Updated Retirement Withdrawal Rates With Inflation
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- เผยแพร่เมื่อ 30 ก.ค. 2024
- How much can you spend from your retirement savings each year? The goal is to avoid running out of money early, but you also want to enjoy yourself during your best years.
One way to estimate your retirement spending is to use withdrawal rates. Those rates attempt (not always successfully) to predict how much you can withdraw from your assets annually.
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Or, if you’re trying to estimate how much money you need to save before retirement, a withdrawal rate strategy might help you find that number, and we’ll look at that here.
But what’s the right withdrawal rate. The so-called 4% “Rule” has been around for a while, but that might not be the right number. Research from Morningstar suggests several different rates you might consider, depending on your withdrawal strategy and your preferences.
That said, withdrawal rates are imperfect. They may oversimplify how your spending will actually look, and they ignore taxes and other realities for retirees.
More on this topic:
Morningstar article (links to study): www.morningstar.com/articles/...
My article: www.approachfp.com/research-o...
Do Withdrawal Rates Make Sense? • Do Withdrawal Rates Ma...
Instead of relying on rules of thumb, it’s probably better to do detailed planning. Look at your best guess for spending needs, taxes, inflation, investment returns, and other aspects of your retirement plan.
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CHAPTERS:
00:00 Why Withdrawal Rates Matter
00:47 Key Takeaways From Research
01:53 How Withdrawal Rates Work
03:18 Backing Into the Calculations
04:03 Problems With Using Rules of Thumb
05:30 Example of Social Security Bridge and Rates
07:45 Assumptions: 50/50 Portfolio for 30 Years
08:20 Higher Stock, Bond, and Inflation Numbers?
09:38 Withdrawal Rate Example With Inflation
11:42 Dynamic Withdrawal Strategies
15:35 What About Taxes?
Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.
IMPORTANT:
You can run out of money using any strategy, including so-called "safe" withdrawal rates. 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. 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.
Thanks Justin, this was another great video!
Greetings from Nebraska
Great to hear that it landed well, and thank you!
50% bonds is too conservative
Great presentation. Just subscribed. I should point out that another way to ameliorate the investment drawdowns is to have multiple income streams, and yes, this includes annuities. This strategy is working out well for me.
Super video and very clearly explained. Thanks
Thanks, I appreciate that feedback!
I'm 66, retired for 21 years now. Never had a huge pile of money but have owned my house. I haven't invested at all other than my house. Checking and savings account.
I never felt comfortable with the concept of "How much can I spend?" In my earning years it was "How much can I save?" My thinking in retirement has been "How much can I not spend?"
One rule I have is hobbies must not cost a lot and have the option of earning money. That has been my security. If I was to run out of money I would have these hobby experiences to switch back to earning. This is basically the same as "do what you love" idea for a career. I did that. Loved programming computers and so that's what I did in my career. To me that was better security enabling retirement than a pile of cash. I could always go back to earning as a programmer. In retirement my hobbies have included home remodeling (I've fixed up and sold 3 of my homes, working on #4 now. The cap gains funded my retirement) and gardening.
My total spend for everything has been about $600/mo for the past 15 years. For the past 4 years I haven't eaten out at all. Before that I loved eating out...and eating. But is that really enjoyable? That's the question I ask myself..."Do I actually enjoy..." I sure didn't like being fat and the health risks. So I eliminated eating out, switched to low carb and found I liked not being fat more than I enjoyed eating non-stop. That's the secret imo. Most people will say they love their lifestyle...BUT if you don't question that lifestyle, don't test alternatives, how would you know?
I'm not expecting to have a flat withdrawal rate when I retire next year, but vary it according to go go, slow go and no go years. something like 10 years at $50k, 10 years at $40k and 10 years at $30k. Would try to avoid taking out of market in down years with a simple bucket approach
Awesome video, Justin. Well done!
Thank you, David!
@@ApproachFinancial My pleasure, Justin.
What about retiring at 40 with 1.5m and wanting to do a 5% withdraw rate for 50 years?
Another great presentation. With most people living much longer, a 50/50 portfolio allocation is too conservative, in my opinion, let alone 30/70, especially if you want to leave a legacy. Personally, I plan to do 70% stocks, 20% bonds, 10% cash and utilize a guardrails withdrawal strategy that follows market performance. That will be enough in cash to cover more than 2 years of expenses with an additional 4-5 years covered in low risk bonds, and enough in stocks to ensure long term growth. I intend to grow my assets throughout retirement for legacy purposes.
I will have the same allocation with a few more years of cash to use when the market is down . Will be taking 5 pct a year and not taking any inflation adjustments
I don't understand the calculations that you did. They don't take into account how old you are or how many years you might be needing to withdraw either a certain amount or percentage.
Withdrawal rate would change as per inflation rate too, isnt it? So it can vary by countries
We're planning to do 100% stocks. Will re-evaluate closer to the time. If possible, we'd like social security to cover our core expenses, and take social security benefits at 70.
I'll calculate what we'd like to bring in at age 70 and subtract what we'd get from social security. This also accounts for if one person passes away before then, so its based on the lower social security benefit at age 70. I'll then calculate how much we'd need at the age we retire (ex. 60) in order for that money to grow to cover the gap at age 70. I'll then subtract that amount from what we have invested at the age we retire to get the early retirement amount. In my example, the early retirement amount needs to last 10 years (70 - 60 = 10). If the early retirement amount is enough to cover those 10 years we are good.
We'll save a cash reserve prior to retirement as a buffer for when the market is down and for any big emergencies.
If we don't have enough money by then, we'll have to make some decisions like work longer and/or reduce expenses if possible. If we have more money than needed, then that's good. If it's possible to retire even earlier than 60 then that's even better.