Do Withdrawal Rates Make Sense for Retirement?

Issues with the safe withdrawal rate explained. There are probably better ways to plan for your income.
When planning your spending, you might look at withdrawal rates as a guide. For example, the so-called 4% rule offers a suggested safe withdrawal rate that would ideally (no guarantees, of course) help you avoid running out of money in retirement. But even the 4% rule is controversial, and any withdrawal rate strategy has pros and cons. For instance, switching to 3% could be safer, but what are the tradeoffs?
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On the one hand, following a withdrawal rate is easy. You can calculate some numbers at the beginning of retirement, and you make modest adjustments over time. But that approach might not reflect how complicated retirement can really be. Among other things, you’re ignoring any taxes due on your distributions, and you don’t account for planning strategies like filling tax brackets or Roth conversions.
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Instead of using a withdrawal rate, it’s probably best to do a more robust income plan. Look at any opportunities to manage taxes, and take a realistic look at what spending could look like. With that information, you’re less likely to oversimplify things, and you might get more enjoyment out of your savings.
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Remember that withdrawal rates are simply rules of thumb. A so-called safe withdrawal rate cannot guarantee that your money will last for your entire life. That said, you might be able to guesstimate a few things when
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CHAPTERS:
00:00 What’s Behind Withdrawal Rates?
02:15 Example of Withdrawal Rates
03:16 What About Taxes?
04:04 Are You Spending Enough to Enjoy Life?
05:38 A Rate That Changes Over Time
06:35 Example of Delayed Social Security
07:54 Spending Changes Over Time (Smile, Stages)
IMPORTANT:
It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. You can run out of money during retirement. Opinions expressed are as of the date of the recording and are subject to change. ““Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.

[@user-py7wp6nw9h]

love love your videos

[@davidfolts5893]

Excellent content, Justin! Retirement planning requires nuance, and rules of thumb don't work very well because most people have different size thumbs. What also does not get discussed much is that the 4% research finding was based on U.S. equity and bonds and did not consider international investing, which is generally recommended as a diversifier in a person's financial plan.

[@ApproachFinancial]

Thank you, David. Yes, I recall seeing some research suggesting that a more diversified portfolio could potentially enable a slightly higher withdrawal rate. The data probably doesn't go back as far on some asset classes, so it'd be harder to quantify, but it seems to makes sense intuitively. And you're absolutely right that we all have different sized thumbs 👍!

[@pensacola321]

I have been retired for 15 years, and I have never even thought about a so called withdrawal rate. Neither do any of my retired friends or family. Just a rule of thumb, but not reality.