Overcome the RETIREMENT Income DEATH SPIRAL

[@foundryfinancial]

I misspoke around 7:30. The math is right but I said negative 8 for year five. It’s positive. My editor just copied me and didn’t catch it. - Year 1: +5% - Year 2: -3% - Year 3: +10% - Year 4: -7% - Year 5: +8% The sum of positive changes = 5% + 10% + 8% = 23% The sum of negative changes = 3% + 7% = 10% So, MoRo = 10% / 23% ≈ 0.435 or 43.5% publications.investmentsandwealth.org/iwmonitor/november_december_2023/MobilePagedArticle.action?articleId=1940618#articleId1940618

[@willywest1493]

Kevin, your stuff is quite easily, the best financial advice I've discovered. There's a unique clarity about your style of presentation. However, concepts such as 'death spiral' reinforce my worst fears for the future.... 62 and in excellent health, a household income (without working) which covers all my basic overheads, paid for house & debt free with a pot of $1.2M - but I'm afraid to stop working, even in the low cost Scottish Highlands. The fear of being broke at 85 isn't something I can stomach. I suppose the decision to stop working is as much psychological as it is financial. Anyway, great great work and thanks again. Bill

[@chrisforker7487]

There’s also a lot of data that shows that spending decreases over time. Most people spend less as they get older. Less travel, less buying new things etc. Yes, there’s inflation, but the lack of spending more than offsets.

[@willywest1493]

Brilliant, thank you 🙏

[@billradich8287]

The MoRo mitigation concept seems to be sort of a 'guardrails with market memory' approach. I always appreciate seeing a formal method like this tested across different time periods. Thanks!

[@Data_on_trail]

It works very much like compounding interest / gains ... only in reverse. Anyone wo has built their own portfolio from scratch should recognize this process. Thanks for this version of an explanation. The Chaos Theory bit is not as well grounded, imo. It's really just arithmetic, Jr HS stuff really, but over a very long period of time. Very small adjustments, early on, solve to problem completely.

[@foundryfinancial]

I kind of agree on Chaos Theory. That was just what the author said. I was more trying to explain, not evaluate. I had a couple of issues with his paper.

[@cpa7476]

Thanks for explaining it so clearly. Math is not my forte but I get the concept.

[@Sylvan_dB]

With 5% withdrawal and 1.5% fees, the model portfolios in the paper are effectively taking out 6.5%. That's a lot.

[@foundryfinancial]

Yeah, it’s a lot, which is why it fails more - but the general principles work.

[@mstormes]

Yes, and is rising when you apply inflation!

[@callmeishmaelk767]

Live small, even before retirement, pay off your mortgage any any other debts, and then when you do retire only spend the interest or the inflation adjusted gains on the principal, don't spend the principal. Use it as the basis of a perpetual money machine.

[@mitchthornton1820]

It’s funny how most CPA’s refuse to address this , they assume you aren’t invested in solid dividend paying stocks which have decades of raising their dividend . They assume you have to sell part of your portfolio in order to make withdrawals and it’s fear mongering and dishonest .

[@stephenlandrum7770]

If you ran the same set up but used the guardrails strategy would it have worked out the same?

[@tomj528]

My plan is the ability to pull back spending to below social security along with a bucket strategy. Besides, our wonderfully frugal lifestyle doesn't cost much anyway and I'm not concerned about maximizing our spending.

[@foundryfinancial]

Sounds like you’ll be fine.

[@tomj528]

@@foundryfinancial Oooh yeah!

[@jeffk4449]

I'm glad you understand this. 😊

[@johnnyretires]

The best withdrawal rate is the “I live in the real world withdrawal rate”

[@matjul2008]

How is this different from sequence of return risk ? Ty

[@foundryfinancial]

It’s not really that different, just a different way of approaching it. Also, I liked the idea of the momentum ratio to evaluate the health of the income stream.

[@Sylvan_dB]

A bad sequence of return causes the "death spiral."

[@KevinInPhoenix]

Retiring with $1 million in 1957 is the same as retiring with $11.16 million today. Not attainable for most people. Pulling $50 thousand a year in 1957 is $557,914 today. Who needs that much income? Adding 3% a year to your withdrawal rate is clearly insane. If inflation is high then just go without an increase in the withdrawal rate for a few years. A bit of "belt tightening" in retirement will not kill you. The real "death spiral" is the constant increase in the withdrawal rate.

[@robskully3539]

I solved this problem by not taking my SS until I turned 70 plus since I love my job I have no plans on retiring anytime soon :-)

[@foundryfinancial]

Delaying Social Security is a great way to help solve this issue.

[@robskully3539]

@@foundryfinancial I also had another reason … my Wife is 6 years younger so if something happens to me she collects mine which is almost 2 1/2 times the amount she is getting. I am getting literally only a few hundred dollars from the max that SS allows ;-)

[@joking6052]

Ramsey is not doing people any favors by recommending that they pull 8% a year from their retirement funds. He may be rich enough to do it himself but most are not in his position. Be careful folks and don't heed his advice.

[@PorscheSpeedster-kz6nc]

Thank you for this video. Rob Berger just covered it also. People must be concerned for a significant depression/recession.

[@foundryfinancial]

Oh, the death spiral? I’ll have to watch it. I’m a big fan of Rob’s, but I missed this.

[@davidgreen4038]

Adding a portion of your assets in a FIA to increase your guaranteed income is insurance for this.

[@foundryfinancial]

It is one way you can help protect, especially early on.

[@Sylvan_dB]

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.” (Hemingway novel)

[@foundryfinancial]

I wish I would have included this. Ha. Great quote.

[@bobgerbracht3066]

You lost me at 7:30 when you stated a portfolio loss of -8% in year 5, but then added it as a +10% gain when you created the loss/gain ratio. So is the gain/loss ratio .435 as you stated or is it 1.2? Kinda makes everything after that point a big question mark.

[@foundryfinancial]

That’s supposed to be positive 8. I misspoke and the editor just copied what I said. The math is right if you use positive 8. Glad you caught it. - Year 1: +5% - Year 2: -3% - Year 3: +10% - Year 4: -7% - Year 5: +8% The sum of positive changes = 5% + 10% + 8% = 23% The sum of negative changes = 3% + 7% = 10% So, MoRo = 10% / 23% ≈ 0.435 or 43.5%

[@t.s.3669]

So, 100k, at the end of the 5 years would be $112,527, right? About a 2.3887% annualized return.

[@rolandconnor575]

Didn't even watch video, but have the answer. Do what I am doing, work into your late 70s.

[@williamwatson6676]

Wait til everyone watches Greg Foss talk about the "debt spiral" #Bitcoin

[@FirefightersFinancialToolbox]

If you do your homework, and know these numbers, and watch the market you can draw 4-4.5 % without a problem if you stay vigiliant. Yes the early 70's were THE WORST possible time to retire (beacuse of losses and the inflation being wosre than any other time in US history.) Cherry picking will always cause the worst scenario..... You are making this too hard for most people to understand. sorry

[@foundryfinancial]

I re-ran a similar scenario in beginning in 1999. I could have also chosen other points and had similar outcomes. The challenge is we don’t know what the future holds and I talk with way too many people who are moving into retirement with unrealistic expectations. Even your 4% worked for people in the US, but not a lot of other countries and what happens if the next 50 years isn’t like the last 100. People need tools to help navigate what for many will be a forty year journey.

[@FirefightersFinancialToolbox]

@@foundryfinancial I agree I can't speak to other countries, but depending on when this person retired in 1999, they came at the beginning fo the DOT COM bubble. again cherry picking. Now NONE of us know what will happen going forward, I agree we must always plan for the worst, but FEAR MONGERING is ridiculous. thx for the video. I love the conversations :)

[@FirefightersFinancialToolbox]

@@foundryfinancial Kevin, I understand many other countries may not work out long term, but I am talking about the US, We all know the 4% rule has worked throughout our history. I realize that this could in fact change, but after over 100 years here in the US it never has. THAT IS ALL I AM SAYING. thx very much for the dialogue.

[@joshuabritt5677]

​@FirefightersFinancialToolbox I don't think he's fear mongering. It's better to be prepared for the worst situations and hope for the best. Then, to be unprepared, or even worse thinking life is always going to be roses and unicorns.