0:00: 📊 The pro rata method is a common retirement drawdown strategy that involves withdrawing income from a portfolio in proportion to its growth and safety balance. 4:37: 📊 The bucket method is a strategy used by retirees to manage their investments and withdrawals during market fluctuations. 7:34: 📊 The video discusses different drawdown triggers and the time segmentation method for retirement planning, highlighting the drawbacks and benefits of each. 11:15: ✅ Different methods for managing income in retirement and the benefits of guaranteed income 14:54: 💰 Different retirement income strategies include guaranteed income, diversified portfolios, and reverse glide path. 18:34: 😌 The transition to retirement can be stressful, but having more safety and peace of mind can help alleviate the stress. Recap by Tammy AI
I plan on a 2 bucket approach. A cash bucket and a balanced fund(stocks and bonds in same bucket). When the fund is doing well take from the fund. When the fund isn't doing well take from cash. No need to jump back and forth between stocks and bonds in order to maintain a desired allocation. The balanced fund will do that for me.
This is basically a pro rata approach as the balanced fund maintains a fixed asset allocation. Only if your reserves are very high (e.g., 3+ years of spending) would you start to significantly deviate from a strict pro rata approach a la Bill Bengen. I would think that a smaller cash account and more conservative balanced fund would achieve a similar outcome. But your approach seems reasonable as long as your cash reserves are not too high as you will start to lose significant return to inflation.
Income investor strategy - draw out of your IRA as an income source. 1. cash bucket (1-2 years of living expenses), used for monthly income needs. 2. Income factory bucket (dividend paying holdings), reinvest dividends to build bigger income stream when market is down, feeds cash bucket when market is favorable to sell holding at a gain or turn off reinvestment option. Delay Social Security until 70 for the guaranteed return, no risk. Convert IRA to Roth when tax advantage is present up to next bracket. Use Non IRA savings as an emergency fund Have a HELOC line of credit for unplanned financial emergencies Run this from 60 to 70. After 70 start SSI and keep conversions from IRA to Roth going, plan your future RMD withdrawal Pay as little tax as possible each year Sleep well at night
This is the first video I’ve viewed that describes how annual portfolio rebalancing ("pro rata" method) may be a relatively simple strategy to manage sequence of returns risk. I would encourage posting the "Part 2" of this topic, since comparative performance of these methods is a key driver in deciding which to use.
Interesting video as always, thank you. Add one vote for a part 2. Again you discussed Roth conversions. Those for sure make sense in a LOT of situations. Perhaps this comment belongs in a video related to retirement before age 65, but I'd also be interested in your spin on early retirement without Roth conversions when Healthcare options are a concern. I've heard you mention Roth conversions many times, and I've seen lots of research focused on doing Roth conversions while income is low (before Medicare) at age 65, but rarely are folks discussing the massive subsidized ACA Healthcare option as an alternative. By keeping withdrawals low enough with no other income from a job or Roth conversions, a family of 4 can receive $2,500/month (or more) to cover health benefits! I'm curious why we wouldn't consider leaving the 401k alone and paying ZERO tax all while enjoying great Healthcare and early retirement. Thanks for your work, always clear in your topic of choice, great visuals, and your points are always backed up by solid research. Nice job.
I commend you. My wife really likes you because you don't water down your content. We are a little beyond you need to watch your spending and save more. With this video you had her saying needs to watch it again so send her the link. We are both interested in the follow up Pt. 2 of this video. Thank you for your videos.
Oh my goodness ... there is a lot of content here ... I plan on using bucket strategy and following KISS rule and retireat end of year ... but because I am a NERD I will study your info here and I certainly appreciate that you went to all the work you did in giving it to us ... THANK YOU !!!
My bucket #1 is 3 years of cash with a CD ladder (5.5% rate). My bucket #2 is 3 years of bonds. Bucket is #3 100% stock funds. I can withstand years of a down market with out drawing on stocks. When the market recovers I can refill my buckets. I also have a bucket #4 in CDs/ibonds that covers onetime expenses. (need another car or new refrigerator or unexpected medical expense)
🎯 Key points for quick navigation: Retirement drawdown strategies determine how you withdraw funds from investments during retirement. Pro rata method involves withdrawing income in a balanced manner from different investment sources. Bucket method divides investments into short, medium, and long-term buckets for withdrawal. Time segmentation matches investments to specific income needs each year, providing personalized strategy. Safety first method focuses on guaranteeing income through annuities and maximizing Social Security. Glide path method involves adjusting asset allocation as you age, with reverse glide path showing potential benefits. Behavioral factors play a significant role in choosing and sticking to a retirement drawdown strategy. Made with HARPA AI
Ok, so,when rebalancing with “stocks”. What if you have 20 individual stocks and some are winners and some are losers. Do you take equal % of all. Or, do you only sell the winners or only sell the losers?
I would like to get more of your thoughts on annuities as a retirement investment. On the one hand a 6.5% yield on an income annuity sounds like an amazing risk free return. On the other hand, I struggle with the thought of giving someone a bunch of money that I will never get back. Also, inflation could make the income nearly worthless in 20 years from now.
I with you on this Peter there are very few annuities that benefit the investor there are loaded with surrender fees if you try to get out and a lot of money goes straight to the the broker and salesman of these products that being said there may be a small segment of annuities that meet a certain investor situation that it may be of benefit you would really have to do a lot of researching to figure this out 99 percent probably stay away from😢
I think ERNs reverse glidepath would be good for a Q.A. i wonder if there is an etf/mutual fund that accomplishes this... Ive played with the tool provided at ERN but an analyst i am not...
Part 2 would be a good addition, but I personally would be more interested in an in-depth presentation on time segmentation/asset liability matching. Specifically, how you could achieve this using funds rather than bond ladders. Most 401(k) plans include individual funds or age-based (life-cycle) funds; access to individual bonds is very limited. You would have to rollover the 401(k) to an IRA brokerage account to be able to construct a ladder. For various reasons, I would prefer not to do this.
I'd love to see a part 2 delving into the performance numbers of each of these strategies. I like the reverse glide path method, but it does require a larger portfolio to provide adequate income in those early years. So you have to decide if you;re willing to keep working a bit longer to make that plan feasible.
Good material and discussion Eric. Please go forward with Part 2. The new office/studio looks great and appears to have turned out nicely for you. Larry Central Valley, Ca.
It seems like Income Segmentation would work well for larger portfolios. If the bonds, T bills and CD's set aside for annual needs are less than 30% of a 70/30 portfolio, rebalancing would cover longer term needs in "up" years and in "down years", the money already set aside for budgeted needs would not be used for rebalancing,, even if that reduces the percentage of equities held. Does this make sense?
Time segmentation/ liability matching, is a NO BRAINER, for me..as you said, pro-rata has delivered the largest end-result balances, so far..emphasis, on SO FAR. But, as you adroirtly point-out, time sementation/liability matching, delivers PEACE OF MIND and predictability, more so than pro-rata.
I would also appreciate the quantitative analysis of each. I will be retiring at the end of 2023 and have researched the Guyton - Klinger withdrawal strategy. I have a spreadsheet that I have used to back test using my last five years actual returns and it seems to work well. I plan to use the GK withdrawal strategy. I was wondering if you excluded it from the list of drawdown strategies because it is more complicated to implement? I am working on a way to automate my withdrawals as much as possible and guardrails seems to work well in practice. I always like to see the alternatives. Great educational videos! 🙂 “Plans are useless, but planning is indispensable.” - Dwight D. Eisenhower 🙂
What you're calling "time segmentation" makes a lot of sense to me and I would like to study it further. However, if I look up "time segmentation" everything I'm seeing says it's just another name for the bucket strategy. Is there another name for this that might be more commonly used? How can I get more information? Wait, nevermind. You said in the video is was also called "liability matching". Off to do more research!
Assuming withdrawing from a tax-advanaged account, I don't see with the pro rata method how the proportion of the withdrawal matters. If one rebalances after the withdrawal, aren't the balances set based on the portfolio proportion percentages?
I've never heard of pro-rata but it sounds similar to the withdraw and rebalance strategy. I think it's also called "total return". Rather than blindly withdrawing per your AA ratio each time then re-balancing only once at the end of the year, you rebalance during each withdrawal. If stocks are down you naturally sell more bonds and vice versa. Less sting so easier to stick with and I bet better performance than the pro-rata method. What say you Eric?
Wrote my reply before I saw your comment. I think this is the easiest to understand, implement and provides good returns. I gave an example of the first months withdrawals.
What about modifying the ProRata method. With a 60/40 portfolio each month calculate the amount of bonds and stocks needed to liquidate to provide the monthly income target while ending with a 60/40 mix. In effect you are rebalancing each month by selling a larger amount of the winning investment in order to meet income needs. Less psychological issues of buying more stock during down markets. Less say a $1M portfolio (60/40) needs to provide $5000/month (5% draw down) and shows a 1% gain in the first month of retirement (12.7% annual return) on the stock side and the bond side grows by 0.4% (4.9% annual return). You would sell $26,040 worth of stock, buy $21,040 worth of bonds and take $5000 worth of income. If instead the stock side went down by 1% while the bonds were up by 0.4%, you would sell $26,960 worth of bonds, buy $21,960 worth of stock and take your $5000 worth of income.
Great video - thanks!. I have been practicing a form of a reverse glide path for more than ten years and this is the first time I hear somebody in fact agreeing and recommending this path. I plan to live off the save portion of my portfolio (guaranteed funds in a 403B account) during the first ten years and thereby gradually increase my stock portfolio from 70% to 100%. At the same time I'm in the process of Roth converting much of my stock portion of my 403B account, including all the money dedicated to my kids. I would love to hear a more technical version of this video
Part 2 was recently recorded. Check it out here - th-cam.com/video/aUajvMtq5FU/w-d-xo.html
0:00: 📊 The pro rata method is a common retirement drawdown strategy that involves withdrawing income from a portfolio in proportion to its growth and safety balance.
4:37: 📊 The bucket method is a strategy used by retirees to manage their investments and withdrawals during market fluctuations.
7:34: 📊 The video discusses different drawdown triggers and the time segmentation method for retirement planning, highlighting the drawbacks and benefits of each.
11:15: ✅ Different methods for managing income in retirement and the benefits of guaranteed income
14:54: 💰 Different retirement income strategies include guaranteed income, diversified portfolios, and reverse glide path.
18:34: 😌 The transition to retirement can be stressful, but having more safety and peace of mind can help alleviate the stress.
Recap by Tammy AI
Yes, please! Part 2 is needed ❤
I plan on a 2 bucket approach. A cash bucket and a balanced fund(stocks and bonds in same bucket). When the fund is doing well take from the fund. When the fund isn't doing well take from cash. No need to jump back and forth between stocks and bonds in order to maintain a desired allocation. The balanced fund will do that for me.
This is basically a pro rata approach as the balanced fund maintains a fixed asset allocation. Only if your reserves are very high (e.g., 3+ years of spending) would you start to significantly deviate from a strict pro rata approach a la Bill Bengen. I would think that a smaller cash account and more conservative balanced fund would achieve a similar outcome. But your approach seems reasonable as long as your cash reserves are not too high as you will start to lose significant return to inflation.
Income investor strategy - draw out of your IRA as an income source.
1. cash bucket (1-2 years of living expenses), used for monthly income needs.
2. Income factory bucket (dividend paying holdings), reinvest dividends to build bigger income stream when market is down, feeds cash bucket when market is favorable to sell holding at a gain or turn off reinvestment option.
Delay Social Security until 70 for the guaranteed return, no risk.
Convert IRA to Roth when tax advantage is present up to next bracket.
Use Non IRA savings as an emergency fund
Have a HELOC line of credit for unplanned financial emergencies
Run this from 60 to 70. After 70 start SSI and keep conversions from IRA to Roth going, plan your future RMD withdrawal
Pay as little tax as possible each year
Sleep well at night
Part 2 please. This is the best video I’ve seen EVER on different withdrawal strategies. Bar none!
This is the first video I’ve viewed that describes how annual portfolio rebalancing ("pro rata" method) may be a relatively simple strategy to manage sequence of returns risk. I would encourage posting the "Part 2" of this topic, since comparative performance of these methods is a key driver in deciding which to use.
Part 2 please, excellent vid!😊
Definitely would like to see part2! Thanks
Eric may be the tallest financial planner on TH-cam and the smartest, too!😀
Interesting video as always, thank you. Add one vote for a part 2.
Again you discussed Roth conversions. Those for sure make sense in a LOT of situations. Perhaps this comment belongs in a video related to retirement before age 65, but I'd also be interested in your spin on early retirement without Roth conversions when Healthcare options are a concern.
I've heard you mention Roth conversions many times, and I've seen lots of research focused on doing Roth conversions while income is low (before Medicare) at age 65, but rarely are folks discussing the massive subsidized ACA Healthcare option as an alternative.
By keeping withdrawals low enough with no other income from a job or Roth conversions, a family of 4 can receive $2,500/month (or more) to cover health benefits! I'm curious why we wouldn't consider leaving the 401k alone and paying ZERO tax all while enjoying great Healthcare and early retirement.
Thanks for your work, always clear in your topic of choice, great visuals, and your points are always backed up by solid research. Nice job.
This is probably your best video in my opinion. Also looks like a new camera or lens and maybe some 4K; looks great!
we're gonna need a part two📩
I commend you. My wife really likes you because you don't water down your content. We are a little beyond you need to watch your spending and save more. With this video you had her saying needs to watch it again so send her the link.
We are both interested in the follow up Pt. 2 of this video.
Thank you for your videos.
Thank you!
Oh my goodness ... there is a lot of content here ... I plan on using bucket strategy and following KISS rule and retireat end of year ... but because I am a NERD I will study your info here and I certainly appreciate that you went to all the work you did in giving it to us ... THANK YOU !!!
Yes, please do a part 2. I like the background better, but I was not sure it was you at first…(t-shirt?)
Great tutorial. Part 2 would be much appreciated!
My bucket #1 is 3 years of cash with a CD ladder (5.5% rate).
My bucket #2 is 3 years of bonds.
Bucket is #3 100% stock funds.
I can withstand years of a down market with out drawing on stocks. When the market recovers I can refill my buckets.
I also have a bucket #4 in CDs/ibonds that covers onetime expenses. (need another car or new refrigerator or unexpected medical expense)
What a wonderful video. I especially appreciate your understanding that each approach has benefits and drawbacks.
Please record 2nd part! Love this video
Yes! I do like your videos.
Please sir. Can I have more? One of your best vids Eric.🎉
Need part 2 with quantitative analysis!
Keep going!
Great vid. Let's see part 2.
Liability matching was incomprehensible. “ assigning the highest yield to each dollar….? This deserves some explication. Thanks.
Hey, some constructive criticism. Theres seems to be an echo/audio problem. Hope that helped.
Can't wait to see Part 2
Please add part 2 on the quantitative analysis
Yes to the sequel!
I'd love to see part 2
I would love to see a part 2
Budgeting and withdrawal strategies are my favorite money topics.
More on reverse glide path!
Yes. Please do the part 2. Thx!
Like this, yes, looking forward to part 2.
Would love to see the quantitative perspective - this was a very useful video - thanks.
Very informative. Thank you!
Part 2 please!
Great stuff, as always.. Thanks!
Part 2 please.
Loved the video!
Would love to hear more. I’m a wade Pfau fan myself!
Yes for Part 2 Please.
🎯 Key points for quick navigation:
Retirement drawdown strategies determine how you withdraw funds from investments during retirement.
Pro rata method involves withdrawing income in a balanced manner from different investment sources.
Bucket method divides investments into short, medium, and long-term buckets for withdrawal.
Time segmentation matches investments to specific income needs each year, providing personalized strategy.
Safety first method focuses on guaranteeing income through annuities and maximizing Social Security.
Glide path method involves adjusting asset allocation as you age, with reverse glide path showing potential benefits.
Behavioral factors play a significant role in choosing and sticking to a retirement drawdown strategy.
Made with HARPA AI
Please continue with Part 2
Ok, so,when rebalancing with “stocks”. What if you have 20 individual stocks and some are winners and some are losers. Do you take equal % of all. Or, do you only sell the winners or only sell the losers?
Yes part 2
Data beats opinions
I would like to get more of your thoughts on annuities as a retirement investment. On the one hand a 6.5% yield on an income annuity sounds like an amazing risk free return. On the other hand, I struggle with the thought of giving someone a bunch of money that I will never get back. Also, inflation could make the income nearly worthless in 20 years from now.
I with you on this Peter there are very few annuities that benefit the investor there are loaded with surrender fees if you try to get out and a lot of money goes straight to the the broker and salesman of these products that being said there may be a small segment of annuities that meet a certain investor situation that it may be of benefit you would really have to do a lot of researching to figure this out 99 percent probably stay away from😢
I think ERNs reverse glidepath would be good for a Q.A. i wonder if there is an etf/mutual fund that accomplishes this...
Ive played with the tool provided at ERN but an analyst i am not...
part 2 :D
Why can't you just pay the 401k conversion jan 1st each year and fill the 10% tax bucket right away
Another great video! Thanks Eric! Please make the quantitative version of this video too!
Part 2 would be a good addition, but I personally would be more interested in an in-depth presentation on time segmentation/asset liability matching. Specifically, how you could achieve this using funds rather than bond ladders. Most 401(k) plans include individual funds or age-based (life-cycle) funds; access to individual bonds is very limited. You would have to rollover the 401(k) to an IRA brokerage account to be able to construct a ladder. For various reasons, I would prefer not to do this.
I'd love to see a part 2 delving into the performance numbers of each of these strategies. I like the reverse glide path method, but it does require a larger portfolio to provide adequate income in those early years. So you have to decide if you;re willing to keep working a bit longer to make that plan feasible.
you can still make money after retirement..
@@Nadex2015 Of course you can, but a lot of people don't want to work after retiring. It kind of defeats the purpose if you ask me.
Do you play tennis/are a lefty? That left bicep, compared to the right bicep, is huge 💪
Professional arm wrestler 😉
@@SafeguardWealthManagement good.
Good material and discussion Eric. Please go forward with Part 2. The new office/studio looks great and appears to have turned out nicely for you. Larry Central Valley, Ca.
Great video, and yes, please make part 2 of this.
More would be good. Thanks
Thanks for educating us . Part 2 please !
Yes on Part 2. A little more emphasis on money that is still in IRA's and how to withdraw from them.
It seems like Income Segmentation would work well for larger portfolios. If the bonds, T bills and CD's set aside for annual needs are less than 30% of a 70/30 portfolio, rebalancing would cover longer term needs in "up" years and in "down years", the money already set aside for budgeted needs would not be used for rebalancing,, even if that reduces the percentage of equities held. Does this make sense?
Yes, would love to see Part 2. Thanks!
Time segmentation/ liability matching, is a NO BRAINER, for me..as you said, pro-rata has delivered the largest end-result balances, so far..emphasis, on SO FAR. But, as you adroirtly point-out, time sementation/liability matching, delivers PEACE OF MIND and predictability, more so than pro-rata.
I would also appreciate the quantitative analysis of each. I will be retiring at the end of 2023 and have researched the Guyton - Klinger withdrawal strategy. I have a spreadsheet that I have used to back test using my last five years actual returns and it seems to work well. I plan to use the GK withdrawal strategy. I was wondering if you excluded it from the list of drawdown strategies because it is more complicated to implement? I am working on a way to automate my withdrawals as much as possible and guardrails seems to work well in practice. I always like to see the alternatives. Great educational videos! 🙂 “Plans are useless, but planning is indispensable.” - Dwight D. Eisenhower 🙂
What you're calling "time segmentation" makes a lot of sense to me and I would like to study it further. However, if I look up "time segmentation" everything I'm seeing says it's just another name for the bucket strategy. Is there another name for this that might be more commonly used? How can I get more information?
Wait, nevermind. You said in the video is was also called "liability matching". Off to do more research!
Very good overview! Adding my request for a quantitative comparison too…let’s see part 2!
Assuming withdrawing from a tax-advanaged account, I don't see with the pro rata method how the proportion of the withdrawal matters. If one rebalances after the withdrawal, aren't the balances set based on the portfolio proportion percentages?
I've never heard of pro-rata but it sounds similar to the withdraw and rebalance strategy. I think it's also called "total return". Rather than blindly withdrawing per your AA ratio each time then re-balancing only once at the end of the year, you rebalance during each withdrawal. If stocks are down you naturally sell more bonds and vice versa. Less sting so easier to stick with and I bet better performance than the pro-rata method. What say you Eric?
Wrote my reply before I saw your comment. I think this is the easiest to understand, implement and provides good returns. I gave an example of the first months withdrawals.
One vote for the quantitative video also.
Are you sure your not related to Josh at Aviation 101?
Thank you! Part 2 please :)
Part 2, please...interesting.
Such good info! Thank you!
Please do part two
Yes. Part 2 please
I would like to see part 2
Yes, I need data!
Yes, part 2 please
Yes part 2 plz!
Yes #2 video!
Part 2!
What about modifying the ProRata method.
With a 60/40 portfolio each month calculate the amount of bonds and stocks needed to liquidate to provide the monthly income target while ending with a 60/40 mix. In effect you are rebalancing each month by selling a larger amount of the winning investment in order to meet income needs. Less psychological issues of buying more stock during down markets.
Less say a $1M portfolio (60/40) needs to provide $5000/month (5% draw down) and shows a 1% gain in the first month of retirement (12.7% annual return) on the stock side and the bond side grows by 0.4% (4.9% annual return). You would sell $26,040 worth of stock, buy $21,040 worth of bonds and take $5000 worth of income.
If instead the stock side went down by 1% while the bonds were up by 0.4%, you would sell $26,960 worth of bonds, buy $21,960 worth of stock and take your $5000 worth of income.
Great video - thanks!. I have been practicing a form of a reverse glide path for more than ten years and this is the first time I hear somebody in fact agreeing and recommending this path. I plan to live off the save portion of my portfolio (guaranteed funds in a 403B account) during the first ten years and thereby gradually increase my stock portfolio from 70% to 100%. At the same time I'm in the process of Roth converting much of my stock portion of my 403B account, including all the money dedicated to my kids. I would love to hear a more technical version of this video
Great video, part 2 would be great.
This is exactly what I am trying to do right now. Retirement 3 years out. Thank You
Reverse glide path while performing Roth Conversions seems like a way to go.
Great video - keep it up. The reverse allocation strategy has some resonance with me.
How about a video on the RMD method? Definitely a part 2 for certain.
Part du
If you take SS early then doesn’t it reduce sequence risk?
Love your Videos. Please provide a Part II video .
Nice new office.
Dude, this is really good. Most financial advice is overly simplistic or a glorified sales pitch. This is credible and detailed.