What Is The Safe Withdrawal Rate In Retirement?
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- เผยแพร่เมื่อ 4 ส.ค. 2024
- Imagine saving your entire life for what you expect to be a comfortable retirement but then realising to your horror that you are going to run out of money once you do retire. How can we reduce the chance of that happening? In this video, I'll show you some exciting new research which provides a fascinating global perspective on how to invest to maximise your safe withdrawal rate in retirement beyond the 4% rule.
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Timestamps
00:00 Introduction
00:23 What is a safe withdrawal rate?
04:40 How does your portfolio affect the safe withdrawal rate?
06:22 What is the best safe withdrawal rate?
08:51 What happens if you exclude gold?
10:42 What is the least crashey portfolio?
11:25 How does this compare with other studies?
17:12 Conclusion
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Guess I’m justified at 50 being all in with global equities and a few years worth of cash on hand to ride out the bad times then.
Me too
personally I see no reason for u to change even in retirment with a cash backup of 3 years
Perhaps gold can be thought of as a more inflation resistant cash...
@@albedo0point39 Gold crashed about 40% starting in 2012, so for 8 years since 2012 - zero returns on it and there was still inflation. Cash doesn't crash however. Then again gold has had an OK performace for the very long term of 50 years on average, but then this is not about retirement.
@@MagicNash89 It looks like gold works as part of a diversified portfolio being rebalanced say once a year. Gold can have high volatility but appears to reduce overall volatility as part of a portfolio when rebalanced
I remember Ben Felix mentioning this 50/50 study a while back, but I couldn't find the episode looking back. I was almost convinced I dreamed it. Thank you for the refresher.
Amazing content, never seen this polemic topic covered so comprehensively
Fantastic data in this episode! Once again and as always!
Glad you like them@sanshuma0
There you go again: another excellent, thought provoking presentation. I am now running numbers and studying what you said. You are, by far, the best I have stumbled across online. Please continue as you truly challenge me to reflect on different aspects of investing. I so enjoy your presentations!!!
Thanks again @EdfromCanada
Thanks ! this vids worth watching more than once as the info is quite important for trends and data guzzlers
Glad you enjoyed it @hachimaru295
Should be a higher spend % in first 10 years while you can enjoy it. You spend less and less as you get older. If the markets tank , cut back on none essentials. Life trying to live by number doesn't work.
Probably 15 years. If you are looking forward to going out a lot you might want to think about adding hotels in to things you were able to get a late train home from.
I turn 79 next week, we have been retired twenty years and our spending is ramping up as we enjoy and increasingly appreciate the finer things and comforts of life.
Your health is your most important asset, when you retire your priority should be to get that back to where it should be after the stresses of the workplace, cycle, hike, backpack, things which don’t cost much but keep you fit. Then when you are our age you can ski, cycle or hike for a couple of hours in the morning then go for lunch at a good restaurant, enjoy a couple of glasses of wine and not think about the cost.
@@glennet9613 Good for you. However, most people are approaching the end of their lives by your age. Enjoy it.
Until you need care and then your costs are higher than at any other time in retirement although this usually only lasts a few years
@@johnristheanswer My contention is that you have a great deal control over how many good years you have in retirement. Not how many years until you die but how many good years, I would rather drop dead tomorrow than not be able to live the life that I live.
Good stuff Ramin thanks.
I’d really like to see a withdrawal rate where you die with nothing after 30-35 years. There’s loads of information about not running out of money, but I know lots (myself included) who want to spend it all…
Great in-depth video, thanks Ramin 👌
My pleasure @shimsteriom4191
Extremely interesting video, especially as you mention recent research that most people like me would not take the time to look for but yet contain actionable findings
So please you enjoyed it @michelpohl1019
Man this is gold! Lol. Thanks so much Ramin. :)
Glad you enjoyed it @moltennail
Really interesting. Thanks.
Glad you enjoyed it @andrewf7822
Great vlog and insight on financial & asset value data analysis. Thank you. Confirmation of retirement strategy options.
Glad it was helpful @Opdeweegh73
When people Talk about the 4%rule they never seem to talk about State pension so if you take start 4% from Age 55 when you reach 67 you probably need take less even after taking Inflation in to account .
What a brilliant video. Very clearly explained and data driven. I'm not sure though whether 50% UK equities would be a good idea. 50% US plus 50% international makes sense.
Superb Ramin.
Thank you @timwood101
@Pensioncraft The 30% Gold allocation would make sense only for the period of the sample. Gold went from around $300 to $2,500 from 1970 to 1980 which would have skewed the results. If this scenario was run from 1980 onwards the results would be vastly different.
Excellent video. I have been really confused after the last episodes of the podcast (100% stocks paper versus Tyler). Thank you for investigating it further for us, Ramin. It really helps. I am considering buying gold (even at these high prices) with the money from my stock allocation.
Glad it was helpful @frevdaele
Good. Especially the note about WWII included was eye-opener.
What did you mean in the end by "cash" ...short term bonds? One would imagine that it helps withdrawals during crash, as a simulation would conclude. Furthermore... cash might do better in real life since one can put part of it in cheap stocks in case of a crash - which is factor a simulation probably ignores...
Nice polo shirt Ramin!
The entry point for the strategies with gold is a bit scary at the current time IMHO.
Fascinating stuff as always, thanks
Nowhere near as scary as 1982, yet the portfolio covers that startdate.
Current dow/gold is 16, 1982 dow/gold was under 2. Gold has room to run, I would say.
Again a very informative video. The only (minor) criticism I have relates to the use of the words "domestic" and "foreign". It is not always clear whether domestic refers to the UK, the US, or some other country. The usage of these words is not consistent throughout this video.
Another very clear presentation. Thanks
The issue I have with this approach is that it does not allow for handing on wealth to the next generation.
I was very fortunate. My family came from very poor roots. My great grandfather made a substantial amount of wealth. He ensured that his children were well provided for. So it has gone on with every generation having a leg up.
Is it an American thing to only think of oneself? They seem to promote this using your money up thing a lot.
I cut my budget so the next generation can pass it on too.
My maximum withdrawal are any gains less inflation to protect the capital. I live on a very modest income despite being able to afford more.
Exactly! You live off the natural yield and pass on the capital to your children. Milk the cow, but don't slaughter it.
If you have family wealth it is reasonable to want to pass it on, investment opportunities, let the pot grow etc. But for the working class you get what is left over and leave what is left over.
@@glennet9613 Apologies I did not make it clear.
My handed down wealth went into education and getting me onto the housing ladder. There were no stately homes, or wealthy family trusts.
What I have now is earned wealth. I don't want to get into the whole politics thing here, though I think we might agree.
The point I am making is about intergenerational investing and wealth transmission. For those fortunate enough to have accrued enough to consider that.
And, "But for the working class you get what is left over and leave what is left over." is that not the same for all of us wage earners?
Be well.
I agree. My main motivation for saving and investing is to leave as much as possible to the kids. And gift as much as possible to them while we're still alive. My father invested for 40 years and had a very substantial portfolio which he gifted at a time when it was very useful to us. I want to do the same for my children. We're not big spenders and have lived a very good life and certainly didn't want to wait until retirement to travel etc as there's no guarantee we'd make it that far!
An annuity big enough to cover your annual expenses would be a good reassurance.
Even better a Deferred Annuity although from my research they only seem to be common in the USA.
So the most effective counterweight to share volatility is gold/cash!!!
Or the sort of “investment” that financial advisors would get no commission on 🤔
Makes you think…
I'd still get paid either way, but there's no way I'd recommend my clients to invest like this as it seems nonsensical with a long term approach. Only asset class that compounds capital is/are equities. Find good businesses and fair prices. Buffett is rich for a reason.
The true alchemy of this approach manifests when you combine the Weird Portfolio, or its siblings, with Shannon's Demon. Come on, Ramin! When Michael isn't watching, roll out a super technical video on quantitative portfolio construction and origins of rebalancing.
You know you want to!
Just think of all the simulations you could run!⭐😆📈
Amazing video, however, I think that spending a fixed percentage of portfolio worth (say 5%) and not adjusting for inflation is a decent strategy. We shouldnt rely on our investment portfolio to carry us trough our retirement all by itself. Most people would have some sort of pension, social security check or rental income. So we should be able to cut back with our portfolio spending in tough times.
How about a video on perpetual withdrawal rates for those retiring very young and want to leave equity for kids?
If you’re that clever work it out for yourself.😎
What does withdrawal look like if you have a mix of DB and DC schemes please
It's appears to me that the concept of locking in a withdrawal rate for 30 years (whether inflation linked or not), while great for the analysis, is not representative of the real world. Most retirees will have an element of discretionary spending and will reduce their withdrawal rate if necessary in times of low returns to reduce the likelihood of running out of money . The 'safety guard' models that have been developed reflect this reality to some extent but also have to employ fixed rules to facilitate stochastic analysis.
They say money makes the World go round - therefore - invest in the World!
the reason gold is so important is that over long periods it keeps up with real monetary inflation e.g. uk houses priced in gold are the same as the 1950s. Over a 30 year period you will have to not just keep up with cpi, price inflation indexes can be engineered to spit out low numbers.
SWR in worst case scenario is not the only factor. You also want a portfolio that will do well in the 99% of other cases.
What’s the best house I can own for $750,000 in a worst case scenario. It probably has a bomb shelter. But there’s a good chance that won’t be needed and building and maintenance of it come at a cost. In a normal scenario I could use the money for a home gym or pool and get much more enjoyment.
So 20-30% gold may be great in a worst case scenario. But otherwise you’re likely to underperform. Look at other metrics as well.
Problem with this is looking at investment returns in the past. The last 30 years stock markets has done well, bonds well-ish, real estate well, gold poor, commodities poor. I suspect the next 30 years will be different. Probably gold better, bonds worse, stock market maybe small caps will be better as tracker funds seems to overinvest in the top stocks. i would say safe withdrawal rate is 3 to 3.5% as equity returns will probably will not be as good as the last 30 years. There is no getting away from having to making a call on what assets will do well in the next 30 years and allocating assets accordingly and hope you are right, Ofcourse the real answer is to start with £1M pension pot instead of a £500K then withdrawal rates don't matter so much -)
It's not just looking at the last 30 years though. It's looking at every 30 year period starting from 1970, and going with the worst.
@@epmorris I would look a lot further back even considering 19th century data and be careful to look at real as opposed to nominal data as the recovery times are much worse.
I would think bonds should do better going forward as the yields are higher now and bond prices a lot lower. You could look at the permanent portfolio. 25% equities, 25% long dated government bonds, 25% gold and 25% cash or very short term government bonds, and rebalance once a year
It would be nice if Vanguard UK could give us the Wellington fund at a reasonable charge, they said we can't it's a US fund. But surely they could do a UK version that's invested exactly the same as, the US wellington fund. And an all in one portfolio fund like lifestrategy, but with less funds, less overweighting to the UK, and say 10% gold and some exposure to either a short-term UK investment grade bond fund or maybe short term tips index UK Hedged like ishares does. And with cheaper fund charge than the current lifestrategy funds in the UK
I would assume that I might have to somewhat tighten my belt in some years when my capital has slumped - ie big market drop. I'd also not like to count on 30 year retirement. I might live 40.... Also - I will have the state pension and know I can actually live a decent/comfortable/fun life on state pension plus about £3-4k.
Static portfolios of any kind don’t give me much confidence going forward in time. Would any have those portfolios have actually been used in the distant past? Nobody was using buy and hold in 1940 that’s a relatively new concept.
Personally, I would favour a higher equity slanted fund throughout all of my life to max the the upside of better returns (personal risk profile accepted) and plan to deplete the pot to an amount which would cover 2-3 years of indexed care fees, which in today’s world would be £200- £300k. Additionally, the option of trading down to a smaller property or equity release would also be considered. The rise in property values over 20+ years of retirement would give the buffer for any mis calculations with overdrawing the fund.
Looking at returns from investments from the early 1900s might seem to cover all bases - e.g. wars - but I don't believe it does. The period from then to more now saw massive expansion of western populations with only short interruptions (wars). That is changing as we speak. The advanced countries in these studies are about to shrink, many are already shrinking. Some are currently keeping numbers up through immigration (the states, uk) but most will not. Populations are also shrinking in many developing countries - china, brazil etc. There are exceptions (India, west africa) but these are mostly under developed markets, are they enough to offset the depopulation in more advanced economies? With dwindling manpower a greater % of our wealth will go towards healthcare and pensions, likely leading to even higher taxes, meaning shrinking populations will have less individual spending power, leading to lower corporate profits. I have investments myself but I'm not expecting long term future returns to match those of the 20th century/early 21st century.
I always wonder which would be the appropriate withdrawal rate if someone wants income for infinite time and portfolio appreciation above inflation. ♾️ generational wealth
Does the 4% include the financial advise, platform and fund fees as these add 2%
Why would you pay those for 🤣🤣
The wife’s post menapause. I don’t need to worry about a withdrawal rate.
Has anyone noticed?
Past performance Is no guarantee of future performance - declares every financial sales pitch.
Then goes on to explain why you should invest with them because of their superior past performance!
An incredible number crunching job, but what will work today? Just focus on the knowns not the unknowns. So your personal situation, objectives and all those factors that make you unique. And then prices of assets as they are today. Then back the horse you believe will win. Unfortunately though we will probably change strategies throughout the race as more videos are published, that's the flawed individuals we are.
You can not forget demographics.
For the last 60+ years we have had more buyers of assets than sellers. So demand was higher than supply, hence increasing prices. Now the baby boomers have to liquidate their assets to fund their retirement, we will have much nearer parity or perhaps even more sellers than buyers - asset prices will drop.
For all the drawdowners out there, here's an example. Two people retire at the start of 2000. Investor A places £100k in Murray International, a solid though unexceptional income fund that invests globally. Investor B invests the same sum in Herald I.T., a non-dividend paying global growth trust with a strong record of capital growth. Each year, Investor B sells shares in HRI equivalent to the dividend paid by MYI in the same year. Where are they 20 years later at the start of 2020? Investors A's holding in Murray International is now worth £250k and his annual income has trebled to over £10k per annum. Investor B had run out of money by 2016.
Basically, there is no such thing as a safe withdrawal rate. The safest thing is to buy an annuity, which doesn't suit everybody.
Oh. Those calculations assume you will only live as a retiree for 30. What do you do afterwards? I want to assume a worst case scenario of 70 years retired with a much higher inflation than the official numbers as essentials have much more inflationary pressure plus our expenses increase as we age if we already live a lean FIRE lifestyle, as we become less capable of saving on labor for things like fixing your house, car, cooking and gardening. Non covered by insurance medical expenses get increasingly heavier and governments won't provide you with the best even if you are entitled to socialized medicine.
Aegon Diversified Monthly income. Growth and dividends of just over 6%. Looking at moving most of the pension into that.
No safe withdrawal rate i live off dividends .🤟
1% below the fund growth.
I like this sort of approach. But if there comes years when the growth is negative then you might be in trouble...
All well and good until you run into a downturn.
FA’s want ~1% p.a just to put your money in Index funds and then meet with you once per year. Doing it yourself is complex not for many. So it’s no wonder that many middle income households go down the amateur landlords route because dont have to deal with this FA babble, they dont have to worry about drawdown rates and there’s no such thing as decumulation
Really interesting approach. I don’t feel the urgency to make up ni contributions at £800 a year which would be 100% controlled by one government’s policy in one country.
According to Martin Lewis you get the £800 back after 2.5 years of taking your state pension, from then on it's just profit.
I get my UK state pension in Sept. I just paid £824 to buy a missing NI year. It will add £114.80 pa (net after tax) index linked for life to my pension. That's the equivalent of about 13% return on the £824 just in the first year. Even minus the indexing it would cancel out in 7 years but, with indexing, it'll be sooner. I worked on the basis that if I live more than 5 years I'll win, if die earlier I won't care! Of course, this example doesn't take into account any returns I could have achieved from investing the £824 but I prefer guaranteed income.
True, but they are talking of removing the triple lock and even phasing out the state pension so l have the feeling it is as good as it gets.
@@Applepie409 yes, I fully expect the pension to become means tested eventually. Gradually though, and not in the next few years. I also think the triple lock is unnecessary anyway. If it were just a double lock; the highest of wage or price inflation each year, that would be fine for maintaining its purchasing power. Why the 2.5% is there I don't know.
@@adm58 It actually adds over £6.32 (£221.20/35) a week to your pension if you pay for a missing year. That's about £330 a year before tax.
Totally confused by this video. No idea what the answer is. Sorry.
Glad I wasn't the only one.
The example using global stocks from 1970-2000 illustrates withdrawing 4.8% annually, adjusted for inflation, almost depleting savings by the end of 30 years.
I think it underscores the importance of diversifying investments to ensure a safe and sustainable withdrawal rate in retirement, tailored to individual circumstances and risk tolerance.
Its the Holy Grail. Answer is : It depends!
I think that’s the point
There is no one, single, "answer". Safe withdrawal depends on your individual needs and circumstances and, in part, luck. Asset allocation, diversification and domicile are some of the important factors.
It's up to you to take ownership and make intentional decisions.
Or..just a thought, pick a random number...e.g. the "Answer to Life, the Universe and Everything"/10 = 4.2%
That seems about right to me...😂
You completely negate the risk of running out of money by living off the natural yield. Drawing down takes no account of rising living costs and becomes disastrous in a bear market. Poor advice, as always.
There was no advice - Ramin will never give advice - this was a very well presented and concise analysis of drawdown strategies - my take away is to keep sufficient cash/near cash to ride out a 2-5 year bear market with the remainder in global stocks
Yields on equity are just capital growth in another form anyway.
@@rockycottage5188💯% agree!
Doesn't it take account of inflation, you are supposed to raise the withdrawal rate each year by inflation
What's your point? What alternative insight or recommendation do you have? I am so tired of negative, know nothing, comments.