Ben Felix And The 2.7% Safe Withdrawal Rate

[@Xulgaron]

I am not an english native and like following you because you speak very clear. this makes you a great finance expert for much more people than english ones.

[@dmsoundcollective6746]

You are absolutely the best man thank you so much for putting this out

[@stephen7448]

Wow, what a great video Rob! So many other channels tell you what to believe with no analysis or rationale behind it. As an investor who enjoys getting into the data this video is pure gold. Thanks for not dumbing things down and trusting the intelligence of your viewers.

[@smichener1]

Very thoughtful common sense analysis, as in most of your videos. Thanks Rob. Keep up the good work.

[@jimclark5037]

I feel like "gut guardrails" will work fine. I'll start taking 4%. if my portfolio is down the following year, I'll take less, if it's up significantly, I'll get a raise. Nobody knows for sure what will happen so why spend days doing calculations unless you enjoy it!

[@michaelthomas1916]

That's my plan as well. I have a pension that will cover most of my basic expenses. Income from my investments and SS will be largely fun money. In market good years, I'll have more fun!

[@radiok2ua]

Probably your best video of all that I've watched ("a lot"), Rob, thanks.

[@ThePianoMan1953]

Agree. I really feel like I hit paydirt when I found Rob's videos. He clarified that 4% is the worst scenario for the past 100 years but, who knows, if things really go south, don't be afraid to scale back for a few years if need be. My problem is, I'm 71. Out of the market and don't know if now is a smart time to start spinning the 30 year "wheel of fortune." As the beginning year is so important to the outcome. 🤔🤔

[@vinylcrafters4758]

Excellent video, I like the idea of having two withdrawal rates, one for normal living and one for belt tightening. Helps to know we could still make it even if times got tough.

[@ThePianoMan1953]

Perfectly put! Agree 100%. The world is a little precarious right now. 🙄

[@cburton103]

Incredible video, and excellent content. I’ve been a fan of Ben Felix for years, and I’m glad to see another analysis of his incredibly low safe withdrawal rate videos. He has also had on a lot of guests that also share the advice of being flexible, as well as the difficulty coming to a specific number, how portfolio allocations can improve safe withdrawal rates, etc. All in all, I think your channel is the best advanced personal finance content around. Big kudos to you, and thank you for all of the effort you put into the channel!

[@jonv.6792]

Me too, thank you Mr. Rob for sharing your thoughts and knowledge. I'm a big fan of your channel. I can't thank you enough how much I learned from you. You gave me hope, peace of mind and confidence how save and invest.

[@rjared4894]

My concern with the Bengen studies and others calculating retrospective worst case 30 year or 50 year return sequences is the lack of expenses. There were no 10 and 20 basis points funds before Vanguard developed these alternatives. Merrill was recommending funds with 5% purchase fees or 1% per year for 5 years (what a deal) when I was there in 1990. Jack Bogle reported a study of all US equity funds from 1984-2004 showing that while the S&P 500 total return was 13.2% per year and investors received 7.1% per year. The categories of the difference were fund costs: “survivor bias 0.5%, front-end sales charge 0.3% and other indirect 0.1%”, returns below benchmark -1.9% (fund total short fall -2.8%). Investors lagged the funds by 3.3% due to poor timing and choosing high cost or poor performing issues. Data from “The Battle for the Soul of Capitalism”, p 162-167

[@taylorism7787]

Interesting argument. Thanks!

[@curtnoble5698]

It is always great to hear Rob's take on retirement! At present, my withdrawal rate calculated for expenses less my non-retirement assets is 3.37%. Since I am drawing some social security, my numbers are not too scary.

[@SpiritOfTheLaw]

Great critiques, and I appreciate how you present it in a less sensationalist way. We need to get you into academia so we can have you doing some peer-review on these sorts of studies before they're published.

[@neildutoit5177]

So this is what you calculate when you aren't calculating how many hits a ram with 2 archers garrisoned inside takes to destroy a castle on a cracked terrain hill.

[@susanbriancatalano9760]

Excellent! Thank you

[@johnotay6655]

Rob, regarding your question at around the 4:30 mark, where does Ben get his 2.7% SWR from as the percentage in the paper is different. Ben reached out to the author with similar concerns to yours regarding how International exposure was factored into the simulation. Ben wanted to know if the inclusion of a "World Ex-Domestic" fund in the simulated portfolio would improve outcomes. The author re-ran the simulation including this fund (notably assuming a higher cost compared to the Domestic holding, I believe an extra 50 basis points), and arrived at the slightly higher 2.7% figure. So the number Ben is using is not peer-reviewed, but is essentially comparable with results of the study. I'm surprised he didn't mention it in his short form video (maybe cut for time), it was mentioned in the longer podcast episode on the topic. You had some excellent big picture take-aways from the issues raised by study. I think many of us tend to get caught up in our differences in the minutia, pointing to the larger commonalities is a great way to cap things off.

[@rob_berger]

Interesting that they assume an expense ratio of 50 basis points. Much, much higher than one would actually pay.

[@CommittingSudoku]

@@rob_berger They probably assume the use of a financial advisor because they consider index ETF investing too risky for older people due to the risks of their age affecting their mental judgment.

[@deanej1]

Yes, I came away from watching Ben’s video with similar misgivings about how the study had been conducted and the dataset used.

[@Rain-q8x]

I thought the Bengen 5% rule was about having a portfolio in perpetuity, not 30 years.

[@FloridaBergantinos]

I'd love to see a comparison between this, the updated guidance from Bill Bengen, and guardrails.

[@rickyaz8640]

It’s a starting point. Most people way over estimate what they actually spend after a few years of retirement. Expense control is the key

[@jeannewright3027]

Thank you

[@aaront936]

Your interview with Bill Bingen the founder of the 4% rule and the fact he's sitting 90% cash is scary that the founder of the 4% rule doesn't follow the 4% rule.

[@dhammer6715]

His cash was locked up in 5% money markets, CDs, and guaranteed bonds. Smart move. When interest rates drop his bonds sell high. He can invest it all back in the market because when interest rates drop, the market usually rallies long term.

[@sandjoshsky]

The median retired American annual expenses are around $50k. So, that means at 2.7% they would need $2 million in savings. But, this same population only has $400k net worth (much of which is likely inaccessible such as their own home value). Sounds like at the low figure of 2.7%, the vast majority of America cannot hope to retire.

[@JoeBtfzplk]

I plan to base my spending budget on my RMD, my wife's RMD, plus our Social Security benefits, plus dividends on a diversified taxable account (currently yielding about 3.5%) minus income taxes. If the market goes down my RMD will go down and my budget will go down. We live simply and I suspect we will spend less than the budget most years and will add the excess to the taxable account. By limiting our spending to our income, we may have to tighten out belts but I am confident we won't run out of money.

[@james1000]

Do stocks tend to do better during high inflation? If not, then adjusting for inflation is a huge issue and has to be almost as big of a factor as market returns. Adjusting for inflation is always just discussed as a throwaway when it seems like it’s be a huge deal, unless, again we just expect stronger market returns during high inflation periods.

[@stephengoetsch349]

I think this is a great way of looking at our retirement funding plans. In my case, I am easily able to live on a withdrawal amount of $50k/year, a withdrawal rate much lower than 4% in my case. To me, this means that the difference between my budget of $50k and 4% is all “fun” money I can spend on anything or give away as much as I please. In bad years, when my portfolio value slips (even a lot!) I can easily just not have as much “fun” with my money and not be particularly concerned for myself.

[@glenjoke10]

Hello Rob, I was wondering what your thoughts on Invesco High Yield Equity Dividend Achievers ticker: PEY. Maybe you could do a video on that?

[@gillesthibault4133]

What about the minimum withdrawal from our RRIF and LIF in Canada of 4% at age 65 increasing yearly to:5% at age 70, then 5.82% at age 75 and 6.82 at 80%?

[@shun2240]

I will use 2.5% withdrawal rates when I retire, but granted I have a larger portfolio so 2.5% is not a small amount. I will use 2.75% if the portfolio grew large enough

[@alexkoenig4332]

Hey Rob, great videos thx for making them. Have a question for you. Do you feel like it is wiser to invest in an employee stock purchase plan(ESPP) vs. a general taxable account. My employer allows me to purchase stocks at a 15% discount from withdrawals from my paycheck and I'm able to put up to 15% toward that if I choose to. I'm currently doing just 1%. The other thought was would be be more advantageous to just setup an automatic deposit to vanguard for VTSAX investments. thx for your thoughts, Alex

[@jhfit]

First year of retirement ends soon. After I pay my taxes, we'll see. My plan was simply buying what I needed and a few things I wanted. My income from investment should cover my expenses. There never was a plan of withdrawal, not 4%, 8% or 2%. Hopefully nothing

[@pensacola321]

If you never spend more than the dividends and interest that your portfolio produces, you will never run out of money..

[@LazyWay-m1w]

You should only plan on living to 80. At that point just be happy with your social security and do a reverse mortgage. Or just sell your home and bank your cash to pay rent somewhere for many years.

[@royprovins7037]

If you are afraid of living well into your 90s and running out of money buy a QLAC that kicks in at 85. Doesn't cost very much if you are say 65 and you can move on with your life

[@grantbigler8694]

I prefer to invest in Income funds designed to produce income. I am getting a 5%+ dividend that I live on and never sell any shares. So I achieve a 5% withdrawal rate and will never run out of money (barring a WW III type of catastrophe)

[@jimsmyth4256]

Keep in mind that as of age 73 your RMD’s are greater than 2.7%, so that rate is no good at that point.

[@Fred-yd9md]

It’s very possible to get around 4% dividend safely… why then bother about selling 4 or 2.7% of portfolio ?

[@contagioushavoc5794]

Dividends arent money that comes from nowhere. It really doesn't matter if companies pay dividends as long as they are making money. They are numerous videos on the topic

[@st-ex8506]

Over here in Switzerland, the legal minimum withdrawal rate (we call it conversion rate) on pension funds is 6.8% on the first quarter million dollars, and 5.6% thereafter. This is insured for life, even should one live to 110! So 2.7% seems EXTREMELY meager… especially in a country with lower life expectancy!

[@dhammer6715]

Your government backs your pension. Nobody backs our retirement accounts. You can convert your investments into annuities for life.

[@st-ex8506]

​@@dhammer6715 No, our government does NOT back our pensions. Where do you get this idea from? All our 1468 (no less, for a population of 9 millions!) pension funds are private entities... which can go bankrupt, if improperly managed. Some of them are self-standing private companies, some of them belong to unions, but the bigger ones are subsidiaries of large banks and life insurance companies. What the federal government does though, is to regularly audit them, and should their balance sheet start looking vulnerable, force a re-organisation. In the 42 years that this system has existed, there has been a very few painful such re-organizations of individual funds, but not a single bankruptcy.

[@AEVMU]

Ben is wrong, A 2.7% withdrawal rate would take 25 years without any investment gains at all, before running out and that includes adjusting your withdraw by 2% per year for inflation. I can't model sequence of returns but if you add in only a 0.1% annual gain (1/10th of a percent) a year, you could get nearly 30 years. That 2.7% safe withdrawal must, in part, represent some absolutely terrible markets with significant sequence risk. Way too conservative.

[@Kralnor]

You're forgetting negative returns. A string of down years in the early period of your retirement is a big risk.

[@andre1987eph]

dude you're blabbering.