are living older and older and if someone in his/her 20s-50s is watching this, they can expect to love longer. Also, for me and many others, the goal isn't to die with Zero because we want to leave a legacy! I actually use 110 when calculating the longevity of a portfolio especially if you want to leave something to your heirs. To each his own but I also wouldn't chance going broke in my 90s!
@@METVWETV Can you imaging withdrawing assuming you are living to 90 and then finding out you are out of money somewhat healthy and need to go back to work. Ugly man.
This is incorrect. If 0.03% of the population is 100 or older, that doesn’t mean the probability of living to 100 is 0.03%. It’s actually much higher and the probability increases with age. Current age and gender are two primary variables to predict life span. For example, I am 40 and some age estimators project 13% probability of living to 100. If this is hard to grasp, think of it this way: if everyone in a city lived to and died at 101, only 1% of the population would be 100 or greater but the probability of living to 100 would be 100%.
It's funny that we still call it the 4% rule... even after its inventor has since said 4.5% and even 5% is likely the better answer. For most retirees, if you're retiring at a conventional age, let's say around 60 - 65, you're very likely NOT going to have 30 years in retirement. I know that's hard to swallow, but the average lifespan of someone in the US is only in the mid 70's. Perhaps you make it until 85, even 90. But, in doing so, the "4% rule" is also broken in that it assumes an ever-increasing spend... which won't be the case in your 80's and 90's. On one hand, people have a fear of running out of money. However, given that the 4% rule, already conservative by most measures, would nearly guarantee 30 years of income - and likely over 40 - compounded with the fact that you're unlikely to live that long, AND the vast majority under the 4% rule will end up with more capital than they started with... and you begin to see that the real risk isn't running out of money... it's failing to live life. Despite being called your "golden years" I'd argue that most won't consider their 70's, 80's and 90's (if they live this long) to be their best. Your 30's, 40's, and 50's are likely going to be far more enjoyable. But, we're spending THOSE years tied to a desk, stressed out, working 60 hour weeks, etc. It's probably a wise idea for more people to start re-evaluating their retirement plans. A bit more "risk" of running out of money sure might beat getting 10 or 15 years in retirement, not at your best, and dying with the majority of everything you've saved.
Actually the life expectancy that you are referring to is from birth. If you take the life expectancy of a person that is 65 then you can reasonably expect 82 to 85 because you have lived through the causes of death at an early age. But you are correct that in a typical situation if you retire at 65 you aren't likely to have a 30 year retirement. Most will have 18 to 23 years of retirement. The problem is knowing is your retirement going to 18 years or 23 years or longer. Withdrawing for an 18 year retirement and then living for another 5 years could be challenging if you are out of money.
One advantage of VPW you missed: you have a much larger starting withdrawal rate. If you are 80 20 at 40, you can take over 4.5%. Most people doing FIRE at that age will often have a starting rate of 3% because of the long retirement time horizon.
This works better if you have a paid off, low cost house that doesn’t vary much over time. If you live in a high tax area, have additional fees like HOA, or lot rent, then you could find yourself in a difficult situation. Having a larger emergency fund and cash fund would help offset those bad years. Also, having a hobby or high value skill set to make side cash when ever you need extra cash can really make a difference. For example, my brother in law is retired with a pension, social security and large investment account. Still he volunteers and does many handyman jobs for people all the time. He doesn’t need the money but doesn’t like to sit around doing nothing. It’s allowed him to start making large annual gifts of his money to his kids and grandkids now while he’s living. He lives well below his means in a small apartment and travels all the time. He has a large social group that he hangs out with week nights and holidays. It’s his version of the good life. The type of work he does has slowly scaled back as he ages. He’s just very knowledgeable and refers any big jobs to a couple of younger guys. All the old ladies at his clubs adore him and spoil him when they have a chance.
VPW is an interesting mind exercise and I may need to look at it further. Sure, more comes out on "up" years, but that doesn't mean you have to spend it all. If you put it into some sort of high-interest savings account, it'll still grow, albeit likely more slowly, than the market but it is available for those "down" years to help float a weak withdrawal year. And if that savings gets uncomfortably large, I suppose that dream vacation could be done 😉🎉 or reinvested, maybe.
This is the correct strategy, 4% every year the market is up. Take the extra money on those big up years and use it as an emergency fund for the down years. Keep emergency fund always at 3yrs worth and You'll never run out of $.
Biggest drawback is being in your 30s and not having friends. Everyone else is still working and people who retired early have their own hobbies or never home. Making their money last isnt something you deal with until decades later. At 30 the worst thing is you only have so many hobbies and things you love to do. Eventually you want to spend time with others but everyone else is in different chapters of their life especially when theyre getting married / having kids/ grinding at work.
There is no need to pick one strategy or the other. IMHO, a percentage of the portfolio should be withdrawn using the traditional fixed percentage strategy (+ cost of living adjustment), and the remaining portfolio should be managed using VPW. This provides a stable base income to cover basic needs and a variable income for optional needs & wants.
All these terms they keep coming up with. Sometime ago I figure my investment should be 33 years, or my life expectancy, multiplied by my annual expenses. If 4% withdrawal will allow the investment to last forever, then 33 would be 25, but even the 4% rule said that was for a 30 year retirement. The main reason to increase the withdrawal is if you don't need the money to last 30 years.😊 So if I retire at 70, I'll likely use 5% or higher. That said, having an emergency fund is separate from the investment. Afterall, you don't want to pull 10% one year then the market drops the next years. The important thing about the 4% rule is that it aims to produce a consistent income. If your expenses are fixed over a 30 year period then its appropriate. Most people will have a minimum amount and a variable amount that they can spend each year. 4% should cover the minimum.
Wife and I each have pensions; add in both SS income streams at 70 and we'll be stuffing more money in IRA's and brokerage accounts after retirement than before. My TSP and her 401k accounts will serve as "rainy day" pools that we only plan on using for QCD's when the RMD age hits. Please discuss this scenario in your excellent channel as there are many uniformed military and gov civilians that this applies to. Wife is 68 and already retired, I'm 57, DOD Civilian and will retire at 60. - Today, house paid off, $0 CC, $0 debt, $150k in CDs for ready cash.
See there is about an 11-year age difference between you and your wife with, her being the Senior. Same in my family with, my wife being 7-years older. Last year, I retired at age 63 with both a private sector pension, a public sector pension, and personal savings. I qualify for social security while, my wife does not and, we each have made zero withdraws from our separate 457 retirement accounts. To date, monthly expenses are fully covered by our pensions and personal savings (smile ... smile).
In my opinion, the best strategy for a very young retiree is to utilize dynamic withdrawals because no set number will make sense for a 50+ year time horizon. The biggest benefit to an adjustable withdrawal rate is that you will be able to spend more overall because you'll increase spending when times are good (about 75% of the time) and decrease spending when times are bad (about 25% of the time), based on predetermined upper and lower limits. I think dynamic withdrawals are the best strategy for any retiree, regardless of age, who wants to maximize spending over the total span of retirement, but the younger you are the lower that initial rate should be.
Yeah, I would do a VPW when I retire, but I also have a planned amount I want when I retire, and my plan is to have enough to spend 365 days a week in a $500 hotel room (inflation adjusted), which is possible, when I turn 65 as long as I don't have kids. But I would do a reverse though, take out more early, and less later, because the amount of activities you can do decrease dramatically with age. More fun should be had early in retirement and less later.
I still love the 4% rule for simplicity and I know exactly how much I could spend each year, but the VPW is growing on me as it allows for greater spending. Now I feel torn between the two.
Sometimes too much thinking or watching and ruin the fun of living... Of course you have to be in a real good standing, And just make sure you're on the lower end or conservative In general.. I like the. 4-6% rule, Which looks to be pretty low for us right now... Building in a nice buffer
In some ways I like it, in others not so much. If I were to use it, I'd probably split my portfolio and use 60% to 80% as more of a traditional 3-4% rule to cover basic needs and the other 20% - 40% using the VPW for more "discretionary" spending. You could go one step further and if the traditional portion is less than 3%, transfer the excess to the VPW portion. What it is really lacking is accounting for future income from other sources - social security, etc (the 4% rule has the same issue)...
I'm with you on the first half of your post! It helps to have a pension and SS or annuity to do this though. As for your second half, There is nothing lacking. The guaranteed income, Pension, SS, etc. Is the first money spent. Money from your Portfolio comes into play once that is exhausted
I’ve heard variations of this. I had planned to take a flat 5% each year ( I am 67), with no adjustment for inflation. Whatever my portfolio is ( each December for example), I just take 5%. One additional stipulation I’ve heard of is to at least get 95% of whatever you took the prior year. This 95% downside rule helps buffer a large market drop.i don’t know if there’s Bill Bengen type analysis of this. Maybe Erin can advise😄
Something many people miss regarding the 4% withdrawal strategy, It's based on a 50/50 Portfolio It's 4% of whatever your Portfolio is when you take your first Dispersment. (Increased annually according to the CPI Rate). It is Net fees, ie: If your fees are 1%, then you should only be taking 3%! In the majority of scenarios, you will die with a Portfolio that has doubled or even tripled! It is designed to last for 30 years, "Under the historically worse years on record" Think Great Depression. If the Market crashes, You take that 4%+ Adjust it for inflation. The Market sets a new record.... You take that 4% + Inflation!
It would have to be historically the worst, on the day you retire (as in you start withdrawing at the 90% drop in stock value, of which, if that happens, I think most people wouldn't retire yet, and would wait a year before doing so, if they can).
It's kind of opposite of Bernicke's Reality Retirement Plan, which is based on researching actual retiree spending, which tends to be higher earlier in retirement and decreases over time, potentially increasing again at the end health care at the end of retirement.
My strategy is to start out taking more the first 15 years of retirement, for traveling and bucket list items, and then reducing it for the less active years.
15 yrs?. Good for you. I'm thinking up to Maybe 10 years.. And then. Really taper off, Cut back sit back smell the roses.. Visit and keep an eye on kids and or grand kids at that time
I think I accidentally subscribed to this method. I thought the 4% rule was just that, withdraw 4% of your current balance every year as opposed to 4% of your initial balance and adjusting for inflation. To me, that is NOT a 4% rule, but a fixed $ amount rule based on your 1st year. The VPW also protects against sequence of return risks. Sure, the amount you withdraw would get smaller each year of a downturn, but during the recovery, it would balance out. It doesn't matter the order of % return, it all comes out the same in the end. For example, -50%, -10%, +20%, +20%, +20%, +20% (which your withdraw % would be added (or subtracted) ) is the same as +20%, +20%, +20%, -10%, +20%, -50%.
4% rule is 4% of your INITIAL Portfolio at the time of your first dispersment then, based on That number, increased by CPI. More times than not, a 4% withdrawal strategy will result in a Portfolio several times larger than when you started!
@@METVWETV Right, I figured that out when I was putting 8%, 9% and even 10% into the calculator and I was still dying w/ a lot of $! Took me a bit to figure out I was actually doing it 'wrong'....which just so happens to be more like this 'new' VPW.
If you retire at such a young age, you should not be spending capital. In fact, you should be reinvesting a substantial portion of your income, which will cause you portfolio to continue to grow. A $10 million portfolio can easily yield 3% in income, or $300K a year. If you pay $60K in income tax, you can spend half your after-tax income and reinvest the rest. Many people who "retire" in their mid-30s actually go on to other types of money-making activities, which provide some income on the side.
I like variable withdrawal but I can’t retire at 35 and say goodbye to being fully invested in Social Security. You’ll never get 35 years in if you retire at 35. I would like you to build off this video to provide a $ amount needed in a brokerage account to meet your needed income, say a minimum amount, maybe $50k a year, to a more extravagant amount, say $150k a year. It would be interesting to know how much you would need at 35 to at least get the low end with a down market.
Hi Erin, I currently have a financial advisor that I don't think I need. Since I have well under $1 million and retirements cover all my expenses. Do you have a video explaining what I need to do when I let a financial advisor go? He's got me into EFT's that I don't understand and I think I would rather move to Index funds for my legacy/Nursing home money. I would really like to hear your thoughts and maybe other people would too.
As of today, combination of our pensions, dividends and interests is over $100k a year. With projected SS in some years later, the total income will be around $200k a year. If we could live with that income, does that mean our withdraw rate is zero? Because we probably would not touch the principles. We are still working to close the gap to the SS date. With a paid off home and zero debt, we are saving almost all income and reinvesting dividends.
Retired last year at age 63, with my private sector pension, public sector pension, and personal saving, I have made zero withdraws from any of my retirement accounts. Next month, I will also start receiving my social security (smile ... smile).
As long as you are enjoying life and not having the funds drive every decision. I see retired people doing nothing for the sake of saying they have a lot of money to do what they want, other than talking about it. To each their own in retirement.
At this point, I would recommend prioritizing life. It seems like you have enough now, for expenses to be covered. So maybe its time to live life a little more and relax. But if you have fun with your current work, then by all means, continue. Just remember that VPW completely depends on how much income you need for your life style, and the market conditions. It seems like you won't ever have problems with your retirement, and have no real need to worry about it.
Hi Erin, how about taking the rate of return each year? Some years you may take more than you need. What if your return was so good that return could last 4 years. Say a 27% ROI. Now you don’t have to do anything for the next four years no matter how the market performs. If I could live on 4% why not take as much as I can upfront. I know it would put you in a higher tax bracket but then you don’t have to worry about fluctuation in the market.
It wouldn't be a bad choice, though that means if you retire at the time of a down market, it means you keep working and put more money in, and generally has a plan equal to timing the market, which is why its generally not reliable. You won't really know its a good market until it happens.
How about 1/2 of portfolio this strategy. 1/4 of portfolio immediate fixed annuity. 1/4 of portfolio TIPS bond ladder. So in down years there is guaranteed income along with the strategy.
I'm not sure how VPW would benefit early retirement at all, since there is no correlation between actual retirement income needs to expenses and the amount being withdrawn. Moreover, in the Reddit thread example, a mid 30s person isn't even going to be able to offset variable portfolio income with social security when eligible because of insufficient earning years. You need a certain base amount equal to your expenses for a very long time.
well if you fly over my home 👋👋 - I LOVE being close to the airport, it makes travel so easy, and I'm far enough (10 min) that I don't ever hear a planes (unless I'm filming) - we aren't in the regular flight path. But every once in awhile there's more planes than usual - and I swear they do it when I film 😂😂
Bill Perkins' Die With Zero focuses on trying to have the experiences you want during the times in your life when you still can. That often implies spending a higher percentage earlier. That seems the opposite of the strategy you described here.
The perfect withdrawal rate is 0%. You should be able to live solely on dividend/interests generated by your portfolio; never sell the principles. Don't retire until you can do that.
I bet no one would hear the planes anyway. But love the bloopers and you facial expressions. Don't you have a sister or gf you want to set me up with????
Erin, I've searched your channel and CAN'T find more than one video from a few years ago about Bitcoin. At this point it is almost irresponsible NOT to talk about Bitcoin in your videos. I really appreciate the hard work you do for us viewers. Just a suggestion, try to step outside the 'traditional' financial advice for your innovative channel. The XX/YY stock/bond portfolio is dead. I know you're going to laugh at that because you're in the financial industry. But just take some time to do the research on BTC and you'll see.
I have been retired for 11 months and I am holding off on withdrawing for as long as possible. I will review your videos and then plan my withdrawal strategy.
i think finance reddit is a so-so source of information, but there are plenty of these posts that blur the lines between "is this a legit question from a human" vs "is this an AI bot crowdsourcing advice"
You keep just talking about finances that are extremely unachievable (5m by 35) even for the most prolific savers and earners... It's hard to watch these videos compared to all other finance channels, especially when the content is mostly the same or even less detailed. I'd literally only have about 1M -> 1.5M by the time I'm 40 and I have been earning six figures since I was essentially 27/28...
Well, I knew in my 20's my retirement age would be somewhere between the ages of 55 to 65. Last year, I retired at age 63, and Erin's video's have content for persons planning to retire in their 50's and 60's with less than $1 million dollars saved (smile ... smile).
at some point the money has th cross the tax trigger threshold. right now the latest you can do that is 10 years after your death as an inherited ira by your survivors.
It has been years, maybe decades since I've looked at this piece of Jack Bogle wisdom but, I remember Jack knew his people well enough to know that they were very unlikely to spend everything they have coming their way. I consider myself one of his people and I look at it as the plan is just looking at what numbers could do. There are going to be years you don't spend it all and there are going to be years when it seems like everything in you life needs to be repaired or replaced. Jack Bogle was a very valuable person but, he didn't sell his value for the highest dollar. He didn't own Vanguard even though he created it and he worked for a salary much lower than what he was worth as CEO of Vanguard. Jack knew that rich wasn't a number, it was having enough. I think he was very much one of those people that found his happiness by giving rather than receiving.
I plan to use the variable withdrawal strategy throughout my retirement years. The fact that I have a very good pension removes a great deal of the risk of doing so.
Yes, once your expenses are covered, you just need to cover the rest, vacations, gifts, etc....
Very different position to be in than those living off of their Portfolio
@ 100%.
Erin you never disappoint. I absolutely love all of your videos. You are one of my favorite financial youtube guru's
Great info. I am using a dynamic withdrawal based on market value and discretionary spending. My guaranteed income will cover my non-discretionary spending. I also plan to take more market risk as I age. There is no way to plan a retirement out to 20-30 years. Not even 10 years. I plan out 5-6 years and adjust annually.
I really like the VPW idea - it seems a lot more practical than locking in your spending for 40 years based on your initial portfolio value.
Thanks for covering a new-to-me strategy. As with all strategies, it is easy to develop a rule and table that results in a nice curve. But, as we will find in retirement, we have to make personal choices and endure fluctuating returns, inflation, and government. This strategy is another good tool for people to use and understand as they determine the boundaries of their personal decision and actions.
I enjoyed your outtake about living under an airport. I grew up under the glide path in to ORD. I still remember playing my sand box and having a large jet fly over about every minute. They were low enough I could see the windows on the side of the plane.
It was so normal that I didn't even know there were people who lived in places where this wasn't a reality!
I didnt learn the 4% to adjust the % to account for inflation. I learned you let the growth adjust for inflation. I.E. a $1m fund withdraws $40k year 1. But since the fund returned 10%, year 2 the fund has $1.06m and you withdraw $42,400. Year 3 you withdraw $44,900, etc. I personally plan to withdraw 4-8% depending on year unless there is a significant downturn, in which case I'll take nothing or the RMD and use the 3 year cash account. I want to be able to take more money out when I'm younger and able to travel. I dont think I'll need as much when I'm 80 as when I'm 60.
You may want to consider, Long Term Disability Insurance
A great topic! I have been planning to follow something similar to your Variable Withdrawal Strategy by relying on the RMD withdrawal table - about 2/3 of my portfolio is in before tax investments. At age 73, I am required to take /26.5 - or about 3.8%. The percentage rises yearly in conformance to declining life expectancy. If more that the RMD amount is needed, withdraw up to the RMD percentage from your after tax, otherwise, add to the after tax any unneeded RMD withdrawals.
And just do some Roth conversion for when the market goes down. Otherwise take out what you can when you are active and can enjoy it! 😊
Most people don’t realise it, but the secret to retiring comfortably is finding a way to make returns while your money works for you. My dad, as I remember, started saving for retirement quite late, but I know he was making more than 10k returns from his investment monthly and it was completely passive.
This is really amazing though. I'm curious as to how he did it. Was it real estate? Or he was a market enthusiast?
Haha. Investing enthusiast? Not really. Our family got introduced to a financial advisor about four years before my dad retired. That was what changed things. I've been using the same now and I think my retirement income would be on the right track.
I'm intrigued by this. I've searched for financial advisors online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?
I really don't like making such recommendations, because everybody's situation is unique. But there are many freelance advisors you could check out. We have been working with Melissa Terri Swayne, and she's really, really good. If she meets your discretion, then you could go ahead with her. I endorse her.
thank you for this tip , I must say, Melissa appears to be quite knowledgeable. After coming across her online page, I thoroughly went through her resume, and I must say, it was quite impressive. I reached out to her, and I have booked a session with her.
Hi Erin. Great video and presentation of the material. I am confident this will be helpful to many of your viewers. I like the VPW approach as it responds to current conditions. Today's bloopers were pretty entaining 😉 Have a blessed week and weekend. Larry, Central Valley, Ca.
If there's interest a follow-up video on how to deal with things like required minimum distributions would be helpful. Following rules for a variable withdrawal rate can get complicated when the government requires a specific amount based on your tax deferred balances.
No it doesn't.
These are two separate and distinct items.
1. You determine what you need to live on.
___________________
2. From your IRA, You take what is "Required" then
a. If the RMD isn't enough to meet your expenses,
You take more.
Or
b. If the RMD is more than you need,
you put the surplus back into a Brokerage account.
You're needlessly confusing yourself,
These are two separate categories.
Look at the RMD as your salary.
You either have extra to invest or
You need more to meet your expenses.
Hope that helps
Thanks for covering such an interesting topic, one idea came to mind to address the variability that comes with having yearly income based on market conditions. Simply have a cash buffer account to make up for down years (creating that floor for income) And it seems like it would grow bigger later in life and become a non-issue)
Thank you for sharing the information so clearly and precisely. I have seen and explored this before but never fully understood it 100% now its crystal clear and i will potentially look at implementing this.
Glad VPW is getting some more attention. Planning on using this strategy at early retireme. You do need to have a large amount of discretionary spending in your budget though so you can afford to cut spending by 50% in a worst case scenario.
Your success depends a lot on asset allocation - use the spreadsheet as a tool and remember to reduce your equity allocation over time.
O.03% live to 100, that feels wildly optimistic on longevity estimates for most of us.
As George Burns said; "Very few people die after they reach 100."
He also said “You’re only as old as the women you feel”
And?
More and more people are living older and older and if someone in his/her 20s-50s is watching this, they can expect to love longer.
Also, for me and many others, the goal isn't to die with Zero because we want to leave a legacy!
I actually use 110 when calculating the longevity of a portfolio especially if you want to leave something to your heirs.
To each his own but I also wouldn't chance going broke in my 90s!
@@METVWETV Can you imaging withdrawing assuming you are living to 90 and then finding out you are out of money somewhat healthy and need to go back to work. Ugly man.
This is incorrect. If 0.03% of the population is 100 or older, that doesn’t mean the probability of living to 100 is 0.03%. It’s actually much higher and the probability increases with age. Current age and gender are two primary variables to predict life span. For example, I am 40 and some age estimators project 13% probability of living to 100. If this is hard to grasp, think of it this way: if everyone in a city lived to and died at 101, only 1% of the population would be 100 or greater but the probability of living to 100 would be 100%.
It's funny that we still call it the 4% rule... even after its inventor has since said 4.5% and even 5% is likely the better answer. For most retirees, if you're retiring at a conventional age, let's say around 60 - 65, you're very likely NOT going to have 30 years in retirement. I know that's hard to swallow, but the average lifespan of someone in the US is only in the mid 70's. Perhaps you make it until 85, even 90. But, in doing so, the "4% rule" is also broken in that it assumes an ever-increasing spend... which won't be the case in your 80's and 90's.
On one hand, people have a fear of running out of money. However, given that the 4% rule, already conservative by most measures, would nearly guarantee 30 years of income - and likely over 40 - compounded with the fact that you're unlikely to live that long, AND the vast majority under the 4% rule will end up with more capital than they started with... and you begin to see that the real risk isn't running out of money... it's failing to live life.
Despite being called your "golden years" I'd argue that most won't consider their 70's, 80's and 90's (if they live this long) to be their best. Your 30's, 40's, and 50's are likely going to be far more enjoyable. But, we're spending THOSE years tied to a desk, stressed out, working 60 hour weeks, etc. It's probably a wise idea for more people to start re-evaluating their retirement plans. A bit more "risk" of running out of money sure might beat getting 10 or 15 years in retirement, not at your best, and dying with the majority of everything you've saved.
Actually the life expectancy that you are referring to is from birth. If you take the life expectancy of a person that is 65 then you can reasonably expect 82 to 85 because you have lived through the causes of death at an early age. But you are correct that in a typical situation if you retire at 65 you aren't likely to have a 30 year retirement. Most will have 18 to 23 years of retirement. The problem is knowing is your retirement going to 18 years or 23 years or longer. Withdrawing for an 18 year retirement and then living for another 5 years could be challenging if you are out of money.
One advantage of VPW you missed: you have a much larger starting withdrawal rate. If you are 80 20 at 40, you can take over 4.5%. Most people doing FIRE at that age will often have a starting rate of 3% because of the long retirement time horizon.
This works better if you have a paid off, low cost house that doesn’t vary much over time. If you live in a high tax area, have additional fees like HOA, or lot rent, then you could find yourself in a difficult situation. Having a larger emergency fund and cash fund would help offset those bad years. Also, having a hobby or high value skill set to make side cash when ever you need extra cash can really make a difference. For example, my brother in law is retired with a pension, social security and large investment account. Still he volunteers and does many handyman jobs for people all the time. He doesn’t need the money but doesn’t like to sit around doing nothing. It’s allowed him to start making large annual gifts of his money to his kids and grandkids now while he’s living. He lives well below his means in a small apartment and travels all the time. He has a large social group that he hangs out with week nights and holidays. It’s his version of the good life. The type of work he does has slowly scaled back as he ages. He’s just very knowledgeable and refers any big jobs to a couple of younger guys. All the old ladies at his clubs adore him and spoil him when they have a chance.
VPW is an interesting mind exercise and I may need to look at it further. Sure, more comes out on "up" years, but that doesn't mean you have to spend it all. If you put it into some sort of high-interest savings account, it'll still grow, albeit likely more slowly, than the market but it is available for those "down" years to help float a weak withdrawal year. And if that savings gets uncomfortably large, I suppose that dream vacation could be done 😉🎉 or reinvested, maybe.
This is the correct strategy, 4% every year the market is up. Take the extra money on those big up years and use it as an emergency fund for the down years. Keep emergency fund always at 3yrs worth and You'll never run out of $.
Biggest drawback is being in your 30s and not having friends. Everyone else is still working and people who retired early have their own hobbies or never home.
Making their money last isnt something you deal with until decades later. At 30 the worst thing is you only have so many hobbies and things you love to do. Eventually you want to spend time with others but everyone else is in different chapters of their life especially when theyre getting married / having kids/ grinding at work.
For 12 years I lived between Baltimore and Annapolis, and I remember the planes coming overhead. I was on one of the BWI's flight paths
There is no need to pick one strategy or the other. IMHO, a percentage of the portfolio should be withdrawn using the traditional fixed percentage strategy (+ cost of living adjustment), and the remaining portfolio should be managed using VPW.
This provides a stable base income to cover basic needs and a variable income for optional needs & wants.
Just what I've been looking for
All these terms they keep coming up with. Sometime ago I figure my investment should be 33 years, or my life expectancy, multiplied by my annual expenses. If 4% withdrawal will allow the investment to last forever, then 33 would be 25, but even the 4% rule said that was for a 30 year retirement. The main reason to increase the withdrawal is if you don't need the money to last 30 years.😊 So if I retire at 70, I'll likely use 5% or higher. That said, having an emergency fund is separate from the investment. Afterall, you don't want to pull 10% one year then the market drops the next years.
The important thing about the 4% rule is that it aims to produce a consistent income. If your expenses are fixed over a 30 year period then its appropriate. Most people will have a minimum amount and a variable amount that they can spend each year. 4% should cover the minimum.
Wife and I each have pensions; add in both SS income streams at 70 and we'll be stuffing more money in IRA's and brokerage accounts after retirement than before. My TSP and her 401k accounts will serve as "rainy day" pools that we only plan on using for QCD's when the RMD age hits. Please discuss this scenario in your excellent channel as there are many uniformed military and gov civilians that this applies to. Wife is 68 and already retired, I'm 57, DOD Civilian and will retire at 60. - Today, house paid off, $0 CC, $0 debt, $150k in CDs for ready cash.
See there is about an 11-year age difference between you and your wife with, her being the Senior. Same in my family with, my wife being 7-years older. Last year, I retired at age 63 with both a private sector pension, a public sector pension, and personal savings. I qualify for social security while, my wife does not and, we each have made zero withdraws from our separate 457 retirement accounts. To date, monthly expenses are fully covered by our pensions and personal savings (smile ... smile).
Other disadvantage is you could have a lot of money in last years when you can’t enjoy it. Money has more value in early stages of retirement.
But you get to spend more of it in the beginning with VPW. Look at the starting withdrawal rate at an 80 20 portfolio at any early retirement age.
In my opinion, the best strategy for a very young retiree is to utilize dynamic withdrawals because no set number will make sense for a 50+ year time horizon. The biggest benefit to an adjustable withdrawal rate is that you will be able to spend more overall because you'll increase spending when times are good (about 75% of the time) and decrease spending when times are bad (about 25% of the time), based on predetermined upper and lower limits. I think dynamic withdrawals are the best strategy for any retiree, regardless of age, who wants to maximize spending over the total span of retirement, but the younger you are the lower that initial rate should be.
Really love that you’ve talking about some less common finance strategies. I’d love to see you cover more niche topics like this.
Yeah, I would do a VPW when I retire, but I also have a planned amount I want when I retire, and my plan is to have enough to spend 365 days a week in a $500 hotel room (inflation adjusted), which is possible, when I turn 65 as long as I don't have kids.
But I would do a reverse though, take out more early, and less later, because the amount of activities you can do decrease dramatically with age. More fun should be had early in retirement and less later.
I still love the 4% rule for simplicity and I know exactly how much I could spend each year, but the VPW is growing on me as it allows for greater spending. Now I feel torn between the two.
Sometimes too much thinking or watching and ruin the fun of living... Of course you have to be in a real good standing, And just make sure you're on the lower end or conservative In general..
I like the.
4-6% rule, Which looks to be pretty low for us right now... Building in a nice buffer
In some ways I like it, in others not so much. If I were to use it, I'd probably split my portfolio and use 60% to 80% as more of a traditional 3-4% rule to cover basic needs and the other 20% - 40% using the VPW for more "discretionary" spending. You could go one step further and if the traditional portion is less than 3%, transfer the excess to the VPW portion. What it is really lacking is accounting for future income from other sources - social security, etc (the 4% rule has the same issue)...
I'm with you on the first half of your post!
It helps to have a pension and SS or annuity to do this though.
As for your second half,
There is nothing lacking. The guaranteed income, Pension, SS, etc. Is the first money spent.
Money from your Portfolio comes into play once that is exhausted
Good video with lots of info and lots to opine on. Please reach out to discuss.
I’ve heard variations of this. I had planned to take a flat 5% each year ( I am 67), with no adjustment for inflation. Whatever my portfolio is ( each December for example), I just take 5%. One additional stipulation I’ve heard of is to at least get 95% of whatever you took the prior year. This 95% downside rule helps buffer a large market drop.i don’t know if there’s Bill Bengen type analysis of this. Maybe Erin can advise😄
Something many people miss regarding the 4% withdrawal strategy,
It's based on a 50/50 Portfolio
It's 4% of whatever your Portfolio is when you take your first Dispersment.
(Increased annually according to the CPI Rate).
It is Net fees, ie:
If your fees are 1%, then you should only be taking 3%!
In the majority of scenarios, you will die with a Portfolio that has doubled or even tripled!
It is designed to last for 30 years, "Under the historically worse years on record"
Think Great Depression.
If the Market crashes,
You take that 4%+ Adjust it for inflation.
The Market sets a new record....
You take that 4% + Inflation!
It would have to be historically the worst, on the day you retire (as in you start withdrawing at the 90% drop in stock value, of which, if that happens, I think most people wouldn't retire yet, and would wait a year before doing so, if they can).
It's kind of opposite of Bernicke's Reality Retirement Plan, which is based on researching actual retiree spending, which tends to be higher earlier in retirement and decreases over time, potentially increasing again at the end health care at the end of retirement.
Can you do more book reviews? How about Brian Preston's Millionaire Mission?
Great idea! I like hearing Erin discuss some of the books she has read, but when I start reading financial information books, they put me to sleep!!
My strategy is to start out taking more the first 15 years of retirement, for traveling and bucket list items, and then reducing it for the less active years.
15 yrs?. Good for you. I'm thinking up to Maybe 10 years.. And then.
Really taper off, Cut back sit back smell the roses.. Visit and keep an eye on kids and or grand kids at that time
I think I accidentally subscribed to this method. I thought the 4% rule was just that, withdraw 4% of your current balance every year as opposed to 4% of your initial balance and adjusting for inflation. To me, that is NOT a 4% rule, but a fixed $ amount rule based on your 1st year. The VPW also protects against sequence of return risks. Sure, the amount you withdraw would get smaller each year of a downturn, but during the recovery, it would balance out. It doesn't matter the order of % return, it all comes out the same in the end.
For example, -50%, -10%, +20%, +20%, +20%, +20% (which your withdraw % would be added (or subtracted) ) is the same as +20%, +20%, +20%, -10%, +20%, -50%.
4% rule is 4% of your INITIAL Portfolio at the time of your first dispersment then, based on That number, increased by CPI.
More times than not, a 4% withdrawal strategy will result in a Portfolio several times larger than when you started!
@@METVWETV Right, I figured that out when I was putting 8%, 9% and even 10% into the calculator and I was still dying w/ a lot of $! Took me a bit to figure out I was actually doing it 'wrong'....which just so happens to be more like this 'new' VPW.
If you retire at such a young age, you should not be spending capital. In fact, you should be reinvesting a substantial portion of your income, which will cause you portfolio to continue to grow. A $10 million portfolio can easily yield 3% in income, or $300K a year. If you pay $60K in income tax, you can spend half your after-tax income and reinvest the rest.
Many people who "retire" in their mid-30s actually go on to other types of money-making activities, which provide some income on the side.
i plan to use Income Lab guardrail withdrawal strategy
I like variable withdrawal but I can’t retire at 35 and say goodbye to being fully invested in Social Security. You’ll never get 35 years in if you retire at 35.
I would like you to build off this video to provide a $ amount needed in a brokerage account to meet your needed income, say a minimum amount, maybe $50k a year, to a more extravagant amount, say $150k a year. It would be interesting to know how much you would need at 35 to at least get the low end with a down market.
“Timing affects the outcome of the raindance.”
Anyone else notice she says “withdraw” as a noun instead of “withdrawal”?
10:16 “If it’s not a plane , it’s the dog” 😅
Gains - Inflation - 2% growth margin = Withdrawalable amount
Hi Erin, I currently have a financial advisor that I don't think I need. Since I have well under $1 million and retirements cover all my expenses. Do you have a video explaining what I need to do when I let a financial advisor go? He's got me into EFT's that I don't understand and I think I would rather move to Index funds for my legacy/Nursing home money. I would really like to hear your thoughts and maybe other people would too.
As of today, combination of our pensions, dividends and interests is over $100k a year. With projected SS in some years later, the total income will be around $200k a year. If we could live with that income, does that mean our withdraw rate is zero? Because we probably would not touch the principles. We are still working to close the gap to the SS date. With a paid off home and zero debt, we are saving almost all income and reinvesting dividends.
Retired last year at age 63, with my private sector pension, public sector pension, and personal saving, I have made zero withdraws from any of my retirement accounts. Next month, I will also start receiving my social security (smile ... smile).
As long as you are enjoying life and not having the funds drive every decision. I see retired people doing nothing for the sake of saying they have a lot of money to do what they want, other than talking about it. To each their own in retirement.
At this point, I would recommend prioritizing life. It seems like you have enough now, for expenses to be covered. So maybe its time to live life a little more and relax. But if you have fun with your current work, then by all means, continue.
Just remember that VPW completely depends on how much income you need for your life style, and the market conditions.
It seems like you won't ever have problems with your retirement, and have no real need to worry about it.
Hi Erin, how about taking the rate of return each year? Some years you may take more than you need. What if your return was so good that return could last 4 years. Say a 27% ROI. Now you don’t have to do anything for the next four years no matter how the market performs. If I could live on 4% why not take as much as I can upfront. I know it would put you in a higher tax bracket but then you don’t have to worry about fluctuation in the market.
It wouldn't be a bad choice, though that means if you retire at the time of a down market, it means you keep working and put more money in, and generally has a plan equal to timing the market, which is why its generally not reliable. You won't really know its a good market until it happens.
How about 1/2 of portfolio this strategy.
1/4 of portfolio immediate fixed annuity.
1/4 of portfolio TIPS bond ladder.
So in down years there is guaranteed income along with the strategy.
Healthcare... For those without a military, teacher, police, government supported healthcare?
I'm not sure how VPW would benefit early retirement at all, since there is no correlation between actual retirement income needs to expenses and the amount being withdrawn. Moreover, in the Reddit thread example, a mid 30s person isn't even going to be able to offset variable portfolio income with social security when eligible because of insufficient earning years. You need a certain base amount equal to your expenses for a very long time.
I’m a pilot….. Did somebody build an airport near your home or did somebody buy a house near an airport? I already know the answer…. 😂
well if you fly over my home 👋👋 - I LOVE being close to the airport, it makes travel so easy, and I'm far enough (10 min) that I don't ever hear a planes (unless I'm filming) - we aren't in the regular flight path. But every once in awhile there's more planes than usual - and I swear they do it when I film 😂😂
Pilot here too. Admit it. We buzz her place for the outtakes! lol 😂
I am SO excited for this video 😊😊😊😊😊😊❤❤❤❤❤❤😊😊😊😊😊😊😊😊😊😊😊😊😊
Bill Perkins' Die With Zero focuses on trying to have the experiences you want during the times in your life when you still can. That often implies spending a higher percentage earlier. That seems the opposite of the strategy you described here.
The perfect withdrawal rate is 0%. You should be able to live solely on dividend/interests generated by your portfolio; never sell the principles. Don't retire until you can do that.
I bet no one would hear the planes anyway. But love the bloopers and you facial expressions. Don't you have a sister or gf you want to set me up with????
linked chart only goes up to age 88, not 100 as you mentioned?
sorry, I was looking at wrong column
Erin, I've searched your channel and CAN'T find more than one video from a few years ago about Bitcoin. At this point it is almost irresponsible NOT to talk about Bitcoin in your videos. I really appreciate the hard work you do for us viewers. Just a suggestion, try to step outside the 'traditional' financial advice for your innovative channel. The XX/YY stock/bond portfolio is dead. I know you're going to laugh at that because you're in the financial industry. But just take some time to do the research on BTC and you'll see.
I want to leave a legacy so something closer to traditional for me.
Looks like the single life expectancy table from the IRS.
Yes
Love the bloopers...
LIVING ON RETIREMENT WILL BECOME ALMOST IMPOSSIBLE WITHIN NEXT FEW YEARS...
AFTER 2030 ???
VERY MUCH DONE !
I have been retired for 11 months and I am holding off on withdrawing for as long as possible. I will review your videos and then plan my withdrawal strategy.
I'm going to take it all out a day put it all in my wallet. 😂😂
Who thinks Erin is so beautiful 😍 😊 😁😊
i think finance reddit is a so-so source of information, but there are plenty of these posts that blur the lines between "is this a legit question from a human" vs "is this an AI bot crowdsourcing advice"
You're in your mid 30s, wanna just sit on FIRE but you're not happy with the politics: let the pockets speak.
You keep just talking about finances that are extremely unachievable (5m by 35) even for the most prolific savers and earners...
It's hard to watch these videos compared to all other finance channels, especially when the content is mostly the same or even less detailed.
I'd literally only have about 1M -> 1.5M by the time I'm 40 and I have been earning six figures since I was essentially 27/28...
Well, I knew in my 20's my retirement age would be somewhere between the ages of 55 to 65. Last year, I retired at age 63, and Erin's video's have content for persons planning to retire in their 50's and 60's with less than $1 million dollars saved (smile ... smile).
You are speaking hyperbole, considering that $1m-$1.5m by 40 is extremely unachievable for most people, too.
at some point the money has th cross the tax trigger threshold. right now the latest you can do that is 10 years after your death as an inherited ira by your survivors.