In this video, we look at why Risk Based Guardrails are the best retirement distribution strategy for those who want to pursue a FIRE approach to retirement.
I agree with you!! Money actually grow on trees but only on trees that was planted by you!! These tress are referred to as investments. How you diversify your investment portfolio matters.
Diversification is the key. My portfolio is well diversified with the help of a financial adviser. This helps me make more than +400% monthly on my investments
I'm intrigued by this. I've searched for financial advisers online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation???.
I've experimented with a few over the past years, but I've stuck with ‘’Julianne Iwersen Niemann” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look her up...
18:37 : How exactly do you interpret a 25% success rate of Monte Carlo as 1-in-4 chance that you overspent? I am thinking it will be like 3-in-4 that you overspent and 1-in-4 that you underspent. What am I missing? An example with numbers will probably clarify it better. BTW, I have saved the link of your video that has the details of calculations with numbers and I refer to it from time to time as my portfolio size changes. Another question I have is how often should the analysis be done once you are IN-Retirement? Annually / Quarterly / Monthly ?
Good catch! That was just a slip up on my part. You’re right that it should be a 3-in-4 chance that you will overspend. In retirement, I like that automated tools like Income Lab can update a plan monthly. However, if I were updating a plan manually I think annually would be the frequency I would go for. I would probably also add in updates if/when a guardrails is hit.
18:41 Sounds like you're not interpreting it properly either. 25% chance of success sounds more like a 3 in 4 (as opposed to 1 in 4) chance that you're spending too much money.
Unfortunately, currently there is not a direct to consumer version, but I hope that will change. In the meantime, finding an advisor who can get you access would be the most cost effective (versus subscribing to the software yourself).
Kitces said when he started calling it a 90% plan success rate with a 10% plan adjustment rate people understood better and relaxed ... because if people hear the word "failure" instead of "adjustment" when it comes to their plan , they somehow think there's a 10% chance that they will suddenly be broke and never even see it coming .. when of course you'd see it 10 , 15 , or even 20 years out if you're paying attention at all and simply adjust spending
I definitely agree with Kitces that shifting to adjustment is a step in the right direction. I do have a Kitces post examining why even probability of adjustment has some interpretation issues (www.kitces.com/blog/monte-carlo-guardrails-probability-of-adjustment-success-client-communication-dynamic-retirement-spending/) as there are two ways to interpret that statement and I find that a lot of people (including advisors) interpret it incorrectly. For instance, a plan with an initial 90% PoS will, in most cases, have a greater than 10% chance of experiencing a downward adjustment. But even despite the limitations, it is still a much better way to think about Monte Carlo results.
Would you consider comparing this method to a simple constant percentage withdrawal averaged over three years understanding and accepting large differences of withdrawals year to year. Goal is to maximize spending. thanks
It sounds like what you’ve described is basically an endowment strategy. Compared to RBGs, I don’t think this is going to provide an increase in spending, though. One of the issues of a fixed percentage strategy is that distribution percentages should be going up as time horizon gets shorter - i.e., 5% distribution at 95 is far less risky than 5% at 65. An RMD-type approach would at least better reflect this rising percentage over time, but RBGs handle that better than an RMD approach while also addressing other income sources, personal spending goals, etc.
would you, or have you considered making this 'Income Lab' software availalable to consumers, and not just CFP's? I very much appreciate the content, thanks
The big difference with retiring earlier is that many of the frameworks people talk about are based on research that used shorter retirement periods, so the results may not hold extrapolating out to a longer retirement. Fortunately, RBGs work equally well regardless of whether someone is retiring at 35 or 75, so they get around the early retirement issues.
The BIGGEST LIE You've Been Told About Money is that it doesn't grow on TREES!!😂
I agree with you!! Money actually grow on trees but only on trees that was planted by you!! These tress are referred to as investments. How you diversify your investment portfolio matters.
Diversification is the key. My portfolio is well diversified with the help of a financial adviser. This helps me make more than +400% monthly on my investments
I'm intrigued by this. I've searched for financial advisers online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation???.
I've experimented with a few over the past years, but I've stuck with ‘’Julianne Iwersen Niemann” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look her up...
Wow, her track record looks really good from what I found online. I'll take a chance and see how it goes. Thanks for the info
18:37 : How exactly do you interpret a 25% success rate of Monte Carlo as 1-in-4 chance that you overspent? I am thinking it will be like 3-in-4 that you overspent and 1-in-4 that you underspent.
What am I missing? An example with numbers will probably clarify it better.
BTW, I have saved the link of your video that has the details of calculations with numbers and I refer to it from time to time as my portfolio size changes.
Another question I have is how often should the analysis be done once you are IN-Retirement? Annually / Quarterly / Monthly ?
Good catch! That was just a slip up on my part. You’re right that it should be a 3-in-4 chance that you will overspend.
In retirement, I like that automated tools like Income Lab can update a plan monthly. However, if I were updating a plan manually I think annually would be the frequency I would go for. I would probably also add in updates if/when a guardrails is hit.
18:41 Sounds like you're not interpreting it properly either. 25% chance of success sounds more like a 3 in 4 (as opposed to 1 in 4) chance that you're spending too much money.
Yes, I’ve already addressed this is another comment. I just misspoke while recording the video. You’re correct that it should be a 3-in-4 chance.
How can I use income lab software? Is it available to purchase for single user or do I need to sign up as a client?
Unfortunately, currently there is not a direct to consumer version, but I hope that will change. In the meantime, finding an advisor who can get you access would be the most cost effective (versus subscribing to the software yourself).
Kitces said when he started calling it a 90% plan success rate with a 10% plan adjustment rate people understood better and relaxed ... because if people hear the word "failure" instead of "adjustment" when it comes to their plan , they somehow think there's a 10% chance that they will suddenly be broke and never even see it coming .. when of course you'd see it 10 , 15 , or even 20 years out if you're paying attention at all and simply adjust spending
I definitely agree with Kitces that shifting to adjustment is a step in the right direction. I do have a Kitces post examining why even probability of adjustment has some interpretation issues (www.kitces.com/blog/monte-carlo-guardrails-probability-of-adjustment-success-client-communication-dynamic-retirement-spending/) as there are two ways to interpret that statement and I find that a lot of people (including advisors) interpret it incorrectly. For instance, a plan with an initial 90% PoS will, in most cases, have a greater than 10% chance of experiencing a downward adjustment. But even despite the limitations, it is still a much better way to think about Monte Carlo results.
Would you consider comparing this method to a simple constant percentage withdrawal averaged over three years understanding and accepting large differences of withdrawals year to year. Goal is to maximize spending. thanks
Method would allow a higher percentage ie 5% or higher without adjusting for inflation. Thanks
It sounds like what you’ve described is basically an endowment strategy. Compared to RBGs, I don’t think this is going to provide an increase in spending, though. One of the issues of a fixed percentage strategy is that distribution percentages should be going up as time horizon gets shorter - i.e., 5% distribution at 95 is far less risky than 5% at 65. An RMD-type approach would at least better reflect this rising percentage over time, but RBGs handle that better than an RMD approach while also addressing other income sources, personal spending goals, etc.
Thank you and look forward to more videos
would you, or have you considered making this 'Income Lab' software availalable to consumers, and not just CFP's? I very much appreciate the content, thanks
I would love for Income Lab to be available directly to consumers. I can’t make any promises, but it’s something I’ll continue to push for!
How is a “FIRE” distribution strategy different than a distribution strategy. Retired at 53, do I qualify for these “special” strategies?
The big difference with retiring earlier is that many of the frameworks people talk about are based on research that used shorter retirement periods, so the results may not hold extrapolating out to a longer retirement. Fortunately, RBGs work equally well regardless of whether someone is retiring at 35 or 75, so they get around the early retirement issues.