How much do I need to retire with £20k/£40k/£60k per year?

A 100 year backtest using global stock market data to find out how much you ACTUALLY need to retire.
The 4% rule is used across the world as a guide to understand how much you need to retire. But it fails. A lot.
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I am a Chartered Wealth Manager and Partner in a financial planning practice based in the UK. If you would like to find out more about working with us, please follow this link: go.novawm.com/...
Risk Warnings
Capital at risk. Past performance is used as a guide only. It is no guarantee of future returns. Any examples used in the video are for illustrative purposes only and you may get less back than the figures shown. This video does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. We do not provide tax advice. We do not take any responsibility for third party websites and content we may link to from this video. Issued on behalf of Nova. Nova is a trading name of Nova Wealth Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN: 778951) and is a limited company registered in England & Wales (10739796).
0:00 The Problem
2:10 The 4% Rule
2:59 My Study - £20k per year
4:46 Why the 4% rules fails
7:53 How much do we actually need?
11:33 GIA VS Pension
12:04 Testing other variables
James Shack™ property of James Shackell
Copyright © James Shackell 2022. All rights reserved.
The author asserts their moral right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this channel and any video published on it.

[@JamesShack]

Watch the other video's in this series: If you ever plan on retiring you need to watch this: kzbin.info/www/bejne/eKqalK2Fipp0n8k How much income will I need in retirement: kzbin.info/www/bejne/b3-qkp2QndVgeZI The 4 keys to sustainable retirement income: kzbin.info/www/bejne/gnS8eoF_erF7aNk

[@nikul5663]

Great content as usual James, one thing I have trouble with is doing this modeling as a couple rather than single people. Would we need double the amount of assets necessary for two people in retirement? (silly question)

[@JamesShack]

@@nikul5663 No. If you want £40k per year as a couple, you would need less than a single person creating £40k. You can see that in the video, for one person to create £20k it’s £410k so if you double that it’s £820k where as the single person would need £1.1m. This is because you get two state pensions and two sets of tax allowances.

[@stevepenfold7167]

Great stuff but a bit depressing :( Guess you can't do anything about it but there's a verbal mistake at 13.33

[@RobisonsWades]

I believe the retirement crisis will get even worse. Many struggle to save due to low wages, rising prices, and exorbitant rents. With homeownership becoming unattainable for middle-class Americans, they may not have a home to rely on for retirement.

[@AllsopsBrowns]

You got it! Buying stocks during a recession when prices are down could be a good move. You might get them at a lower price and sell them later when they go up. Just do your homework and be aware of the risks before diving in!

[@SloansHagers]

@@AllsopsBrowns Inflation is gradually going to become part of us and due to that fact, any money you keep in cash or a low-interest account declines in value each year. Investing is the only way to make your money grow. Unless you have an exceptionally high income, investing is the only way most people will have enough money to retire.

[@RobisonsWades]

@@SloansHagers Your advisor must be really good. How I can get in touch? My retirement portfolio's decline is a concern, and I could use some guidance.

[@SloansHagers]

@@RobisonsWades The beauty of MARGARET MOLLI ALVEY approach is her dual focus: while aggressively pursuing profit opportunities, she's equally tenacious about shielding investors from potential pitfalls. It's a balance few can achieve.

[@RobisonsWades]

@@SloansHagers Thank you so much for your helpful tip! I was able to verify the person. She seems very proficient and I'm grateful for your guidance.

[@clarkeysam]

Nice video, and what I've taken away from it is that retirement is closer to most people than they think. A part 2 would be nice to say to reach those £20k figures, how much you'd need to add to your pension per month from say ages 20, 25, 30, 35.

[@JamesShack]

Good idea.

[@nw8000]

Did this ever get done??

[@KingTidarat]

Would love to see it too

[@clarkeysam]

@@KingTidarat see my comment above. He's already created the video.

[@lechprotean]

@@JamesShack did you end up doing this math?

[@Raymondjohn2]

Am 58 retiring next year but the thought of retirement gives me weakness. My apologies to everyone who have retired and filing social security during this time after putting in all those years of work just to lose everything to a problem you never imagined to happen. It’s so difficult for people who are retired and have no savings or loved ones to fall back on.

[@usieey]

True, It has never been easier to understand how to build your money after retirement than it is right now with the inflation, when you may study and experience a completely variegated market passively by employing a successful portfolio-advisor. The impacts of the U.S. dollar's gain or fall on investments, in my opinion, are complex.

[@maga_zineng7810]

Even if you’re not skilled, it is still possible to hire one. I was a project manager and my personal portfolio of approximately $850k of my retirement pension took a big hit in April due to the crash. I quickly got in touch with a financial-planner that devised a defensive strategy to protect my funds and make profit from my portfolio this red season. I’ve made over $250k since then.

[@Mohaimam316]

That's fascinating. How can I contact your Asset-coach as my portfolio is dwindling?

[@Mohaimam316]

Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.

[@ZeBadger]

@@Mohaimam316and @maga_zineng7810 are both scammers having a pretend conversation to get you to search for the start of their scam.

[@andrewlindsay8557]

We have paid our mortgage off and have no debt , we were surprised at how little we need to live on .We have decided to cut out expenses cars and holidays .We have a good lifestyle and spend less than £400 a week and we are out of the Rat Race at 55 . Our biggest regret is not finishing work earlier.Great video but sadly not many couples are both alive at 72 think it's only 1 in 3 .Get out while you can 👍 We both take £200 on a drawdown pension.

[@LuckeGabriel]

Yeah I was thinking about what if your mortgage is paid for... Without the cost of rent/repayments, I need about £10k a year to live (that includes a £1000 buffer p/a), if including rent/repayments then it'd be more like £18k-19k needed.

[@mbronti]

Very interesting..and another variable possibly is if you live in South East Asia e.g. Thailand, Indonesia, Vietnam as I do...

[@stevenewcombe7168]

​@@LuckeGabrieland more than half of that rolls in from your state pension

[@Anderzander]

100% agree on retiring as early as possible.. but £400 pwk is about £22k before tax per year .. and there are a lot of people who won’t get to that by age 55.

[@LuckeGabriel]

@@Anderzander The original commenter said £400 per week was for 2 people.

[@RuchiV]

Great video and glad you mentioned the difference between the 4% rule working for the S&P but not global equities. The S&P has had a great return in recent years, but whether America will continue to be the dominant economy over the next 30+ years.. Who knows

[@JamesShack]

Yes indeed, who knows. My view is that it's better to have international exposure. Some time the US will outperform sometime it'll underperform as it has done this year. Having more diversification smooths out those returns.

[@Chills124]

I think US stocks have a good chance of being strong for the medium to long term, I wouldnt put my money in China (might not get it back!) and India, Brazil and other developing countries are a big unknown, might be good or bad. US companies are also everywhere, more and more US companies are expanding internationally and usually with big money behind them so they have an incredible advantage over local/regional companies. They already bring in billions from foreign countries every year and hold trillions of dollars in off shore accounts, I might not agree with this behavour but its why if you invest in the SP500 for example you are probably at least somewhat invested in the wider global economy, just not as directly. Will be interesting to see how the next 40 years pans out nonetheless!

[@clarkeysam]

@@Chills124 what you've not mentioned is the currency risk with the S&P500. My portfolio is international, but with a greater weighting for home.

[@Chills124]

@@clarkeysam Currency risk has shown to be largely irrelevant over the long term, its shown to balance out as if GBP drops significantly your investment returns in USD increase and if USD drops your GBP buys you more US investments, this is where the dollar cost average helps. The problem with international stocks in my opinion is that its too diversified, most of the growth comes from the US portion of the portfolio but its dragged down by lesser performing stocks internationally. My preference is US for my stocks and I buy to let properties here in the UK, its a hedge against inflation (something stocks struggle with). £10k in the Vanguard US equity Index Fund that tracks the Total Market Index in 2010 would net you roughly £70k today if you did nothing, FTSE 100 you would have about £25k and FTSE All world ETF around £27k. Ok there might be slightly more risk and we are at the end of a massive bull market but my investments could drop 50% and FTSE 100 could stay the same and I would still have more money🤷🏼‍♂️each to their own I guess and invest in what you are comfortable with, any stocks are better than nothing or cash savings.

[@James_36]

he made the assumptions so the 4% rule failed, this is the problem when people want to try debunk a very well researched piece of information. 4% rule holds up each time based on facts

[@jimcurry5458]

This is an excellent video. Everything is explained clearly and succinctly. Our plan is to work part time during the early “Go Go Years” to help offset the higher spending during that time. No one in my family has lived to 95 years old, so I’m not figuring that in my modeling. Once I hit 80 I can’t see myself spending $5K per year on vacations or spending as much on things like food, liquor and clothing. As a Plan B, if we see failure looming on the horizon we will downsize our house and get something smaller and less costly.

[@carroux4050]

Yeah, that's a thing wrongly assumed. Especially at the beginning of your retirement I would assume spending more then later on. If I am lucky I am fit until maybe 75 or so. Everyhtings that comes afterwards I consider as a "bonus". I also don't see me doing big vacations for multiple thousands :D My plan is to draw always 4% of my portfolio at a given year. If the Stock Market crashes I still take 4% but then at the new, lower value. Maybe I reconsider this once it's time to decide and take 5% of the current portfolio. This way I make sure, that even when withdrawing less and less (absolutely), that I will always have a little reserve left...

[@jimcurry5458]

@@carroux4050 Good points. I’m planning on taking some good vacations. After working for 40 years while taking short vacations that had me still checking the phone and email I feel I deserve it.

[@phildobson1221]

The quality of content, delivery, and usefulness of these videos is exceptional. Thank you, James. I'm very glad I've found you 🙏

[@craigmckinlay4308]

Great video and actually underlines that the 4% rule probably does work for my plan - 40 year retirement, 100% equities in global stocks all in pension wrapper plus a couple years in cash. State pension kicking in at 68. Only downside is that 40 years is longer than most but back up plan is equity release on main residence or downsize as mortgage is now paid off.

[@mrnoisy4883]

People over think this. Get debt free. Scale back whatever you can. Live to your means. You'll be out sooner than you think if some sacrifices can be made.

[@kentonb-1]

This is quite possibly the best analysis on "How much do I need to retire" I've ever seen. Great job!

[@DerickPaulB]

Great video, but perhaps use 60 as the main example retirement age (55 is probably not the norm.) The single biggest unknown variable is (obviously) how long you will live! We've recently had friends die quite young (late 50s/early 60s!), so it makes you think about doing it earlier and you really need the bulk of the money in the first 10 years of retirement (assuming 60), whilst you can still travel and be active in sport (although some people still keep fit and agile into their 80s). Plus, you may not get a choice when to retire, my friend was made Redundant at 62, so he retired then!

[@Allsystemsaredown]

Hi James, this is fantastic. Straight to the point and it's incredibly clearly presented. I love the snappy editing too!

[@JamesShack]

Glad you enjoyed it!

[@addisonwillow1055]

My growth of 401k is 2.74% in the past year. In this environment does investing under a brokerage with a custodian outperform a 401k? should I seek a pro to grow my funds on brokerage acct or still hold? I have 5 years to retirement. Happy to discuss.

[@clintscott3300]

Mine was 8.16%, I used to dca into etfs but I reconsidered the strategy since I am still way behind after the massive downturn since Jan last year

[@benalfredo]

Be careful not to be lured into the market too soon, this current situation has really opened my eyes to the importance of a good mentor on KZbin or elsewhere knowing what he/she is doing .

[@_davidturner]

the size of your retirement portfolio will overwhelmingly be a function of the performance of the stock and bond markets between now and when you start withdrawing from it.

[@benalfredo]

Private investing is the best way to go about the market right now, especially for near retirees, I've been in touch with a wealth manager for awhile now netted 370thousand this downturn, made it clear there's more to the markets than we average joes know

[@AadhilaEesha]

@@benalfredo who is this manager you use? I lost over 50000 already this year on Vanguard. Im in need of guidance from a financial-planner going forward.

[@tomasromero8481]

Thank you very much James. I keep rewatching this video all the time

[@gerryking4346]

I’m not sure how I found you James, I think you might have been recommended by Pete Matthew’s? However it was, I’m pleased I did, this video couldn’t be more timely and appreciated by me. For such young shoulders you have a very wise head. Well done!

[@bumblebee9288]

Brilliant video! Thoroughly explained and not too long. Unfortunately people don't look at this early enough or just give up. If you have a target and stick to a plan you will make it. I consider myself very lucky but still wish we had been taught all this at school

[@JamesShack]

Me too!

[@glynnlebrocq6127]

James - good summary but would be useful to factor in property downsize and also how to establish a trust for dependants.

[@IndigoIndustrial]

Retiring at 55 and living to 95. That is a hard ask, especially for the delayed start to working for university graduates; about 75% of people die before 95. If you have your house paid off before retirement then you could live very well for ~£20k per year, and might top up income with all the time you have.

[@empeemp]

Of 100 people who read your comment.. 25 will live to 95.. That's alot of people

[@ryanmichael6592]

After a decade of searching, I found the best video on KZbin

[@mikewy192]

That is one way impressive video. Super clear, fantastically well presented. Very sensible breakdown of options / parameters.

[@JamesShack]

Glad you liked it!

[@TheStubertos]

Moral of the story is to use that tool to factor in all the other variables. In any case, I put in the 4% rule for the variable you added at the end and it actually comes out with more conservative numbers. This is also considering the fact that it's highly unlikely wewill live to 95. The 4% rule seems to still be a good ballpark but It's an interesting video and it's probably worth taking the time to input the other variables considering its such an important topic.

[@Harperrr.99]

Currently working overseas but will return to my home country in the near future. I'm a landlord. I invested in property at the age of 22. Value has soared and renting out. Will live on the rental income I receive and live with my aging parents for the time being. At 60 I can withdrawal from my superannuation (401(k)). Have savings and eligible for the Australian pension at 63. In the future I may downsize, sell the property and buy cheaper property and add the left over money from the sale to savings. Lots of options for me. The way I see it if you have $1m at some point, that’d be enough to create a portfolio that would pay you between 50k-70k in dividend income...

[@devereauxjnr]

It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into investment advisors for a strategy that suits your timing in this time of wealth transfer.

[@Veteran2002]

@@devereauxjnr I totally agree, I'm 60 and just retired with about 1.2 million in outside retirement funds, no debt and very small dollars in retirement funds compared to my balance of portfolio over the past 3 years to date. tbh, the role of the invt-advisor can only be overlooked, not denied. just do your research to find a reputable one.

[@AlbertGReene-p8w]

@@Veteran2002 This is exactly what I want to do now too. Can I get access to your coach?

[@Veteran2002]

@@AlbertGReene-p8w credits to NICOLE DESIREE SIMON, one of the best portfolio manager;s out there. she;s well known, you should look her up

[@AlbertGReene-p8w]

@@Veteran2002 I just checked her out and I have sent her an email. I hope she gets back to me soon.

[@michaelhaardt5988]

You nailed it, early drawdown phases are the problem. A fixed bond ratio is not the answer, but a variable cash position of e.g. 20%, possibly as short term treasury bonds, is: Invest after a heavy dip of the market and sell it again after the market came back up. That lowers the overall gain due to mostly not being fully invested, but reduces drawdown in bad years.

[@Imsosmrt1999]

Easier said than done: best left to an advisor or software.

[@franzlyonheart4362]

@@Imsosmrt1999 it requires discipline that most people lack. Advisors are too expensive and eat away from the investment return. Software still requires supervision and you may just as well just do it yourself. Just discipline!

[@janeknight3597]

Thank you! I always suspected that if one looked at a global fund the 4% rule would not apply.

[@JamesShack]

It’s true!

[@SmartHomeMakers]

One of the best videos I’ve seen great content and also great KZbin skills! This channel will get to 100k in no time

[@JamesShack]

Thank you!

[@SuperTreemendus]

Hello James, these videos are a great way to learn about pensions 👍. I plan to retire at 65 and by 85 (if I’m lucky) that will be that! I’ve no one to leave any money to so I want to make the most out of it all! If I’m 85 and have had 20 enjoyable retired years then I’m sure I would be more than happy. After 85 I think I could live frugally without much money. It’s increasingly difficult to spend money at that age.

[@arunmenon6513]

Another great video James and broken down in simple to understand terms 🙏

[@sulek1959]

These are the best explained set of video’s I have seen on this subject 👍

[@mattallen1052]

Would love to see a video like this but with a defined benefit pension (like the civil service alpha scheme) kicking in at a certain point as well as the state pension. If I retire at, say 58, I would only need my ISA stock investments to keep me going until 68 when my pensions kick in. I have a hard time figuring out what I’d need in stocks to cover that 10 year period. Because maybe I’ll actually have more than I need, in which case perhaps I could retire before 58!

[@jrc5515]

Yes James This 👆 I too am a civil servant and wonder about how to calculate with a defined benefit scheme. Great content as always James 👏

[@slayerrocks2]

I have a DB pension, too. I'd like to know if I could take it earlier and put it all into my workplace pension for 5 years. It would triple my current contributions.

[@JamesShack]

Understood,

[@HereForTheStories]

The really clue that I’d hoped people would take from this video is don’t be so quick to retire… what’s the rush? Find a job you enjoy and benefit from your incremental saving and spending power; even if part-time.

[@davidmoreland8070]

I thought that I had but 10% inflation knocks it all off course. Need a crystal ball the size of Jupiter 😂

[@ilsevanheerden4976]

I've been looking for this video for the last 3 years! I'm so happy I finally found it, and you! Subscribed - you are now one of my top 2 financial channels to follow

[@JamesShack]

I'm glad you found it useful!

[@sryavuz]

I know this comment will not be seen. I don't live in England, so I don't know tax rules. However, with a quick search, I can find 1 bedroom rentals on zoopia bringing 2k with a cost 300-350k. I bet I can find better deals too. When you count state pension at 60 or so, wouldn't 350k be plenty for 20k per year? You can count 10% property management cost as well. Again, I don't know about the taxes. About inflation, I think properties go much faster than the inflation but at least they preserve their value on top of bringing inflation adjusted income. They do not deplete unless you sell them.

[@michaelkingshott2569]

Excellent video James, superb presentation of the variables and risks to decide on a strategy, currently looking at transferring my St James pensions & ISA,s into 100% equity life strategy to significantly reduce cost & hopefully give myself a better chance of reaching my goals for retirement. Your videos have helped considerably and I have recommended these to many friends who are now looking to retire in the next few years.👍

[@JamesShack]

Thanks Michael!

[@Blitcliffe]

Given the current economic difficulties that the country is experiencing in 2023, how can we enhance our earnings during this period of adjustment? I cannot let my $680k savings vanish after putting in so much effort to accumulate them.

[@Veteran2002]

Well the bigger the risk, the bigger the reward and such impeccable decisions are better guided by professionals

[@Robertgriffinne]

@@BrixtonJenny I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?

[@Robertgriffinne]

@@BrixtonJenny Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.

[@someoneelse.2252]

SCAMMER ALERT: Beware folks, every site giving financial advice, including this one, has all these bozo scammers asking where to put their hundreds of thousands of $. SCAMMERS.

[@Boghopper9999]

Scam thread

[@adambritain5774]

I know almost zero about ‘financial stuff’ but i find James’ (and Chris Bourne’s) videos fascinating.

[@nicobass1966]

I keep watching this one and it's so true. I'm coming up 58 and think I'm nearly there. Will I spend more when I finish work, nope probably a lot less, thanks for the great info

[@ollidracnosaj9934]

Fantastic video James, this is the first time I have seen the pension factored into the modelling. None of the content from the Aussie Fire movement seems to factor in our very generous Australian pension. Calculating my own personal circumstances, the pension will completely cover my basic living expenses, and anything above that is just a safety net for unexpected costs or discretionary spending.

[@jam99]

James, came across your channel recently. You have such a refreshing and sensible topic analysis compared to 99% of finance crap on YT. I also like your style. Your videos are a real pleasure to watch. Thank you. The psychology issue is a huge issue, particularly with an ever increasing level of sensationalized information bombardment and barely ever mentioned by others. Do you find that you sometimes take more risk (and reap a bit less return) with your own money compared to clients' money/advice, with the justification that you have to try things out? :) You give some great advice out about long term investing and often mention tax, and you have covered LTA. One thing I have not come across (apologies if I have missed it) is the rapidly increasing rate at which older people's families are going to be stung by IHT with regards to their property (real estate) as the freezing of 'allowances'/thresholds, in real terms, becomes more significant with time. You talk about a minimum of 5yrs for long term investing but here we have a minimum of 7yrs on a number of aspects. Just thought you might want to do a video with regard to house price increases, and also mention equity release and trusts. I suspect there are a vast number of pensioners (particularly divorcees with children who may have struggled greatly with finances mid/earlier life) with property who erroneously assume their children will get the vast majority of their estate when they die without having actually looked at the current situation or, perhaps, do not have the mental flexibility to understand how this has changed over recent times and appreciate what they need to do (gifting savings within limits and spending on themselves as the simplest options). You could even talk about wasting asset examples for a bit of fun! You could do a video on the psychological topic of death/IHT and the communication within families that should take place but rarely does, in order to encourage all ages to discuss and plan for the inevitable unpleasantries. I know that some people are utterly irrational about matters and it can be about convincing them that they are not just being irrational, they are being negligent with their children or grandchildren. Topics such as equity release and trusts are going to be applicable to more and more people the longer these government freezes continue and with such a lack of investment by government into our society's long term resilience in recent decades, and the burden on future society, I cannot see these frozen thresholds moving very quickly.

[@JamesShack]

I don’t test out investment strategies. You can do that with data. But lots of different investment platforms and newer products. I’m very high risk compared with most. And do things I would not advise others to do! I fall victim to the behavioural pitfalls just as much as anyone! I have most of my assets tied in my business. Those are very important topics but perhaps more niche, unless I can think of a way to make it engaging for everyone. Later on in the year my plan is to start making some targeted courses. With the aim of giving DIY investors all the info they’d get from a financial adviser, but packaged up in a way they can implement themselves. I think this will be a better format for the really complex stuff!

[@jam99]

@@JamesShack Thank you for your reply. With the average house price in the UK now almost nudging the basic IHT threshold and a historic divorce rate of 35% (ref older single divorcee house holders), in 7yrs time, I wonder how niche it will be. I would expect family arrangement (in any case, IHT mitigation) of finances in advance by the older generation to be of benefit by many planning FIRE and quite a few not. Taxes on dividends were recently hiked. Most of us get old; that is certainly not niche. Right now, with LTA frozen (and near historic low), CGT allowance frozen and IHT effectively frozen, it would be interesting to know when it has been less rewarding to work and save TOO hard, and more important to know when in later life to start 'over' spending or giving away excesses (and then there are potential care home costs). The trend is all towards tighter socialist action in such areas in the coming years, as well as on BADR (historically low). I fully understand your course outlook. I look forward to watching more of your content.

[@mapryan]

Excellent video James. It's great to have so many of the variables all pulled together in one place

[@JamesShack]

Glad it was useful Mike!

[@sudstahgaming]

A good food for thought video, not to educate but to keep realistic and open minded

[@gavinlove4861]

Thank you - really informative and clearly lots of work from you to bring this together. 👍🏻🙋🏻‍♂️

[@JamesShack]

You’re welcome Gavin. Yes I was doing those illustrations right up until the last minute!

[@malvanlondon8683]

Very good overview. Many thanks. I like the 20k, 40k, and 60k concept and personally call these, respectively: "Lean Fi", "Fat Fi", and (having read JL Collins' book The Simple Path to Wealth) "FU. Fi".

[@metal_loz]

Great video, thanks James. Really appreciate your content!

[@tomorrow-man]

Great video. Also gave me a sense of relief that my own plan seems to stand up to scrutiny. Now I just need to find some decent planning tools to keep track of portfolio that are actually available to mere mortals and not just chartered financial planners (I am not planning to have clients)

[@JamesShack]

Haha, you can use Timeline for a free trial.

[@dabe1971]

@@JamesShack Seems you can't unless you have an FCA number ?

[@richardshaw4336]

Superb video this. I have watched dozens of these and in my opinion it's one of the best.

[@garybarnes9254]

how utterly depressing that most people will never even get near this

[@kxjx]

The simple solution to this is to work part time if the market underperforms early in your retirement. This avoids the issue of overshooting in most scenarios and allows earlier retirement.

[@morgand5605]

Thanks James. I've followed your advice and maximised my pension contributions!

[@JamesShack]

Best of luck with it all!

[@kelbyloden]

I would highly suggest that people spend some time doing some research on passive income methods. For example if you were to have investments that returned say 5% in dividends and grew that dividend by 4% a year, the planning is much simpler and the income always increases. As just one popular example of a dividend aristocrat, which is a company that has been growing its dividend payout ratio each year for at least the past 25 years straight, take Realty Income which currently pays that 5% yield growing by over 4% a year. A 500k investment like this would produce 25k/year. Best of all your investment and income goes up over time so it doesn't mater if you need retirement income for 10 years or 70 years, it just keeps growing and you can pass it down to your kids one day in full. This is considered the income stream method as opposed to the draw down method like that 4% rule typically applies to. The main thing is learning enough about the income options to understand exactly what the options are and how dependable they are. Everyone even thinking about drawing down their nest egg in retirement owes it to their self to at least spend some time researching income investing. Dividend paying companies are by far the most popular means of doing this.

[@BlossomVirtualReality]

Excellent video James. Great examples aswell to give viewers a rough idea of being on track and the variables that can affect that.👏

[@JamesShack]

Glad it was helpful!

[@Santoshlv426]

The take away, is that the 4% rule is the worst case ! Any less and the risk of running out increases. The model you have used James, how does it it compare to the erratic returns that equity markets have expereinced since 2019 (USA, Europe and EM (I live in South Africa)). It's acknowledged that the equity markets are not exhibiting any direction, period. Whatever I made on paper over the past 12 months I've lost in 3 months ! I base my FI number on my annual expenses + 10% and the fact that I don't want to leave anything behind. I'd like to see a video that views retirement from 40, rather than 55 or 65. Many are choosing to leave the game earlier in life - if one can of course.

[@JamesShack]

What we've seen over the last few years is not exceptional when you look back over the last 100.

[@Chills124]

Adding a couple of rentals and utilising your tax free allowance could easily mitigate a struggling stock market, it also hedges inflation as rent and house prices generally increase with inflation. If you are retiring young this isnt an issue, 2 houses arent a lot of work and you wont even have to touch a large part of your stocks. By the time you are too old you can sell the houses for a lump sum and put it into stocks, which by then will easily see you through the last years of your life.

[@marshallmason1]

The sequence of return risk assumes you're forced to pull the exact same amount from beleaguered investments during lean times and boom times. This risk is eliminated if you don't have to do this. One method is side gigs. Another is to simply cut back spending during lean times. But by far the best solution is the barbell strategy, where 80% of your portfolio sits in safe, dividend-bearing investments, while the other 20% is there to replenish the long-term growth. You can live off of those dividends and dip into that 80% during many lean years before it becomes depleted, allowing the other 20% time to recover.

[@vicgamesvt9682]

This video is deffinatley very good for providing all the info needed for retirement.

[@mattrumpus]

Great video as always James, thank you.

[@Ryanlikealion]

Such a good video. Thankyou for sharing this information, very motivating! I’m aged 40 self-employed and my only pension is a SIPP (plus the state pension if its still around by the time I retire!)

[@JamesShack]

If you have an LTD business SIPPS contributions from it are v tax efficient.

[@Ryanlikealion]

@@JamesShack Thanks for replying. I am currently a sol-trader although I am possibly switching in the near future for the reasons you mention. I will look further into this and appreciate the comment.

[@blackadder1966]

I have 10 years to build my fund so currently 15% of wages going into pension and increasing that by 3% per year, so September ill be contributing 18%. Possibly inputting an additional £50-75 pw on top of that too. At the moment going i plan on having a pension income for 20 years, I dont see me having the need for much income if i survive more than that.. Death before aged care is a motto that i came up with just now.

[@JamesShack]

Keep it up !

[@jpturner171]

Another great video James thank you!👍🏽

[@savvassavvides5068]

Well done - MANY people see last 20 years of US market and invest accordingly... big mistake. The only thing that maybe you should have pointed out, is that if you are to retire later, not only you have to have less saving, but you should also have more years to contribute towards you portfolio, which if its on re-investment mode those additional 5-10 years ages 55-65 should make a massive difference

[@robertcairns2111]

Thanks James this is a very interesting video!

[@Scott3387]

What are people doing with 60k a year and very limited necessary expenses (I assume you have no debts)? You can get a 365 day world cruise for £40k a year. If you need more than 40k you have some very expensive tastes.

[@javajava8856]

Also, the guy who did the Trinity study updated his recommendation very recently saying that you can actually safely draw down closer to 4.5 to 5%. If you look at his study, 2 to 3% drawdown rates result in 50 years of retirement coverage.

[@davidpearson243]

Fantastic video James Just shows what the state pension is worth to pension planning we are lucky as most of our(my wife and myself ) pension income is final salary indexed for life

[@JamesShack]

Yes very convenient!

[@HereForTheStories]

You may be lucky but any of your younger relatives not so much as they’ll be paying for it.

[@uncountableuk]

Excellent James. My own plan follows very similar numbers to these. I keep four years of cash and the rest in stocks. I just don't think the bond mix is needed if you have a cash buffer that is big enough

[@JamesShack]

This is true. You portfolio is more volatile but volatility can’t hurt you.

[@uncountableuk]

@@JamesShack I'm going to remember that phrase! The thing to remember about volatility is that you are never liquidating your entire portfolio at any moment in time. I currently am sitting at 2.7 years of cash so I need to "top up" 1.3 years at some point in the next year or so. That's a much smaller problem to deal with.

[@johnfranklin6394]

Another excellent video. Many thanks James.

[@JamesShack]

No problem!

[@hscott68]

Great video. clear and well presented. Very professional. Thanks

[@JamesShack]

Glad you found it useful!

[@taffyexpat]

Great video and spreadsheet calculator. I've found it useful to make 3 copies (ISA/Pension/LISA) so to understand the savings requirements based on when things can be accessed; (Immediate, 55/58, 60) respectively. I'm going to see if I can bring these together to work out a cash-flow scenario. Thank you for excellent content.

[@JamesShack]

I’m glad to hear they were useful. Thanks, I’ll keep it up.

[@tancreddehauteville764]

The really critical issue here is that the UK state pension is the lowest in the OECD. At a bit less than £10k a year it's laughable or tragic - depending on which way you look at it. At the very least it should be 50% higher - and this as a minimum. Alternatively (and perhaps more realistically) the government could allow people to 'buy' more state pension by paying for it with higher NI contributions or by paying in lump sums, even transferring in private schemes. I am frankly astonished that the government has not considered this as a way to improve people's retirement prospects.

[@matthewc6791]

Don't forget though that you have free health care in the UK which a lot of others around the world have to pay for out of their retirement funds.

[@robertthomas3461]

Neither are now guaranteed

[@tancreddehauteville764]

@@matthewc6791 It's NOT free! You pay for it through your taxes.

[@davidreichert9392]

A better approach for cash management is rather than keep a fixed number of years' income in cash, keep a fixed percentage of your assets in cash, e.g. 10%. This improves both risk and return as you will be selling more of your investments at higher prices and less at lower prices (and even buying some during a crash, which yields phenomenal results on the subsequent bounce back)

[@zimne5212]

Dynamic spending strategies are so important. If you are ready to go down e.g. 20% in the first years in bad market you can greatly reduce cost.

[@peterlloyd6337]

So enlightening James - a big thank you! Peter

[@JamesShack]

Glad it was helpful!

[@WhalleyRangeMassive]

Great video! From a 50 year old looking to retire at 55...

[@shaungregory1789]

Great video James, also good to mention regular reviews with your FA. It can save or earn thousands. We retired at 55 as no kids and worked all our lifes with decent jobs. Life is great in retirement our only issue is keeping our drawdown under the LTA 75yr old test. But at the moment we do have spare capacity and thinking of investing in a holiday home, purchase by mortgage. But is the best use of monthly cash or is there another low risk high return. Assuming property growth of course.

[@bikrambal8279]

Hi James, This is truly outstanding information as always. Never really trusted the 4% rule anyway. I have a combination of a defined benefit pension from the NHS as well as a SIPP. Would love to know how you can help to figure out those calculations for me. Best wishes!

[@JamesShack]

Will do one on this in due course!

[@TheGodpharma]

Since this video was released we have of course (in the UK) had the disastrous Truss/Kwarteng mini-budget, which caused massive turmoil in the bonds market but there was one upside: annuity rates, which have increased by around half since the lows of the post-2008 era. I am now seriously considering using some of my pension savings to buy an annuity to bring in roughly the same as the state pension (which I'll get in three years), which between them will cover virtually all of my day to day spending, meaning the remainder of the pension pot, plus other savings, can be used almost entirely for discretionary spending that in theory can be cut right back to almost nothing in lean growth years, if necessary.

[@WhoRu665]

Great video! Would the prob of success be higher if you use dynamic spending approach/guardrail method? Or is that already included?

[@BigJaysDad]

This is utterly brilliant! Fantastic analysis/insight - cheers James 👊🏻

[@JamesShack]

Glad you enjoyed it!

[@Pik0l0]

1. Dont have bonds in your portfolio as equities always outperform in the long-term 2. Average annual return of 8pc means you are reinvesting 4% to hedge with inflation.

[@Pulpdiction1999]

The average 65 year old retiring today (male) lives until they are 84. Which is a 19 year retirement, so be useful to see a model based on this, retiring at 65, 60 and 55 and living for the 'average' length of time.

[@JamesShack]

If we only planned for the average then 50% of us would live beyond it! Not much help. With this type of planning it’s typical to run the model until the 10% percentile of longevity. Which is into the 90s.

[@paulrodrigues5562]

Well thought out 👍

[@cartherapy718]

Great video! Very interesting and easy to understand!

[@JamesShack]

Glad it was helpful!

[@lhzsdgsfbvv]

60% stocks, 40% government bonds sounds like a really dated approach.

[@SchubertDipDab]

This was excellent, it's made me feel far happier about my current situation and investments - thanks!

[@RockLobster223]

You're simply very very good indeed! Thanks for the info.

[@richt1107]

Excellent video - thank you

[@richardmills5360]

Brilliant advice that makes perfect sense - thank you.

[@JamesShack]

Glad you enjoyed it Richard!

[@A_friendwithoutbenefits]

Great video James. Would Guyton's rules you covered in a recent previous video be the 'dynamic spending' you referenced here? That was the real game changer for me, bring able to flexibly increase or reduce your spending according to portfolio performance whilst greatly reducing the chances of running out of money.

[@JamesShack]

Yes that's it. It's a question of risk, some clients will only retire once they see historical success rates of 99%. Whilst others are willing to take more risk, if the market does well then they're all good but if the market does badly they'll have to reduce their income. The rules enable me to demonstrate what that would look like from a cash flow perspective, so they can quantify the reality of a worst case scenario with the probability. The guard rails are only meant to be used as a guide rather than strictly followed. But for some people, that follow them completely, it removes the decision making which adds a lot of value.

[@harrisonshaw513]

James, excellent video thank you.

[@JamesShack]

Glad you enjoyed it

[@TheFuzzyskwerl]

Thank you! So helpful. Would be great to know how much a financial advisor like you would cost for the average person

[@paulstuttard1032]

Great video. I'd love to get access to the software you used so I can run my own scenarios. I've seen many on the Internet although none with the level of detail/options you've discussed.

[@markrozee]

I'm 54. The idea of retirement at 55 is mad. I wouldn't have a clue what to do, and I have loads of hobbies. I love my job-- which obviously helps my decisions 😊

[@antonyborthwick1372]

Great video as usual James, I really like the tool you put out too to play with these numbers, such as getting a part time job in later life... now that's the goal 👍 Also, just a minor error at 13.32... number on screen doesn't match what you said (630k vs 930k) only noticed it because I scrolled back.

[@JamesShack]

Yes, most people don't realise that they can just do something they love, get paid less but still achieve everything they need.

[@mageshranganathan3114]

pretty standard stuff that any good retirement calculator software would provide - if you haven’t put any thought into retirement planning, this is informative

[@MisterM2402]

Also have to consider the time and effort it takes to earn the extra money to increase your Success Rate. Your example with 500k/62% success has the median outcome of you dying with 100k leftover that you can't take with you (personally a bit conservative for me as it is). To achieve a 95% success rate, you have to start with 627k - that might delay retirement by several years or more which is a massive tradeoff! Lots of people are still (relatively) healthy in their 50s, so to sacrifice more of those healthy years for relatively little benefit doesn't feel like a good plan to me. If my parents were choosing between "a few extra years relaxing" vs "work longer and leave the kids a bigger inheritance", I'd want them to choose option 1. The extra inheritance money is absolutely not worth them sacrificing retirement years or time I get to spend with them. Spending is flexible too. One single decrease in expenditure over 40 years is far too simplified. If you get to your 90s and 15k/year is no longer looking likely to last you, reduce your spending to suit. I'm happy to switch to eating beans on toast every day in my 90s if that lets me have less work stress earlier in life. That's a much better tradeoff to me.

[@greeng313]

Excellent video - very comprehensive.

[@JamesShack]

Thanks Al!

[@OneAndOnlyMe]

Another thing people could factor in at what age did their parents die, assuming they lived a relatively healthy life. If there are hereditary illnesses in the family then may need extra money to put side for health care, or alternatively one may assume one might not live beyond 80.

[@jonathanmcstay]

I think those input variables are flawed for the basis of a straw man. Retiring at 55 living til 95? Even remaining conservative 60 / 90 means the onus is reduced by 25% which has a dramatic effect

[@tds456]

Interesting analysis. I came into this thinking another click bate title saying the golden rule wouldn't work. @8:05 - 650k for 20k income really hit home though and shows the differences in taxes. On my own model, I've calculated I need 850k for 20k income. Partly why I'm now looking at burning down capital between "retirement" and the pension kicking in.

[@WalkingwithDebbie-xy8sp]

Just came across this video that you have produced and thank you for doing so! I do not suppose that the tool that you are using to make the calculations based on various senarios is available for me?

[@ricksanchez1393]

Great video as always James. Really helpful.

[@JamesShack]

Glad you enjoyed it Rick.