"Trees don't grow to the sky" - maybe not in Ohio, but I'm frequently reminded when out hiking and running that California Redwoods make a pretty good effort 🙂
Thanks for this, Rob. I saw the headline for the Morning Star report and to be frank, I rolled my eyes. It seems to me that the whole idea of a "safe withdrawal rate" is that it stands the test of time. It is a guide when you are planning for retirement. I don't think this recalculation of the SWR on an annual or monthly basis has any real world practical application. As someone who has been retired and drawing down my portfolio for 3 years now, I feel that a SWR is a general guideline. I find myself reassessing at the end of each year how much I feel comfortable spending in the current year based on how the portfolio has performed, what our plans are, etc. Are there any people in the real world who are setting a SWR on the day they retire and then adjusting for just inflation every year? I think we in the DIY community (and Morning Star with all respect to Ms. Benz) are really overthinking this. 3.7, 3.6, 4.2? C'mon. No one really knows what is going to happen and certainly not to a tenth of a percent point.
The whole idea of the SWR is a para-controversial over-simplistic headline that attracts eyeballs to copy and allows the fin journalists to attract advertisers to their publications.
Hey Rob - Glad you made this video. I emailed this to you weeks ago and pointed out the findings of this article. I think entering retirement, your focus should switch towards preservation if you've saved enough. If a 35-40% stock allocation keeps up with inflation, allows ~4% withdrawal rate, and gives you an above 90% success rate, you've won the game. There's no need to take on added risk.
@@mikeskaggs3763 I have that too. Cash/CD's in the Brokerage, Stocks in the Roth and a Stock/Bond mix in the Traditional IRA. I could probably allocate more towards stock, but I've found the mix that works for me.
I don't have to stay up on reports and articles because you are there to tell me about the latest news. Thanks again Rob another banger of a video. Thanks.
Great video Rob! Love the analysis. I know MorningStar is a well respected outfit, but their projections of SWR always seem very low to me. But then it gets clarified when you see how conservative they are with their asset allocation. I haven't run actual mathematical analysis on it, but in retirement it seems like the minimum you would want is a 60/40 Equities/Bonds allocation. For no other reason than to outpace inflation. But I acknowledge that there are people who cannot tolerate Risk and temporary shortfalls in the Market. I'm glad I'm not one of those folks :). My own thought is to go 70/30 in Retirement and have 5 years of baseline spending in the Bond/Cash allocation. 5 years can get you thru a whole LOT of sequence of return risk. And if bad times last longer than that, you really have way more problems than just the Market.
Thank you for this explanation. I saw these headlines also . As I am approaching my first year of retirement, this gave me pause . Your detailed analysis as usual, gave more context to the headline and helped me understand what I was reading. I can't thank you enough for all your insights. You have been a great tool in my toolbox as l work into this third act of my life!
This is way too conservative for most people if for no other reasons than few people's' retirement last 30 years and 90% success rate is rather high (because you can always adjust your spending if you are falling behind your plan). Not to mention that spending is not constant through retirement.... the whole "go-go", "slow-go" and "no-go" years thing.
It is indeed very conservative. Bill Bengen recently said the SWR is 4.2% no matter what your time horizon is. As part of the asset management industrial complex, Morningstar is incentivized to give a conservative number in order to charge more management fees.
I apologize that this comment has nothing to with the content. I have found your posts, in general, informative. But my comment is to say that I love the fact that you have a ROM comic nicely displayed in the background. I read this series growing up and when my wife got a ROM title for her job, I bought a ROM comic for her home office too! Thank you for reminding me of happy times.
If you're MFJ, be sure to withdraw enough money to fill in the 12% tax rate. This may be more or less than the 3.7% withdraw and is really based on your expenses. Any money left over can be put into identical funds in a brokerage account. The key is now that taxes have been paid and helps to lessen future widow tax trap when you or your spouse need to file as single.
Thanks Rob. Morningstar has been all over the place with withdrawal %. It's b.s. Bottom line is Bengen used a 50/50 portfolio and didn't even include Social Security in his determining 4% was very safe. He also included the great depression numbers. A 60/40 portfolio along with Social security probably makes the 4% too conservative. But at the very least should let people sleep comfortably at night. Also, people can control their personal inflation rate. Once mortgages are paid off and kids are self sufficient enough, spending may stay steady or go down.
the key is that if you start withdrawing at the bottom of the cycle, you probably will never run out of money. If your first draw is at the top and it crashes a year later, you need to adjust for the length of the recovery. Most people cannot do that, either psychologically or financially.
It seems like intermediate and long-term bonds are not gonna be a great place to be for many many years based on our national debt and other factors. Bond that I have had just a few months have gone down in value, even though interest rates have declined. That doesn’t make any sense to me.
Kitces excoriated their multiple crystal balls projection model the first time they rolled it out a few years ago and they still haven't fixed it, which is also where the wacky allocations come from. But their dynamic withdrawal strategies analysis is quite useful and interesting.
7:00 Yup. People forget that for every numerator, there is a denominator. Same with the Roth conversion folks who would rather have less $$ just to pay less % taxes, without quite grasping that in fact RMDs are kind of a good "problem" to have.
I saw another paper by Scott Cederburg stating that you should be in 100% equities with a 50/50 US/International portfolio for a US retiree to guarantee you never run out of money.. Why are there so many contradictory conclusions between these studies?
Not too sure the point of Bengen's exercise was meant to actually be implemented in practice. It was probably meant to determine the accumulated amount needed to retire successfully based on a safe average withdrawal rate that does tot deplete your funds. Retirees should not blindly follow the 4% or 3.7% rule based on what they hear or see on TH-cam. The withdrawal rate should depend on current market returns, other sources of income, spending needs, etc. The safe average withdrawal may be 3.7-4%, but people should not blindly follow this rule in reality. BTW, you did a great job of explaining all of this which is appreciated.
Prior to the Trinity study many advisors were advocating 7 or 8 % withdrawal rates. Virtually no one will follow the strategy to the poor house. Most would decrease consumption in the face of a lang term market downturn. I submit that if you need every penny of a 4% inflation adjusted withdrawal to fund essential expenses then you are not ready to retire.
I'd like to see a hybrid of no inflation and guardrails where you don't increase the withdrawal rate if the portfolio has decreased in value, but you are allowed to increase even more during good times (and otherwise it's just a regular inflation adjustment).
3:00 the other assumption seems to be (common for SWR analyses) that the portfolio will/can be spent down, i.e. there is no legacy goal for the portfolio, presumably handled with a separate portfolio or insurance products if a client does have a legacy goal.
So another way to position this is that Morningstar thinks the next 30 years will be worse than the 1965/66 cohorts that could break the 4% rule. Pretty scary considering I just retired this year, and lived through those years. I don’t know if I’m in that camp, but I do think we should be cautious when valuations are so high.
What is high though? We don't know if they are too high. Values could have a long ways to go before they're "high". There are always unknowns in retirement. Everyone should just live within their means and if you're nervous about it, withdraw 3% instead of 4%.
It says that the 10th percentile result, over 30 years, will be worse that the absolute 0th percentile rate originally calculated, based on different sets of assumptions. This is explained in the video. That’s a very different basis for a recommendation. Finishing in the bottom 10% is in no way worse than below the absolute lowest outcome. And nothing about “worse than 1965”.
@@mplslawnguy3389 if you have $1 million saved and it goes down to 600,000 do we calculate the 3% on the original valuation when we first started taking the money out? That would seem to really reduce our principle that year Thanks.
You should be especially nervous given the political state of the United States. We elected an actual rapist as president and that is clearly a sign of a failed society. The divisions are getting worse. This means lower returns are likely until we get back on track.
Sort of odd that they discount a TIPS ladder because it depletes after 30 years. But that is successful by their definition. Such a ladder if bought about now provides SWR of 4.6% with 100% probability of success. Why settle for 3.7% at 90% probability?
Knowing the "safe / or correct" withdrawal rate is impossible like knowing what year you should take SS. You need to know future returns and when you're going to die. So 3.7%, 4%, 5% 6% or whatever... "They" have noooooooooo idea what future returns are going to be. All they do is look at the past. So, all you can do is make some reasonable assumptions and take the withdrawal amount that is appropriate for you and your situation. Like everything in life, things change. You more than likely will adjust your withdrawal a few times in retirement either increasing or decreasing it based on variables including market returns and your health. All you can control within reason is your budget in retirement. Keep that at a low / comfortable level, and that gives you the most wiggle room.
Excellent comment. You can’t control market returns but you can adjust your spending. When I look at FireCalc it’s amazing how adjusting your spending makes a big difference.
Great video as always. Thx. ❤ For myself whenever I hear the words “projection” or “forecast” I start to place that into the noise category and tune out. Also, I don’t believe in a “safe” withdrawal rate. SWR may be good for academic research to compare as a baseline, but there is nothing “safe” about it for a retiree. Anyhoo, thx again for a fun video Rob. 👍 Happy New Year everyone. See ya’ll on Rob’s next live next year. ❤
My first 5 years of retirement withdrawals 3%, 3%, 6%, 3%, 3%. Next year is going to be at least 6%. I need a new car. I haven’t taken SS yet. I have 16 years of spending in fixed income not counting SS. That takes me to 80yo. Sleeping well.
Nah, many many many people leave a ton of money on the table when they die. Increase it and live a great retirement instead of a miser retirement. Just make sure SS will cover your basic needs when to old to do anything.
For the past seventy years or so US policy both foreign and domestic has been very consistent, presidents and politicians of both parties have had similar approaches and respected the decisions and agreements of their predecessors. Going forward we are in a very different world. I don’t think past numbers mean much, look at the change between 1929 and 1932, 2.5% to 17.6%, the current situation is similarly volatile. Financial planning tools give spurious precision and a false sense of confidence. I figure work on your health, exercise and diet so you are in the best shape to deal with whatever happens.
Definitely a fan of the guyton klinger method an automated permissive structure to spend more along with h a plan if things go down. If your withdrawing 4% a year it would be worthwhile to keep in mind that's 25 years of withdrawals assuming a flat portfolio that does give you some runway to adjust cpurse
Thanks for this Rob. Very enjoyable and instructive. Exhibit 10 (safe withdrawal strategies and SD of year 30 withdrawals) is not clear to me when it comes to using RMD as the withdrawal strategy. I thought that strategy gives no ability to change the annual withdrawal percentage. Are they including the terminal withdrawal ? I agree with you -- following the 'RMD' strategy is probably a lot more common in the general public than financial nerds realize. It's the only one that does not require learning, calculation or high advisor fees. It is also the one I find most to criticize. Irony My last comment has to do with international allocation. Europe (to my knowledge, anyway) has never had anything close to a 4% SWR, so any model that includes international allocation will by definition have a lower SWR than Bengen. A corollary is that international allocation will naturally favor bonds since international equities will have a lower risk:reward.
Alternatively, significant outperformance via passive direct-equity-ownership (not ETFs) makes withdrawal rate concerns less relevant. Do your homework using time-measured metrics (e.g., long-term growth trajecories per equity in; ROIC-to-WACC, EPS, Margin, and Cash Flow, among many others), buy 10-20 high-quality equities based on that analysis, and rebalance every 2-3 years. Done.
To your point on the "multiplier - portfolio value" is the actual dollar amount you'd recieved in todays dollars for all the years in the simulation with a starting balance median retirement portfoilio balance (in 2024). Then you can see the range of safe withdrawl rate dollars you can expect each year.
Most discussions about safe withdrawal rates focus on a 30-year retirement. How would the strategy change if planning for a 50-year retirement, assuming a few percent of my capital is enough to sustain my living?
Since longevity is almost never a constant, one must prepare for the longest life span possible. Rate of return can be fixed to a reasonable degree of accuracy
i plan on waiting til 70 to get highest SS for me and my surviving spouse and therefore will be able to take out a smaller amount from 70 going forward from my retirement accounts. Therefore I believe I can take out a slightly higher percent during my first 8 years of retirement and then decrease that when ss kicks in.
Bengen revised his # to 4.7 with a more diverse portfolio before he retired. So morning star must be predicting a sequence or returns worse than we have ever seen ....sweet!
I’m 65, no debt, withdrawing 6% till age 70, then we plan to draw down everything by age 85, except the house and a rental. The whole SWR discussion ignores what people actually “need” vs wants. No debt and a bit of real estate combined with a large Social Security Check is plenty to live on after age 85 if we make it that long. In the meantime spending while we are able to enjoy it.
Frankly, I think they mostly get it wrong with a "dynamic" withdrawal rate. To me, going back to Bill Bengen's original 1994 work (which looked at 30 years with a 50-75% equity position) and everything since, it seems to me that the idea of a withdrawal rate is to use one that has, using backtesting and Monte Carlo simulations, not failed (or fails *very* seldom in a Monte Carlo simulation), and adjust it for inflation each year forward. It seems to largely defeat the purpose to move the goalposts and change it every year. The main *point* of a SWR to me is one that you will not have to cut in a significant market downturn. If you have to adjust your SWR downward in a bear market, it wasn't "safe" to begin with, was it? I like a lot of stuff M* does, but I tune this one out.
Did they include the fact that our money id declining value at a record rate? Bonds are probably going to be a negative return for the next decade due to the out of control inflation that the fed reserve is allowing in purpose with their ridiculous low rates.
The Morningstar study looks at other retirement durations. So did the Trinity Study. And for that matter, Bengen's 1994 paper looked at other retirement durations, too.
@Rob_berger, I haven't seen a single one of these SWR reports or MC models that adjust for changes in US GDP sector composition. Perhaps you have? It seems foolish to model your future SWR based on the US economy from late 1800s to 1920s to even 1980s data simulations, given the US GDP sector composition has wildly changed from agricultural and industrial to services. Perhaps 1990s or 2000 as a historic data start basis reflects more of the economy today and foreseeable future than economic performance from 1920s-present.
I'm not totally sold on why people are so pessimistic right now. CAPE and Buffet Indicators haven't really been relevant this millennium. Even so, outside of the Mag 7 the SP500 is relatively fairly valued according to those. The Mag 7 are making money hand over fist and aren't brick and mortar and have an insane ability to scale. The big question is if those valuation metrics work anymore.
@@mikesurel5040 If it were 1997 then it would be great. The market never dropped below that amount every again even after the 2000s crash. One difference is that companies are making money now; many weren't in 1999.
4% or 3.7% is the safe withdrawal rate under the worst historical market conditions. Bill himself uses 5% because it’s unlikely that at any given moment we are in the worst possible conditions
If 3.7% is the safe withdrawal rate you would be far better off with am annuity. You can buy an annuity that pays $60,000/year for $900,000. That $900,000 getting 3.7% would produce $33,300. I realize the annuity isn't inflation adjusted but you would have hundreds of thousands dollars more income in the 20 years it takes the 3.7% safe withdrawal rate to get to $60,000/year!
When experts talk about a “safe withdrawal rate”, are they assuming those funds are in (or out-of) a traditional IRA/401K? It makes a difference because if one needs 3.7% withdrawal to survive they must withdraw 4.7% from a tax deferred account due to taxes that will be due on that money. This extra percent could eventually cause the methodology to fail.
Safe Withdrawal Rate is targeted at withdrawals. It makes no distinction whether those withdrawals are used to pay taxes or to fund life expenses. A retiree with a higher tax burden (e.g.: one drawing exclusively from tax deferred accounts) will have to account for that tax burden when calculating their expenses to compare against the SWR. So yes, a retiree who may be able to fund their lifestyle on 3.7% of their portfolio in after-tax dollars probably needs to adjust their plan (save more or spend less) to provide the additional necessary money to pay the tax man
Once you reach RMD age the government dictates your withdrawal rate. You can go higher but not lower. These charts go out to 120 years of age. Use an allocation you are comfortable with and forget all these yearly papers.
OK, but most people will adjust their spending based on what is ACTUALLY HAPPENING during their retirement years. Tough year in the market? Cool, spend less. Carry zero debt and have an emergency fund that can weather an extended downturn. Nothing is easy, but they are making it intentionally too complicated. It's almost as if Morningstar is trying to convince people to not retire.
Bolden software - says a 4% withdrawal won’t work for me. I’m 59, retiring (hopefully) at 65 with projected 1.8 million portfolio: 72% us stocks, 13% international, 15% bonds.
4% is the SWR (maybe?). If your Portfolio isn't large enough to cover your expenses, you need to either, Increase your Portfolio and/or Decrease your expenses.
There is no "Safe Withdrawal Rate". A variable annual rate based on the economy and your personal expenses is the closest one can ever come to "optimal" withdrawal rate.
That's what a lot of people do. Combine it with Social Security and perhaps some dividends and interest from a taxable account, and it can make for a very easy way to deal with retirement income.
@@randolphh8005 I'm doing Roth conversions to minimize higher taxes as the RMD's go up each and every year. Depending on how much you have in your account, taxes could be brutal. I'm not taking that chance.
@@rob_berger I use the 1/N Withdrawal Strategy in FICalc. I set a Minimum and a Maximum withdrawal along with a $1 Million Target End Portfolio Value (So it does NOT go to Zero). I tweaked the numbers to make it work for a 40 year year withdrawal and a 100% Success Rate. I've tried each of the available Strategies and I've found that the 1/N Strategy, not only yields the highest Available Spending but also the highest End Portfolio values! The only drawback that I could find is that there is typically a somewhat smaller Initial Withdrawal. With that in mind, this seems like a winner IMHO....
3.7% is very conservative, especially considering that this is with a 10% failure probability. With historical simulations, 75/25 is the best allocation. You get the all-time worst SWR of 3.82% over 30y with a 75/25 portfolio. That would include the 1929 and 1968 worst-case scenarios. If you accept a 10% failure probability, then a 4.5% WR is possible. The problem with Monte Carlo is that it can certainly generate steep drawdowns (if you use high enough variances), but it's extremely unlikely that you can generate an almost equally rapid recovery following the bear market with random draws. Hence, Monte Carlo will be too cautious relative to historical simulations, both on the SWR and the allocation. I would translate the 90% Success + 3.7% WR + 50/50 recommendations into: 100% success + 3.9% WR + 75/25 allocation to account for that effect.
Retirement is not linear. Long term care is more expensive than most people expected. 80% bond is riskier than 80% stocks with national debts around the world. This notion of SWR is non-sense. 90% chance of making IRS/CRA the biggest beneficiary of your estate.
To me, the research you showed did a terrible job at data cleaning. A lot of the outliers need to be deleted. The main reason is, at those times, money and stock and retirement are the least to consider. If you are really in those situations, you will not be considering asset and retirement.
Historically, we do so it's reasonable that we assume it will be similar moving forward. You can mitigate that by adjusting your withdrawals in response to market downturns
Yeah, I like Christine Benz but disagree with Morningstar on this one. I actually think the safe rate is closer to 5%. Everyone assumes in these analyses that spending continuously increases throughout retirement. That’s not reality. How many 90 year old retirees do you see spending like they did at 65 or 70 years of age? None that I know. Many studies have shown that personal spending goes down after 75 years old.
While some spending like travel certainly goes down, medical and care spending often goes way up. If you need long term full time care, your spending later could be way higher at 90. I do however thing this is another thing that is overlooked with obsessive safe withdrawal rate analysis, that spending (both in retirement and out) is often pretty lumpy. Some years you break your arm, some years the roof needs replacing, etc.
Could you make a video on people that get a company match in their 401k? Explaining the difference if they only contributed half or none compared to a full company match. Maybe up to like 5%. It would help the younger people out to see a difference in 20-30 years.
This is so dumb!!! 3.7% is crazy low!!! 4% is far too low. A 5.5% withdrawl rate is very doable, but you need to be flexible for years when the market is down. If you use a 4% rule, you'll most likely die with much more money then when you retired. Why not spend some of that money on things you enjoy while you are still alive!!!
The future is far too uncertain to make a prediction with such absolute accuracy as 3.7%. We don’t really know what government programs will change, and which will remain the same. We don’t really even know if our country will still be around in 10 years.
The problem is that it won't keep up with inflation. With modest inflation, those interest payments will eventually have less than 40% of its current buying power.
By definition bonds perform no better than inflation, and usually worse. Plus if you spend the interest your principal is decreasing in real terms, that means every year you have a little less spending power, over thirty years, that is huge!.
These percentages can be confusing and most responsible retiring people know their expenses so my strategy is to put a minimum of 5 years worth of our expenses in an investment ladder that have a known return (CDs, bonds) as your known withdrawal AMOUNT each year for the next 5 years. That way you don't have to withdraw from the stock portion when it is down. If/when the market is up skim off a year or two to keep that 5 year bucket as full as possible. Another metric I want to keep that known return portion to around 40% and look for higher return fixed income investments if the stock market portion gets too big and my 5 year buckets are full (maybe get a 6th or 7th year bucket). Since we have no debt and live moderately this withdrawal amount from taxable savings is less than the top of the 12% tax bracket ($126,950 with standard deduction for a married couple in 2025) so I plan to convert that difference to Roth. $11,157 would be the Federal tax bill.
This makes me lol. There are bonds, T bill and CD ETFs that have a dividend yield of 5% to 7%. And many, many stocks and ETFs that have 3.5% to 20%. You would never have to sell ur assets to get a monthly or quarterly pay check. Lol. 😂😂😂😂 3.7% withdrawal rate? Lol 😂😂😂😂😂😂
@Amir-je6wl look up JEPQ or SCDH. Also, look up dividend kings. 50 years plus of raising dividends. The top six dividend kings range from 4% to 7% dividends. Lol. Do some research before u make a statement. Lol 🤣 😂 😆
Dividends above 6%~ are generally indicative of either a flailing company trying to pump it's stock price or a company basically selling off it's assets and distributing the proceeds as dividends. Both are companies winding down and can not be relied on. Anything above 4% is unlikely to sustain itself or the stock price should be expected to decline. A reliable dividend ETF like SCHD is going to give you ~4%, but that's assuming no drop in stock price or cutting of the dividends, which happens without a doubt in recessions. You can look up EarlyRetirementNow's post on dividend stocks to see that they actually tend to exacerbate sequence of returns risk (the primary risk involved when it comes to safe withdrawal rates) more than total stock marked indexes do, meaning trying to get a big withdrawal rate with dividend stocks is almost guaranteed to fail, since you are both taking a high withdrawal rate and exacerbating sequence of returns risk. Bonds are heavily weighed down by inflation. TIPS, the only truly inflation protected bonds, are running 2-2.5% real. To get into that 6-7% range, you need to go into riskier junk bonds that tend to do really bad in recessions. People have done studies on this, you haven't found some secret formula, and the simple fact is that dividend stocks, preferred shares, high yield bonds, etc, are all pretty efficiently priced so they aren't silver bullets that allow high withdrawal rates. If they were, the dozens of people who research these topics would have found it already. Please do not post misinformation like this going forward, you could negatively affect someone's financial picture when you post about things that you know nothing about.
For those hoping to retain some principal or live more than 30 years, this 3.7% seems reasonable, after doing a lot of research on this lately. 4% is overly optimistic. 1. Stocks outpace inflation by at least 4% only 80% of the time. Good luck withdrawing more than 4% in those 20% of times. I think this was from awealthofcommonsense 2. The difference in SWR between exhausting your assets in 30 years compared to having the original amount at the end of the thirty years is 0.5% or less. Even changing your starting withdrawal rate by 0.1% has significant impact. 3. If you want to be safe for 40 years or more, the SWR drops to 3.25% or so, and doesn't get any lower even at longer time horizons. 4. If you're willing to commit to exhausting every penny after 30 years, you can get over 4% with a TIPS ladder. 5. Most of those studies use only US stocks and assume the outperformance of US over int'l stocks will continue. Seems smarter to have at least some int'l diversification but it makes the answer murkier.
No, you're generally going to be safe withdrawing more and staying invested a bit more aggressively. This is a report from *Morning Star* that has a vested interest in people keeping larger sums invested in stocks, mutual funds, and ETFs. They want people keeping higher invested amounts, 3.7% withdrawal is ludicrous. That's safe with like 80% bond portfolio, it's not real.
My article related to Morningstar's report: robberger.com/the-surprising-truth-about-safe-withdrawal-rates/
"Trees don't grow to the sky" - maybe not in Ohio, but I'm frequently reminded when out hiking and running that California Redwoods make a pretty good effort 🙂
Thanks for this, Rob. I saw the headline for the Morning Star report and to be frank, I rolled my eyes. It seems to me that the whole idea of a "safe withdrawal rate" is that it stands the test of time. It is a guide when you are planning for retirement. I don't think this recalculation of the SWR on an annual or monthly basis has any real world practical application. As someone who has been retired and drawing down my portfolio for 3 years now, I feel that a SWR is a general guideline. I find myself reassessing at the end of each year how much I feel comfortable spending in the current year based on how the portfolio has performed, what our plans are, etc. Are there any people in the real world who are setting a SWR on the day they retire and then adjusting for just inflation every year? I think we in the DIY community (and Morning Star with all respect to Ms. Benz) are really overthinking this. 3.7, 3.6, 4.2? C'mon. No one really knows what is going to happen and certainly not to a tenth of a percent point.
The whole idea of the SWR is a para-controversial over-simplistic headline that attracts eyeballs to copy and allows the fin journalists to attract advertisers to their publications.
Thank you for giving us your thoughts on this report. I would much rather listen to your summary than to read the whole report.
Hey Rob - Glad you made this video. I emailed this to you weeks ago and pointed out the findings of this article. I think entering retirement, your focus should switch towards preservation if you've saved enough. If a 35-40% stock allocation keeps up with inflation, allows ~4% withdrawal rate, and gives you an above 90% success rate, you've won the game. There's no need to take on added risk.
Why not just set up a bucket strategy so you can sleep at night without giving up upside of higher equities?
Agree with you 1000% you already won the game why keep playing.
@@mikeskaggs3763 I have that too. Cash/CD's in the Brokerage, Stocks in the Roth and a Stock/Bond mix in the Traditional IRA. I could probably allocate more towards stock, but I've found the mix that works for me.
I don't have to stay up on reports and articles because you are there to tell me about the latest news. Thanks again Rob another banger of a video. Thanks.
Great video Rob! Love the analysis. I know MorningStar is a well respected outfit, but their projections of SWR always seem very low to me. But then it gets clarified when you see how conservative they are with their asset allocation. I haven't run actual mathematical analysis on it, but in retirement it seems like the minimum you would want is a 60/40 Equities/Bonds allocation. For no other reason than to outpace inflation. But I acknowledge that there are people who cannot tolerate Risk and temporary shortfalls in the Market. I'm glad I'm not one of those folks :). My own thought is to go 70/30 in Retirement and have 5 years of baseline spending in the Bond/Cash allocation. 5 years can get you thru a whole LOT of sequence of return risk. And if bad times last longer than that, you really have way more problems than just the Market.
Thank you for this explanation. I saw these headlines also . As I am approaching my first year of retirement, this gave me pause . Your detailed analysis as usual, gave more context to the headline and helped me understand what I was reading. I can't thank you enough for all your insights. You have been a great tool in my toolbox as l work into this third act of my life!
This is way too conservative for most people if for no other reasons than few people's' retirement last 30 years and 90% success rate is rather high (because you can always adjust your spending if you are falling behind your plan). Not to mention that spending is not constant through retirement.... the whole "go-go", "slow-go" and "no-go" years thing.
It is indeed very conservative. Bill Bengen recently said the SWR is 4.2% no matter what your time horizon is. As part of the asset management industrial complex, Morningstar is incentivized to give a conservative number in order to charge more management fees.
Retire early at 55 and there is a high likelihood that you or your spouse if not both of you get to 85?
I apologize that this comment has nothing to with the content. I have found your posts, in general, informative. But my comment is to say that I love the fact that you have a ROM comic nicely displayed in the background. I read this series growing up and when my wife got a ROM title for her job, I bought a ROM comic for her home office too! Thank you for reminding me of happy times.
If you're MFJ, be sure to withdraw enough money to fill in the 12% tax rate. This may be more or less than the 3.7% withdraw and is really based on your expenses. Any money left over can be put into identical funds in a brokerage account. The key is now that taxes have been paid and helps to lessen future widow tax trap when you or your spouse need to file as single.
Thanks Rob. Morningstar has been all over the place with withdrawal %. It's b.s. Bottom line is Bengen used a 50/50 portfolio and didn't even include Social Security in his determining 4% was very safe. He also included the great depression numbers. A 60/40 portfolio along with Social security probably makes the 4% too conservative. But at the very least should let people sleep comfortably at night. Also, people can control their personal inflation rate. Once mortgages are paid off and kids are self sufficient enough, spending may stay steady or go down.
I appreciate your thoughtful analytical approach. You always make me think more deeply about the topic.
Coincidentally I’ve been drawing 3.57% from my before tax IRA 72T for the last 4 years and I have over 10% more money than I started with!
the key is that if you start withdrawing at the bottom of the cycle, you probably will never run out of money. If your first draw is at the top and it crashes a year later, you need to adjust for the length of the recovery. Most people cannot do that, either psychologically or financially.
That's why you need the equivalent of 3 years of income in Bonds
It seems like intermediate and long-term bonds are not gonna be a great place to be for many many years based on our national debt and other factors. Bond that I have had just a few months have gone down in value, even though interest rates have declined. That doesn’t make any sense to me.
Kitces excoriated their multiple crystal balls projection model the first time they rolled it out a few years ago and they still haven't fixed it, which is also where the wacky allocations come from. But their dynamic withdrawal strategies analysis is quite useful and interesting.
7:00 Yup. People forget that for every numerator, there is a denominator. Same with the Roth conversion folks who would rather have less $$ just to pay less % taxes, without quite grasping that in fact RMDs are kind of a good "problem" to have.
I saw another paper by Scott Cederburg stating that you should be in 100% equities with a 50/50 US/International portfolio for a US retiree to guarantee you never run out of money.. Why are there so many contradictory conclusions between these studies?
Not too sure the point of Bengen's exercise was meant to actually be implemented in practice. It was probably meant to determine the accumulated amount needed to retire successfully based on a safe average withdrawal rate that does tot deplete your funds. Retirees should not blindly follow the 4% or 3.7% rule based on what they hear or see on TH-cam. The withdrawal rate should depend on current market returns, other sources of income, spending needs, etc. The safe average withdrawal may be 3.7-4%, but people should not blindly follow this rule in reality. BTW, you did a great job of explaining all of this which is appreciated.
Prior to the Trinity study many advisors were advocating 7 or 8 % withdrawal rates. Virtually no one will follow the strategy to the poor house. Most would decrease consumption in the face of a lang term market downturn. I submit that if you need every penny of a 4% inflation adjusted withdrawal to fund essential expenses then you are not ready to retire.
@@SpookyEng1
Agreed!
I'm aiming for 2% in order to leave a legacy and Never worry about running out....Ever!
I'd like to see a hybrid of no inflation and guardrails where you don't increase the withdrawal rate if the portfolio has decreased in value, but you are allowed to increase even more during good times (and otherwise it's just a regular inflation adjustment).
I’m a fan of guardrails too; a modified Guyton-Klinger.
3:00 the other assumption seems to be (common for SWR analyses) that the portfolio will/can be spent down, i.e. there is no legacy goal for the portfolio, presumably handled with a separate portfolio or insurance products if a client does have a legacy goal.
Great content. Thanks 👍
So another way to position this is that Morningstar thinks the next 30 years will be worse than the 1965/66 cohorts that could break the 4% rule. Pretty scary considering I just retired this year, and lived through those years. I don’t know if I’m in that camp, but I do think we should be cautious when valuations are so high.
What is high though? We don't know if they are too high. Values could have a long ways to go before they're "high". There are always unknowns in retirement. Everyone should just live within their means and if you're nervous about it, withdraw 3% instead of 4%.
It says that the 10th percentile result, over 30 years, will be worse that the absolute 0th percentile rate originally calculated, based on different sets of assumptions. This is explained in the video. That’s a very different basis for a recommendation. Finishing in the bottom 10% is in no way worse than below the absolute lowest outcome. And nothing about “worse than 1965”.
@@mplslawnguy3389 if you have $1 million saved and it goes down to 600,000 do we calculate the 3% on the original valuation when we first started taking the money out? That would seem to really reduce our principle that year Thanks.
You should be especially nervous given the political state of the United States. We elected an actual rapist as president and that is clearly a sign of a failed society. The divisions are getting worse. This means lower returns are likely until we get back on track.
Sort of odd that they discount a TIPS ladder because it depletes after 30 years. But that is successful by their definition. Such a ladder if bought about now provides SWR of 4.6% with 100% probability of success. Why settle for 3.7% at 90% probability?
Knowing the "safe / or correct" withdrawal rate is impossible like knowing what year you should take SS. You need to know future returns and when you're going to die. So 3.7%, 4%, 5% 6% or whatever... "They" have noooooooooo idea what future returns are going to be. All they do is look at the past. So, all you can do is make some reasonable assumptions and take the withdrawal amount that is appropriate for you and your situation. Like everything in life, things change. You more than likely will adjust your withdrawal a few times in retirement either increasing or decreasing it based on variables including market returns and your health. All you can control within reason is your budget in retirement. Keep that at a low / comfortable level, and that gives you the most wiggle room.
Excellent comment. You can’t control market returns but you can adjust your spending. When I look at FireCalc it’s amazing how adjusting your spending makes a big difference.
Great video as always. Thx. ❤
For myself whenever I hear the words “projection” or “forecast” I start to place that into the noise category and tune out.
Also, I don’t believe in a “safe” withdrawal rate. SWR may be good for academic research to compare as a baseline, but there is nothing “safe” about it for a retiree.
Anyhoo, thx again for a fun video Rob. 👍
Happy New Year everyone. See ya’ll on Rob’s next live next year. ❤
Happy New Year Mike!
@@noreenn6976 Happy New Year Noreen! 🎉
Blessings for you and your loved ones in 2025! ❤️
My first 5 years of retirement withdrawals 3%, 3%, 6%, 3%, 3%. Next year is going to be at least 6%. I need a new car. I haven’t taken SS yet. I have 16 years of spending in fixed income not counting SS. That takes me to 80yo. Sleeping well.
I'm using: .5% year one; 1% year 2; 1.5% year 3; 2% year 4; 2.5% year 5; 3% year 6; 3.5% year 7; 4% year 8 and each year thereafter.
Nah, many many many people leave a ton of money on the table when they die. Increase it and live a great retirement instead of a miser retirement. Just make sure SS will cover your basic needs when to old to do anything.
For the past seventy years or so US policy both foreign and domestic has been very consistent, presidents and politicians of both parties have had similar approaches and respected the decisions and agreements of their predecessors. Going forward we are in a very different world.
I don’t think past numbers mean much, look at the change between 1929 and 1932, 2.5% to 17.6%, the current situation is similarly volatile. Financial planning tools give spurious precision and a false sense of confidence. I figure work on your health, exercise and diet so you are in the best shape to deal with whatever happens.
Definitely a fan of the guyton klinger method an automated permissive structure to spend more along with h a plan if things go down. If your withdrawing 4% a year it would be worthwhile to keep in mind that's 25 years of withdrawals assuming a flat portfolio that does give you some runway to adjust cpurse
@Rob. Plz clarify the bonds. I make no assumptions. My prior bonds were TLT HYG and JNK. I am thinking 50 50 using SPY for equities. Thank you.
Thanks for this Rob. Very enjoyable and instructive.
Exhibit 10 (safe withdrawal strategies and SD of year 30 withdrawals) is not clear to me when it comes to using RMD as the withdrawal strategy. I thought that strategy gives no ability to change the annual withdrawal percentage. Are they including the terminal withdrawal ?
I agree with you -- following the 'RMD' strategy is probably a lot more common in the general public than financial nerds realize. It's the only one that does not require learning, calculation or high advisor fees. It is also the one I find most to criticize. Irony
My last comment has to do with international allocation. Europe (to my knowledge, anyway) has never had anything close to a 4% SWR, so any model that includes international allocation will by definition have a lower SWR than Bengen. A corollary is that international allocation will naturally favor bonds since international equities will have a lower risk:reward.
Happy New Year Rob! Thanks for the thoughtful analysis of this important topic.
Alternatively, significant outperformance via passive direct-equity-ownership (not ETFs) makes withdrawal rate concerns less relevant. Do your homework using time-measured metrics (e.g., long-term growth trajecories per equity in; ROIC-to-WACC, EPS, Margin, and Cash Flow, among many others), buy 10-20 high-quality equities based on that analysis, and rebalance every 2-3 years. Done.
To your point on the "multiplier - portfolio value" is the actual dollar amount you'd recieved in todays dollars for all the years in the simulation with a starting balance median retirement portfoilio balance (in 2024). Then you can see the range of safe withdrawl rate dollars you can expect each year.
Live within means, lowest possible. Maximize gains staying diversified via direct Equity ownership. Withdrawal rate recedes naturally over time.
Guardrails and inflation adjustments are just a more complicated way to manage what ends up being a percent of portfolio strategy.
Most discussions about safe withdrawal rates focus on a 30-year retirement. How would the strategy change if planning for a 50-year retirement, assuming a few percent of my capital is enough to sustain my living?
The "safe" withdrawal rate depends on estimated longevity and rate of return.
And withdrawal strategy
Since longevity is almost never a constant, one must prepare for the longest life span possible.
Rate of return can be fixed to a reasonable degree of accuracy
i plan on waiting til 70 to get highest SS for me and my surviving spouse and therefore will be able to take out a smaller amount from 70 going forward from my retirement accounts. Therefore I believe I can take out a slightly higher percent during my first 8 years of retirement and then decrease that when ss kicks in.
I'm planning to do the same, but I'm still young and I don't think I'm going to see much of that SS money at 70...
Most definitely. That’s my plan too at 59 years young.
Do you know what SS means?
Yes
What exactly are you gonna do in such old age though? My mom died few months after 60.
Bengen revised his # to 4.7 with a more diverse portfolio before he retired. So morning star must be predicting a sequence or returns worse than we have ever seen ....sweet!
I'm personally using 25 years with a 5% SWR for my own planning.
Which means that you're in your 70s I assume?
I’m 65, no debt, withdrawing 6% till age 70, then we plan to draw down everything by age 85, except the house and a rental.
The whole SWR discussion ignores what people actually “need” vs wants. No debt and a bit of real estate combined with a large Social Security Check is plenty to live on after age 85 if we make it that long. In the meantime spending while we are able to enjoy it.
Frankly, I think they mostly get it wrong with a "dynamic" withdrawal rate. To me, going back to Bill Bengen's original 1994 work (which looked at 30 years with a 50-75% equity position) and everything since, it seems to me that the idea of a withdrawal rate is to use one that has, using backtesting and Monte Carlo simulations, not failed (or fails *very* seldom in a Monte Carlo simulation), and adjust it for inflation each year forward. It seems to largely defeat the purpose to move the goalposts and change it every year. The main *point* of a SWR to me is one that you will not have to cut in a significant market downturn. If you have to adjust your SWR downward in a bear market, it wasn't "safe" to begin with, was it?
I like a lot of stuff M* does, but I tune this one out.
Did they include the fact that our money id declining value at a record rate? Bonds are probably going to be a negative return for the next decade due to the out of control inflation that the fed reserve is allowing in purpose with their ridiculous low rates.
Looking for advice on investing when retiring at 62 with only 150k. Best possible returns. Thanks
Are there any safe withdrawal rate studies for 25, 20, 15, and 10 year retirements for us older folks to check in with?
The Morningstar study looks at other retirement durations. So did the Trinity Study. And for that matter, Bengen's 1994 paper looked at other retirement durations, too.
Google FireCalc retirement calculator. You can adjust retirement length to any duration.
@Rob_berger, I haven't seen a single one of these SWR reports or MC models that adjust for changes in US GDP sector composition. Perhaps you have? It seems foolish to model your future SWR based on the US economy from late 1800s to 1920s to even 1980s data simulations, given the US GDP sector composition has wildly changed from agricultural and industrial to services. Perhaps 1990s or 2000 as a historic data start basis reflects more of the economy today and foreseeable future than economic performance from 1920s-present.
Thank you, Rob.
I'm not totally sold on why people are so pessimistic right now. CAPE and Buffet Indicators haven't really been relevant this millennium. Even so, outside of the Mag 7 the SP500 is relatively fairly valued according to those. The Mag 7 are making money hand over fist and aren't brick and mortar and have an insane ability to scale.
The big question is if those valuation metrics work anymore.
And outside of the Mag 7 almost all stocks are not doing all that well.
@ItsEverythingElse
And.... The Magnificent 7 can face trouble.
They're Not immune to failure or significant downturns
Heard all these things from 1997-2001. Almost word for word.
It's all different until it isn't.
@@mikesurel5040 If it were 1997 then it would be great. The market never dropped below that amount every again even after the 2000s crash.
One difference is that companies are making money now; many weren't in 1999.
Even Bill Bengen says 5% is SWR and not 4%
4% or 3.7% is the safe withdrawal rate under the worst historical market conditions. Bill himself uses 5% because it’s unlikely that at any given moment we are in the worst possible conditions
If 3.7% is the safe withdrawal rate you would be far better off with am annuity. You can buy an annuity that pays $60,000/year for $900,000. That $900,000 getting 3.7% would produce $33,300. I realize the annuity isn't inflation adjusted but you would have hundreds of thousands dollars more income in the 20 years it takes the 3.7% safe withdrawal rate to get to $60,000/year!
Inflation for typical retiree basket of products and services will be much higher than standard inflation
Wow thats pretty aggressive. I was thinking more like 1.75% withdrawal rate
When experts talk about a “safe withdrawal rate”, are they assuming those funds are in (or out-of) a traditional IRA/401K? It makes a difference because if one needs 3.7% withdrawal to survive they must withdraw 4.7% from a tax deferred account due to taxes that will be due on that money. This extra percent could eventually cause the methodology to fail.
Safe Withdrawal Rate is targeted at withdrawals. It makes no distinction whether those withdrawals are used to pay taxes or to fund life expenses. A retiree with a higher tax burden (e.g.: one drawing exclusively from tax deferred accounts) will have to account for that tax burden when calculating their expenses to compare against the SWR. So yes, a retiree who may be able to fund their lifestyle on 3.7% of their portfolio in after-tax dollars probably needs to adjust their plan (save more or spend less) to provide the additional necessary money to pay the tax man
The SWR number tells you how much you can safely withdraw. It doesn't take into account whether that's enough for you to live on.
@@3connory correct, seems obvious you'd include taxes in your monthly/yearly spending budget used to assess the SWR.
Once you reach RMD age the government dictates your withdrawal rate. You can go higher but not lower. These charts go out to 120 years of age. Use an allocation you are comfortable with and forget all these yearly papers.
True: RMDs dictate your withdrawal rate. False: RMDs dictate your spend rate.
OK, but most people will adjust their spending based on what is ACTUALLY HAPPENING during their retirement years. Tough year in the market? Cool, spend less. Carry zero debt and have an emergency fund that can weather an extended downturn. Nothing is easy, but they are making it intentionally too complicated. It's almost as if Morningstar is trying to convince people to not retire.
Thanks
When the market is going down your SWR goes up? Isn't it the opposite?
No. If markets are high, your portfolio is high and future returns are expected to be lower, so SWR lower.
Bolden software - says a 4% withdrawal won’t work for me. I’m 59, retiring (hopefully) at 65 with projected 1.8 million portfolio: 72% us stocks, 13% international, 15% bonds.
What are your expenses?
4% is the SWR (maybe?).
If your Portfolio isn't large enough to cover your expenses, you need to either,
Increase your Portfolio and/or
Decrease your expenses.
Good morning Rob! Happy New Year!
Does this 3.7% vary with asset value every year, or static?
Year one, then adjusted for inflation.
There is no "Safe Withdrawal Rate". A variable annual rate based on the economy and your personal expenses is the closest one can ever come to "optimal" withdrawal rate.
The rate changes by your personal circumstances. Someone that starts withdraws at 60 is far different than someone that starts at 73 (forced RMDs).
Portfolio longevity is by far the biggest factor (13 years is a big difference).
How do u feel about copying super investor portfolio like warren buffet, i started channel too by inspiration from you!😊
I have the absolute answer to the safe withdrawal rate. The Uniform Lifetime Table from the IRS will dictate your RMD's, period.
That's what a lot of people do. Combine it with Social Security and perhaps some dividends and interest from a taxable account, and it can make for a very easy way to deal with retirement income.
Sure, but RMDs don’t have to be spent! Just taxed, and then you can keep the rest invested if you don’t need it.
@@randolphh8005 I'm doing Roth conversions to minimize higher taxes as the RMD's go up each and every year. Depending on how much you have in your account, taxes could be brutal. I'm not taking that chance.
@@rob_berger
I use the 1/N Withdrawal Strategy in FICalc.
I set a Minimum and a Maximum withdrawal along with a
$1 Million Target End Portfolio Value (So it does NOT go to Zero).
I tweaked the numbers to make it work for a 40 year year withdrawal and a
100% Success Rate.
I've tried each of the available Strategies and I've found that the 1/N Strategy, not only yields the highest Available Spending but also the highest End Portfolio values!
The only drawback that I could find is that there is typically a somewhat smaller Initial Withdrawal.
With that in mind, this seems like a winner IMHO....
3.7% is very conservative, especially considering that this is with a 10% failure probability.
With historical simulations, 75/25 is the best allocation. You get the all-time worst SWR of 3.82% over 30y with a 75/25 portfolio. That would include the 1929 and 1968 worst-case scenarios. If you accept a 10% failure probability, then a 4.5% WR is possible.
The problem with Monte Carlo is that it can certainly generate steep drawdowns (if you use high enough variances), but it's extremely unlikely that you can generate an almost equally rapid recovery following the bear market with random draws. Hence, Monte Carlo will be too cautious relative to historical simulations, both on the SWR and the allocation.
I would translate the 90% Success + 3.7% WR + 50/50 recommendations into: 100% success + 3.9% WR + 75/25 allocation to account for that effect.
This. I get that financial places want us to give them more money and don't care if we are maximizing happiness.
Monte Carlo is generally more accurate than straight line projections. It's all a guessing game anyway.
So the report is 3.7% and you are 3.9% with slightly more stock risk?
@@ItsEverythingElse No. 3.9% with 0% failure rate. That's less risk than 10% failure rate with the Monte Carlo.
Retirement is not linear. Long term care is more expensive than most people expected. 80% bond is riskier than 80% stocks with national debts around the world. This notion of SWR is non-sense. 90% chance of making IRS/CRA the biggest beneficiary of your estate.
Morningstar reports: for entertainment purposes only.
To me, the research you showed did a terrible job at data cleaning. A lot of the outliers need to be deleted. The main reason is, at those times, money and stock and retirement are the least to consider. If you are really in those situations, you will not be considering asset and retirement.
“They make projections about future stock & bond returns” - BLUF: they have absolutely no idea, just like the rest of us.
Historically, we do so it's reasonable that we assume it will be similar moving forward.
You can mitigate that by adjusting your withdrawals in response to market downturns
Yeah, I like Christine Benz but disagree with Morningstar on this one. I actually think the safe rate is closer to 5%.
Everyone assumes in these analyses that spending continuously increases throughout retirement. That’s not reality. How many 90 year old retirees do you see spending like they did at 65 or 70 years of age? None that I know. Many studies have shown that personal spending goes down after 75 years old.
But I retired at 32. So yes, why are you assuming the age of retirement, this is not the input variable
While some spending like travel certainly goes down, medical and care spending often goes way up. If you need long term full time care, your spending later could be way higher at 90.
I do however thing this is another thing that is overlooked with obsessive safe withdrawal rate analysis, that spending (both in retirement and out) is often pretty lumpy. Some years you break your arm, some years the roof needs replacing, etc.
Could you make a video on people that get a company match in their 401k? Explaining the difference if they only contributed half or none compared to a full company match. Maybe up to like 5%. It would help the younger people out to see a difference in 20-30 years.
Dave Ramsey says it's 8%
This is so dumb!!! 3.7% is crazy low!!! 4% is far too low. A 5.5% withdrawl rate is very doable, but you need to be flexible for years when the market is down. If you use a 4% rule, you'll most likely die with much more money then when you retired. Why not spend some of that money on things you enjoy while you are still alive!!!
The future is far too uncertain to make a prediction with such absolute accuracy as 3.7%. We don’t really know what government programs will change, and which will remain the same. We don’t really even know if our country will still be around in 10 years.
How does this relate to a 100% 30 year US T Bill portfolio today paying 4.79%, that’s 30 years and you don’t touch the principle?
Well, a 100% bond portfolio has never produced the highest safe withdrawal rate over a 30 year period.
@ metrics kill me. 😂
The problem is that it won't keep up with inflation. With modest inflation, those interest payments will eventually have less than 40% of its current buying power.
@ 🙏
By definition bonds perform no better than inflation, and usually worse.
Plus if you spend the interest your principal is decreasing in real terms, that means every year you have a little less spending power, over thirty years, that is huge!.
These percentages can be confusing and most responsible retiring people know their expenses so my strategy is to put a minimum of 5 years worth of our expenses in an investment ladder that have a known return (CDs, bonds) as your known withdrawal AMOUNT each year for the next 5 years. That way you don't have to withdraw from the stock portion when it is down. If/when the market is up skim off a year or two to keep that 5 year bucket as full as possible. Another metric I want to keep that known return portion to around 40% and look for higher return fixed income investments if the stock market portion gets too big and my 5 year buckets are full (maybe get a 6th or 7th year bucket).
Since we have no debt and live moderately this withdrawal amount from taxable savings is less than the top of the 12% tax bracket ($126,950 with standard deduction for a married couple in 2025) so I plan to convert that difference to Roth. $11,157 would be the Federal tax bill.
Mine will be zero percent.
This makes me lol. There are bonds, T bill and CD ETFs that have a dividend yield of 5% to 7%. And many, many stocks and ETFs that have 3.5% to 20%. You would never have to sell ur assets to get a monthly or quarterly pay check. Lol. 😂😂😂😂 3.7% withdrawal rate? Lol 😂😂😂😂😂😂
High dividends are rarely sustainable
@Amir-je6wl lol. Look up, JEPQ or SCHD.
@Amir-je6wl look up JEPQ or SCDH. Also, look up dividend kings. 50 years plus of raising dividends. The top six dividend kings range from 4% to 7% dividends. Lol. Do some research before u make a statement. Lol 🤣 😂 😆
Dividends above 6%~ are generally indicative of either a flailing company trying to pump it's stock price or a company basically selling off it's assets and distributing the proceeds as dividends. Both are companies winding down and can not be relied on. Anything above 4% is unlikely to sustain itself or the stock price should be expected to decline. A reliable dividend ETF like SCHD is going to give you ~4%, but that's assuming no drop in stock price or cutting of the dividends, which happens without a doubt in recessions. You can look up EarlyRetirementNow's post on dividend stocks to see that they actually tend to exacerbate sequence of returns risk (the primary risk involved when it comes to safe withdrawal rates) more than total stock marked indexes do, meaning trying to get a big withdrawal rate with dividend stocks is almost guaranteed to fail, since you are both taking a high withdrawal rate and exacerbating sequence of returns risk.
Bonds are heavily weighed down by inflation. TIPS, the only truly inflation protected bonds, are running 2-2.5% real. To get into that 6-7% range, you need to go into riskier junk bonds that tend to do really bad in recessions. People have done studies on this, you haven't found some secret formula, and the simple fact is that dividend stocks, preferred shares, high yield bonds, etc, are all pretty efficiently priced so they aren't silver bullets that allow high withdrawal rates. If they were, the dozens of people who research these topics would have found it already. Please do not post misinformation like this going forward, you could negatively affect someone's financial picture when you post about things that you know nothing about.
For those hoping to retain some principal or live more than 30 years, this 3.7% seems reasonable, after doing a lot of research on this lately. 4% is overly optimistic.
1. Stocks outpace inflation by at least 4% only 80% of the time. Good luck withdrawing more than 4% in those 20% of times. I think this was from awealthofcommonsense
2. The difference in SWR between exhausting your assets in 30 years compared to having the original amount at the end of the thirty years is 0.5% or less. Even changing your starting withdrawal rate by 0.1% has significant impact.
3. If you want to be safe for 40 years or more, the SWR drops to 3.25% or so, and doesn't get any lower even at longer time horizons.
4. If you're willing to commit to exhausting every penny after 30 years, you can get over 4% with a TIPS ladder.
5. Most of those studies use only US stocks and assume the outperformance of US over int'l stocks will continue. Seems smarter to have at least some int'l diversification but it makes the answer murkier.
🤘
🎉
The safest withdrawl rate is whatever I need to survive, and enjoy life in retirement. I dont care about percentages anymore.
No, you're generally going to be safe withdrawing more and staying invested a bit more aggressively. This is a report from *Morning Star* that has a vested interest in people keeping larger sums invested in stocks, mutual funds, and ETFs. They want people keeping higher invested amounts, 3.7% withdrawal is ludicrous. That's safe with like 80% bond portfolio, it's not real.
Thank you, Rob.