Retirement Withdrawal Strategies Ranked (Best to Worst)

[@ThePeakFP]

It has been brought to my attention that there is an error in the summary sheet totaling the 4% rules first ten years of cumulative spending. The ACTUAL total is $458,555, NOT the $148k that is in the spreadsheet. The principles in the video remain the same - but I do apologize for the oversight in not catching the error.

[@BrianMattews-i7t]

All time highs… I’ve been investing for almost 2 years. It was all time highs when I bought in. It was all time highs when I was dollar cost averaging and it’s all time highs while I’m up over ~$110k in 2 years. My portfolio is roughly half ETFs and half in individual stocks... thinking of allocating 10% to btc

[@Diane-c7b]

investors like you should be cautious of the bull run, its best you connect with a well-qualified adviser to meet your growth goals and avoid blunder.

[@americanopinions]

Facing a similar situation, I sought advice from an invęstment advisęr. Through portfolio restructuring and diversification with good ETFs, S&P 500 and growth stocks, I've turned my portfolio around from $200k to over $800k in a few years.

[@AlbertGReene-p8w]

How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?

[@americanopinions]

She goes by "Sophia Irene Powell " I suggest you look her up. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.

[@Too-old-Forthischet]

I appreciate it. After searching her name online and reviewing her credentials, I'm quite impressed. I've contacted her as I could use all the help I can get. A call has been scheduled.

[@marshallmason1]

"Spend what you need" is not a withdrawal strategy. It's a lack of strategy. Rebalancing and shifting allocations is also not a withdrawal strategy. It's a portfolio management technique that everyone should be doing. Ultimately, you must always spend some percentage of your portfolio, and whether it is conscious or not, that percentage is your spending strategy.

[@mzeller3399]

Just subscribed. 9 months until I pull my ripcord at 63 years old. Really enjoying your videos. Well done!

[@nobeliefisok9174]

I hope you lead a fulfilling life in retirement!

[@kejianniu2994]

Wade Pfau has a version of the guard rail strategy in his book that makes a lot of sense. It is to withdraw a fix percentage of the portfolio value every year but with a dollar amount ceiling and floor. It ties the withdraw amount to the portfolio value to a degree, relatively easy to execute, and probably supports much higher withdrawal % than 4%。

[@satterfb]

Please share the link

[@Cesarinaella]

I am at the beginning of my "investment journey", planning to put 85K into dividend stocks so that I will be making up to 30% per year in dividend returns. Any advice?

[@Davidvictor6]

Investing without proper guidance can lead to mistakes and losses. I've learned this from my own experience.If you're new to investing or don't have much time, it's best to get advice from an expert.

[@christainjames]

The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.

[@christainjames]

My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market..

[@mdavern]

Excuse me. 30% per year? Not possible. There is no steady return possible from a volatile asset class. Sorry. That doesn't exist. Now, perhaps that was a typo and you meant to say 3% per year, that might be possible over time, but not every year, as again, even dividend paying stocks are volatile. I don't care how good your advisor is, no asset class can give you a steady 30% per year or anywhere close to that with the starting equity valuation we are at today, over a long retirement investment horizon.

[@ninjotoo]

Indeed if it sound to good, start thinking and be carefull​@@mdavern

[@daviddadamo2290]

This is an excellent summary of risks and benefits of the different approaches. I like that you say it should be personalized to each individual. The right strategy is what you are comfortable with and what you will stick to.

[@rationalthinker9181]

Actually based on USA health figures if you are average 65 year old with comorbidities such as hypertension, type 2 diabetes, raised BMI a 30 year withdrawal plan is not needed. Average Americans are dead at 72

[@Riggsnic_co]

More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.

[@JacquelinePerrira]

The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.

[@kevinmarten]

This aligns perfectly with my desire to organize my finances prior to retirement. Could you provide me with access to your advisor?

[@kevinmarten]

She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing.

[@JohnHobbs-o3z]

If u have a large cash position for sequence of return risk,then almost none of this matters,simply take from portfolio or cash at end of year,depending if market is up or down,this allows u to have an all equity portfolio,which always comes back faster after major downturns.

[@TheDannyHamilton]

The large cash position can certainly reduce your exposure to sequence of return risk, but it also significantly reduces your exposure to growth during those times when the market is up.

[@nobeliefisok9174]

I both agree with your point, but disagree in that its not that simple. Too large a cash (or short term bonds/bills/notes) position and you are throwing away higher returns. Too small a position, and sometimes it doesn't work. I modelled my own situation and found a sweet spot of about 15% cash, short term tbills is perfect. It shrinks during market downs, and grows back during market ups. The strategy for rebalancing back to 15% is the hardest part. Setting good trailing stop loss sales of equities, a few months worth at a time, to shift back to cash has seemed best overall method thus far. There may be some even better strategies, but I dont believe people really accurately time the market. So I use trailing stop loss sell orders.

[@nobeliefisok9174]

@@TheDannyHamilton depends on how large large is. 😂 Inexact terms lead to inexact results, and a complete lack of consistency and variance in effectiveness.

[@737smartin]

@john… I assume by “Cash,” you mean cash and bonds. Having a cash pile big enough to endure a multi-year “stock storm” would be a lot of non-working $$s.

[@nobeliefisok9174]

@@737smartin I assumed it would be cash and short duration bonds as neither change in maturity. I use 13 week tbills in a 13 step ladder, one bundle per week. No need to sell, no need to care about market fluctuations. But if he was talking about a 20 year bond, then thats not the same as cash. As far as returns, when making withdrawals after retirement it is extremely advantageous to hold some 4% or so return cash or bonds in lieu of the 10/20/30% positive returns you might get on equities because a withdrawal in a down market from equities down 10/20/30% is far worse than not getting the returns on the way up. Its the exact opposite effect of dollar cost averaging when buying. You have to sell a little when its up, but a lot when its down. You can average sell your account away with a bad sequence of returns. The small cash/bonds holding strongly mitigates that risk of needing to sell equities in a down market.

[@bobgarrell8242]

Thanks for your video. I have been watching a lot of retirement videos, but haven't seen one that broke it down like this. It seems guard rails is a solid strategy, but I didn't understand where your value of $6,762 came from. I assume this correlates to 81k yearly which is more than I would have thought with a $1M start. Do you have a video that explains that in more detail? Thanks again.😁

[@Yette]

Good information and analysis. I dont see the 4% rule being particularly hard to execute, I feel that ranking was too harsh.

[@seandelaney1700]

I don't get what is difficult about it at all as you just follow a schedule. In fact it seemed a little too simple and so I always assumed it was likely the most popular.

[@peteraleksziev6960]

I agree. And the 'medical emergency', etc examples he cites obviously cannot happen under any other strategies. man. Btw the 4% rule is pretty mechanical, the researchers wanted to design a no-thinking, no flexibility safe withdrawal rate. Digging a bit into the findings of the study, you can draw down more than 4% even in the first year unless the market just peaked then basically. Also, if you have a chance to get some part-time income during retirement, you need to withdraw less money in the beginning, and you can start the 4% rate at a later year, when in expectation your portfolio should have increased in real terms. Obviously the guy wants to sell CFP services, so he cannot just let you go with the easiest and most likely successful strategy. (why on earth would you run a 20% risk of relying on your family in your late retirement, when you were rich at the start?)

[@brianandbarikelly5349]

Great analysis. I like the idea of guardrails, but how do you know what to set them at and what initial withdrawal rate to use?

[@danielross5145]

“Creverly clafted” 😂1:25

[@allanspring4227]

Where is the algorithm or maybe web calculator where you could enter those several guardrail input values? And thanks, an insightful video.

[@camela8445Mar]

Great video, I’ve been thinking a lot about my retirement withdrawal strategy lately

[@jcjung5544]

Who said you have to have 50% stock & 50% bond for the 4% strategy?

[@momhouser]

That is the portfolio used in the original research. US large cap and US Intermediate Treasuries 50/50.

[@xwhyzzwhy]

It's a bit misleading to say that you have to have 50/50 to do it "right"; that lines up with how the research results were calculated, but the rule still works as advertised for mixes with moderately more than 50% stock (but not less). Over time with more than 50% stock you'll see better results (higher end balance or higher starting withdrawal rate) up to about 75%.

[@ThePianoMan1953]

@@xwhyzzwhy While Rob Burger was interviewing the father of the 4% Rule the other day, I was surprised when he stated that he has come to the conclusion that 55% stock is the sweet spot for retirees. (of course, Rob has said that 75% would be fine and W. Buffet swears by 90% stocks) They are all interesting opinions.

[@tombkk1322]

@@ThePianoMan1953I agree with you.

[@finned958]

Never invest on Bonds when Stocks are doing well. Stocks go up, Bonds go down. When cashing out, keep them as cash or money market funds.

[@enr3334]

The 4% strategy was originally based on 2 asset classes when developed. The author of that strategy now thinks a 4.7% approach is more appropriate having tested it using 7 asset classes.

[@BelAche-99]

Also, the 4% rule, is and was meant to be a rule-of-thumb for starting a savings strategy, never a withdrawal rule!

[@hitono]

Hi Eric, how do you arrive at the upper and lower numbers for the guard rail strategy? The upper guard rail seems like a small increase but the lower guard rail is a big drip before spending cut.

[@lowspeed2000]

4% rule spending for 10 years should be a minimum of 400,000. Not sure how you got 148k.

[@ThePeakFP]

You are absolutely right. I did not catch this - the total inflation adjusted spending in the 4% rule scenario is in actuality $458k

[@Taicho116]

I don't understand what makes the 4% so hard to follow in your opinion. Lets say I have $1,200,000 and withdraw 4% or 4k a month. I plan to save about 1k a month for bigger purchases or refilling my emergency fund of about 20k that isn't part of my 1.2M. Does this not count as the 4% rule because I am saving some of that money I am getting monthly for when I need more than 4%?

[@jps0117]

My thoughts also.

[@danielh7104]

That’s fine, but in say year 11 you won’t be taking 4% of your portfolio. You’ll be taking 4% of what it was worth 11 years ago plus 11 years of compound inflation and ignoring what your portfolio is actually worth. Most people won’t do that.

[@ThePeakFP]

Very few people will be able to plan with 100% certainty that their year 1 4% distribution will never need to be adjusted in ensuing years in retirement. The 4% rule is an example of the "best" plan based on science that very few (infinitesimally few in my opinion) will ever be able to execute in actuality. What you are describing works fine IF you don't think you will ever need to rely on more than $4k / month inflation adjusted for the remainder of your retirement. Maybe you have guaranteed income sources sufficient that this will be the case - and if so - awesome!

[@ericgold3840]

One thing that makes it hard to follow is the requirement each year to adjust the withdrawal for inflation. Moreover, which inflation index did Bengen use ? Is that inflation index still valid today ?

[@jps0117]

@@ericgold3840 Putting something on my calendar for once a year doesn't qualify as "hard to follow" for me. Your and my inflation rate may be different because we buy different "baskets of goods" and live in different places. For instance, I spend most of my time in Southeastern Europe, which is less expensive than the U.S. average. I have zero car expenses, as I don't own (and rarely rent) one. I rent, with no mortgage. I've been out of the U.S. for most of the last 21 years, and my monthly expense for reliable, high-speed internet has never exceeded $15. Flights in Europe are far less expensive than in the U.S.

[@yvonneachieng6742]

Even though technically not a withdrawal strategy, would have been great to include the strategy of living only on portfolio income i.e dividends and interest.

[@nobeliefisok9174]

That method is usually terrible, which is probably why its not in the analysis. As an example, lets say you are making 4% dividends and interest at the start. But with inflation at 2.4%, you quickly find your 4% returns are no longer paying the bills. After 30 years of inflation, you have effectively half the spending power as you did when you started. You would need to earn 6.4% dividends and interest to withdraw 4% if there was 2.4% inflation in order to keep up over time. And to put it bluntly, you are not going to get 6.4% long term while avoiding risk of losing some or all of the principle.

[@lvega5606]

​@@nobeliefisok9174yeah, since the market is so highly priced, I just looked into dividend stocks for the first time, and they just don't seem to perform well. Like, there appreciation is basically flat while paying a 3 or 4% dividend. I may as well invest my excess cash in a 5-year t-bill which yields over 4% right now, risk free, while I wait out the equity market correction.

[@Donkeyearsa]

The meathead that I have decided to go with is being heavily invested in stocks with a safety net in short term bonds. I will cash out stocks when the market is going up to only slightly dropping and only withdrawing money out of the short term bonds when the market is going down. This gives me the most spending ability but still keeping a safety net. The only question is how long of a safety net do I want. In most retirement cases two years will do Ok but would I rather lose some returns just in case there is a prolonged down market.

[@ThePianoMan1953]

I'm in a cash position right now but I've entered the market at a terrible time (2000) Do think this is a bad time to enter, say, the S&P 500? Or, do you think the smart money should wait a while?? Thanks

[@DanielBaleWyatt]

At 32, I'm diving into investing for the first time. I’ve started contributing to my 401K and opened a Roth IRA with automatic contributions. My main question is whether asset allocation is crucial at this stage or if I'm just overthinking as a beginner.

[@HotManP-l5g]

I completely agree-having a professional manage my investments has been invaluable. My job doesn’t allow time for in-depth stock analysis, so I entrusted an advisor with my portfolio. I’ve been fully invested since the COVID-19 outbreak, and I’m happy to say my portfolio has grown fivefold in just five years, reaching nearly $1 million.

[@ssbob6101]

90% equity low cost broad market etf 10% cash, maybe 80:20 when retired, none of this 60:40 shit at your age

[@nobeliefisok9174]

The easy answer (and probably correct answer too) is to be 100% stocks 0 bonds when you are 30 years from retirement, and are regularly allocating new money to your investment accounts. When market is down, you will be buying low with all that new incoming money. There is effectively zero value to holding any bonds at this point in your life. The second important advise is to pick a single high-quality very low cost SP500 or total market index fund from a company like Vanguard or Blackrock, and put 100% into that. Never touch that money again until retired. No rebalance, no timing of market, 100% into that single fund for decades. You will outperform probably everyone you know long term doing that.

[@MeirPamela]

Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family...

[@NaufalKnoechel]

I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second daughter. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks,,

[@MeirPamela]

@@NaufalKnoechel Quitting may not be the best approach if you ask me. This is where an AI comes into the picture. I barely have time to trade myself as my job swallows up most of my time. *MARGARET MOLLI ALVEY* ..

[@NaufalKnoechel]

@@MeirPamela Oh please I’d love that. Thanks!

[@MeirPamela]

*MARGARET MOLLI ALVEY*

[@MeirPamela]

Look up with her name online...

[@jerrysanders8774]

I have a different withdrawal strategy. It is like a guardrail strategy but is it based upon a few factors. First I withdraw what I need to live. If an RMD applies I take out up to the RMD amount. If my retirement investment gain occurs then I withdraw up to the gain or a reasonable tax bracket maximum amount. For example if I need 90K to live and I have no RMD and my portfolio gain is 220K then I might withdraw up to the 201K of the married filing jointly tax bracket. The retirement investment grows in a strong bull market but I also will have plenty of play money. After a bear market year I would withdraw only the 90K or RMD as it applies. I can choose a different tax bracket if it better meets my needs or if tax brackets change. I have not tried to run a Monte Carlo simulation but this seems reasonable to me. The retirement investment will typically remain unchanged year-over-year and is only eaten by inflation and bear markets.

[@johnbarber1318]

Returns are highly dependent on asset allocation. The strategies that you outline are clear and your analysis seems very thorough...except I keep thinking that your asset allocation strategy seems very arbitrary. How do you maximize equity exposure...and return while controlling adequately for risk? Can you take a guardrail approach to asset allocation as well?

[@nobeliefisok9174]

Of course the asset allocation is arbitrary. Every allocation that mentions a specific stock/bond ratio is arbitrary. These particular defined strategies use those particular allocations for calculating risk/reward. Change the allocation, change the result. As an example, change the ratio to 100% bonds and the 4% withdrawal method has a 0% chance of success. 😉

[@petermadany2779]

Doesn't this video mix two somewhat unrelated items: withdrawal strategy and asset allocation? A better portfolio mix might be to allocate Age/2 in bonds rather than Age in bonds. Thanks for sharing the guardrail strategy, which is news to me, and I'd like to learn more about it.

[@nobeliefisok9174]

Asset allocation is irrevocably linked to withdrawal strategies. If you use less risky, lower return allocations then you must also use a less risky, lower withdrawal strategy. So they are mixed in the video because they simply are linked together.

[@petermadany2779]

@@nobeliefisok9174 A less risky, lower return asset allocation leads to a less risky, lower withdrawal strategy. However, the converse doesn't have to be true. One could use a more risky asset allocation with a less risky withdrawal strategy to increase one's heirs' inheritance.

[@kennethwers]

This is the first time I heard of the guardrail system. Add a year of cash account. and less bonds. Would be what I would work in retirement.

[@chessness]

In strategy 1 and 4, you do lt really explain how much is withdrawn, other then 'what you need'. To some people it is 50k / year while for others it is 150k. How can you make calculations based on this. Or rather, whats was your assumption for the calculations ?

[@nobeliefisok9174]

People use the back of a napkin to calculate. That is why he is so against method #1 in the video. 😝

[@jackdguida]

I’m looking at your Portfolio spending in the first 10 years of retirement and you have the 4% rule at $148K of $1M portfolio. How is that possibly correct? Even if you just took out $40K per year and didn’t adjust for inflation, that would be $40K x 10 = $400K. Add inflation adjustments and it will be higher and probably comparable to the other strategies.

[@ThePeakFP]

You are absolutely right. I did not catch this - the total inflation adjusted spending in the 4% rule scenario is in actuality $458k

[@meibing4912]

Excellent walk thru. 100% guard rails for me, but some people will likely struggle keeping it up unless they have some buffer. 4% is just stupid imho. People put far to much into "sleeping well" at night. People can easily adapt and many need to adapt to lower income along the way. Its like paying back mortgages before retirement. Why give the bank your money when you can spend it instead? Its even a dangerous move as it markedly increases the risk of illiquidity - by far the greatest financial risk people encounter in real life.

[@texdevildog9174]

Have you discussed how the RMD of a retirement account will affect these plans? I can see later in life when RMD become significantly more and subsequent taxes increase also, which puts a bigger draw down on assets.

[@nobeliefisok9174]

Dealing with RMD's is really a question of optimization of taxation on withdrawals. It totally does not matter what what withdrawal strategy is used in relation to RMD's. You can withdraw 4% for instance into your bank account at the same time you are moving $50k more from your 401k to your Roth IRA via backdoor to lower future RMD's. Again, not related.

[@stevensmiley7673]

For your guard rail example you used a 20/80. How would the results change with a 10/90 approach?

[@davegenet]

Nuanced. I’ve been planning using the 4% rule and noting “excess” cash to my planned needs. I’ll have to take a closer look at Guardrails. My kids won’t need my money.

[@jps0117]

If, at the end of the year (Year N), I examine my expenses for the year, along with the anticipated expenses for the year ahead (Year N+1) and, at the beginning of the new year, I withdraw X% to cover those expected expenses, and I do this for every subsequent year, which strategy is this?

[@ThePeakFP]

In this case it would depend on what portfolio actions you would execute in tandem - but this would be most similar to the pro-rata (inflation adjusted) method.

[@jps0117]

@@ThePeakFP Thank you; I'm glad I found your channel. "Year N" and "Year N+1" are often not the same -- beyond the inflation adjustment. For instance, in one year, there may be a car purchase or an expensive vacation -- and not in an adjacent year. I think some soon-to-be retirees think that the decisions they make at 65 -- or whenever they retire -- are the last retirement decisions they need to make -- financially, as well as where to live, how to spend their time, etc. But, retirement isn't the "end of the road"; life doesn't go on "automatic pilot" at that retirement inflection point. Plans need to be reviewed and adjusted. ("Plans are nothing; planning is everything." -- Dwight D. Eisenhower) Finances, as the rest of life itself, still require "hands on the wheel" attention and management.

[@sethnems]

Pro-rata might actually be the best approach if you know that your needs will never exceed the 4% rule. This would apply for the few who have more retirement savings than they'll every spend.

[@sowasvonkeinplan]

Why would you ever just spend more as you probably need? For example in the guard rail strategy when hitting the upper guardrail: In my opinion you could just use maybe 75% of the income and safe the other 25% to an extremly conservative form of investing (like fixed-term account or something like that). And then you use this excess money in a bad year (when stocks went down) to not have to take money from the stock portfolio and to compensate. If you have like 2 or 3 extremly good years in the stock market - years like 2023 or 2024 - you would generate a lot of excess money, which enables you to spend only that excess money in a year like 2022 with a huge drawdown in stocks, not having to touch your stock portfolio. Is there any strategy, which tries something like what I described above?

[@Feds_the_Freds]

Great video! I did think that the 4% rule meant to be 4% of the current portfolio :D

[@Mariner1460]

Did I get this right-you are mixing withdrawal strategy with rebalancing target? Would it not be better to use the same rebalancing for each withdrawal strategy so as not to penalize the 4% strategy vs guardrails? The original 4% rule assumed 60/40, not 50/50 as you indicate. In any event, the 4% rule was never meant to be used as a withdrawal strategy. Its purpose is simply to answer how much money you need invested to statistically guarantee not running out of money in 30 years. If you are willing to accept an 80% probability of success for guardrails, then you should also adjust the starting withdrawal percentage for your inflation adjusted “fixed” withdrawal strategy (that’s what you are really comparing here-fixed vs variable) to also have 80% success. What’s that do to your calculations?

[@ThePeakFP]

Part of the purpose of this vide as well as another recent 4% rule video I made is to illustrate that the 4% rule is not actually a practical withdrawal strategy. These are fair criticisms. There were issues with this video and the model I showed that I unfortunately only caught after the fact :(. But overall, the principles are correct... Most people do not use a dynamic withdrawal strategy. They use a fixed portfolio allocation or some kind of glide path and withdraw "what they need". That's why I illustrated it that way. But you are correct - this video could be done to show a more apples to apples comparison - the results would be the same, and the actual changes in 1st ten year spending, median 11 year assets, etc would be only marginally different using apples to apples asset allocations.

[@Mariner1460]

@@ThePeakFP Thanks, PeakFP.

[@scottstahley]

If i intend to use the Guardrails withdrawal strategy, how do you figure out your FI number? With the 4% rule you can get a good idea of your FI number by calculating your expenses by 25. With the guardrails strategy you will presumably be using more than a 4% withdrawal rate, so how would you calculate with that with a 5.5 or 6 % rate?

[@lvega5606]

You would just divide 100 by your withdrawal percentage. So, a 4% withdrawal percentage means your balance should be 25x expenses, and a 6% withdrawal percentage means your balance would only need to be 16.7x your expenses.

[@wallys7016]

Good video! Thoughts on 5% withdrawal rate? Hearing more and more about that.

[@nobeliefisok9174]

The "perfect" calculation for a 60/40 ratio stock/bond allocation is a balanced 80% at 5.2% initial withdrawal. But that totally ignore the outsized effect of the first 6-10 years of retirement. Personally I am completely comfortable with 5-6% rates of withdrawal in the first 10 years, with adjusting (aggressively if required) to market conditions. Also, I dont like 40% bonds at all. I am a fan of 3-years withdrawals in cash/short duration bonds, which at 5% withdrawal is 15% cash/bonds. That extra 25% stock ratio is enough to easily allow 5% withdrawals and be just fine long term. But only if you do and will actively manage your cash reserves with intelligence. Most people cant/wont/get emotional. So they are better suited to a mechanical rebalance each year.

[@richvillacres2793]

I’m trying to figure out your withdrawal % on the Guardrail Strategy. Is it 6.7%? What % does it fall to if the lower Guardrail is hit?

[@TheTaytay198]

I took it as +/-5%.

[@subversiveSubduction]

I hope Eric makes a video dedicated to Guardrail Strategy. I've liked the idea since reading the May 5th, 2023 article at Morningstar by Christine Benz.

[@ThePeakFP]

I have several more detailed videos that will come out in the next 8 weeks about guardrails and how to apply it. I find it a fascinating detour from the standard withdrawal strategy narrative.

[@ThePeakFP]

In the scenario demonstrated in this video the guardrail triggers in a +5% or -5% change in spending. The withdrawal % in this specific displayed scenario is 4.6% POST TAX. In this scenario all of the funds are in a Pre-Tax account so the Pre-Tax distribution would be roughly 5.4%. These numbers change based on the tax allocation of ones funds.

[@lindsaynewell6319]

@@ThePeakFP I'm excited to watch a series on guardrails - not much good content out there on this (you're ahead of the curve already). Especially interested to see how pre-tax and taxable mix should influence practical approaches to guardrails. Thanks.

[@OffgridApartment]

Wouldn’t a reverse glide path make more sense in a lot of cases? Adjust to be more aggressive over time especially as sequence of returns risk becomes a non-issue. I see it working as a glide path into retirement to an asset allocation to minimize sequence of returns risk and then a reverse glide as you get closer to end of life.

[@seandelaney1700]

Supposedly you spend more when young, my 90yr. old father said "not necessarily". As for me I'm fine being a frugal backpacker now but when I'm old I might want to settle in a beautiful home or in an expensive HCL location by family.

[@donnaturrell731]

What about your RMD?

[@PH-dm8ew]

not so sure why we would want 70 bonds after 30 years when we are least worried about long term risk. Why not 50/50 mix first 5 to 10 years of retirement and then slowly ramp up to a 70 stock 30 bonds mix which has been shown to hold up far better in most 10 to 20 year terms.

[@robertarnold1035]

Is there anyone that uses a 3 bucket theory investment that withdraws a % and then put guardrails into effect to lower the % pull out when the market is underperforming? I realize my advisors should hedge against this, but I was wondering if advisors do this? I am a couple of years away from retirement and I am leaning toward Bucket theory. My financial firm that would take over my retirement thru my employer does not do this to my knowledge regardless of how the market does they would remove money hurting my money due to not caring if my funds is making or losing money when I withdraw it.

[@g.a.7527]

how do you get $148K of spending on the 1st 10 years of the 4% rule? Wouldn't it be $400K in today's dollars or ~$458K in actual dollars? It's $40K per year for 10 years. LIkewise, where do you get the $463K for the pro rata and glidepath.- you said it is take what you need, but you didn't forecast any actual needs.

[@ThePeakFP]

Yes you are correct. I made a calculation error in the summary grid and did not catch it. The total spending amount would be $458k. The prorata and glidepath scenarios used a starting expense need of $40k out of pretax accounts, inflation adjusted for 30 years. In both scenarios the year 1 pretax distribution was $46,067 inflation adjusted each year thereafter.

[@christinacascadilla4473]

I really don’t understand this, and fortunately I’m 40 years away from retirement. But I’m going to use my Magwitch was an example. If you have $1.5 million in mutual funds and $500,000 in IBM stock, why not just take whatever the mutual funds yield in a given year? If that’s 7% you take $105,000. Then just take the dividend from the IBM stock. It doesn’t matter if the stock goes up or down, they always give a ridiculously large dividend. Like $6,000 quarterly. And the guy has a $73,000 pension. There could be a 1929 catastrophe and he’s not going to be homeless or starve to death. The pension is guaranteed. So there he is, pulling $202,000 that year, and his $2 million stays intact. I think the big task would actually be to sit down with an accountant and see how to avoid tax consequences. Like DON’T pull that much if you don’t need to. I think the most important thing is to get a really good accountant and listen to him instead of someone on the internet.

[@mdavern]

You end up with extremely volatile spending. Today it is the IBM stock that you say will give a ridiculously large dividend. Back when I was 40 (more than 25 years ago), I would have written "just pull the dividend from GM", or some other large company that doesn't exist or barely exists today. Having a baseline of income is a good thought but the volatility driven by the sequence of returns (the luck of the draw set when you were born and when you choose to retire) would then drive your spending. That is hard to manage which is why all of us old folk near retirement are all freaked out with the uncertainty of trying to pull a somewhat steady income from a volatile asset stream. When you are accumulating assets, the sequence of returns doesn't matter. You dollar cost average over a long period of time. That magic now works against you when you withdraw. The sequence matters as you pull when the account is down, it doesn't get a chance to recover. Good luck and continue savings. You have a long runway. Time is your biggest asset.

[@christinacascadilla4473]

@@mdavern I don’t know…if a guy has a $73,000 pension, he doesn’t even need any investments. And no debts. So whatever those investments yield it’s just the cherry on top.

[@CharlieMartorelli]

Excellent!!!

[@michaelcoglianese4292]

How did you come up with the starting withdrawal for the guardrail strategy, it seems pretty high? If you started out with a 5% withdrawal how would that turn out?

[@ThePeakFP]

The starting withdrawal % is determined by the guardrail strategy itself. We supply the tool with a question "What can I spend" if I want an 80% chance of underspending and 20% chance of overspending based on my portfolio's current value, my age, my estimated length of retirement, and my other income sources. This is why I like the guardrail approach - it tells you what is possible to spend based on a desired confidence interval - Monte Carlo does not supply an answer to the question of "what can I spend".

[@liverpool3469]

Hey Eric, just a question: Why do you use 60% stocks / 40% bonds? Who does this? May be 90% stocks and 10% cash? My very simple strategy: I am not going to sell stocks if market is down, only when it is up. And I am going to use cash for as long as it is a bear market. My very simple plan: 5 years of cash and the rest are stocks.

[@ThePeakFP]

Thanks for the view and thanks for the comment! 60% stock 40% bond is the most common asset allocation out there which is why I used it. but we could replicate this study using other asset allocations as well. Your plan is a fine plan!

[@ChadKurszewski]

If you are thinking anything close to a 4% withdrawal rate, and you want 5 years of cash, that's going to be 20% of your portfolio, not 10%.

[@thetjt]

@@ChadKurszewski I guess that depends on whether you need to use 4% per year minimum. If two percent is enough in bull market... Anyway, shorter duration bonds, perhaps even medium duration bonds are clpse to being cash. My plan is to have around 5 year minimum need in medium term bonds, perhaps a year or two in cash/MM funds. maybe even a year's worth of gold for a rainy day. Ok, one could argue that medium bonds can go down 20% like they did... well yes, if interest rates are close to zero in which case cash would be better. Anyway, having bought those bonds recently, they can't really go down much, ever... unless interest rates go ridicullously high...

[@ericgold3840]

I'm surprised that I like this video, since I usually start to itch when I see scorecards. Behind the scenes, I think these different strategies differ in how they handle a bad early sequence of returns. As far as the analytical method goes, if suffers from MEDIAN modeling. I cannot tell anything about the depth or duration of enforced reduced spending in the guardrails approach when an early sequence of bad returns occurs

[@ThePeakFP]

I plan to do a much deeper solo video on guardrails that will illustrate the depth and duration of spending reductions. It will also clarify how the guardrails are changed based on a users desired "confidence level". Im glad you enjoyed the video - Overall I'm happy with it but there were some errors I made in the summary table that I am disappointed I didn't catch before releasing the video :S.. thanks for the comment!

[@Brown-ku6du]

Inflation adjusted has a higher total than guard rail...

[@HectorBailey-zi7du]

Retirement isn't an end goal, but a journey best secured by careful and consistent investments.

[@drmitofit2673]

As people age, they spend less (although a late in life medical condition could change that to a U-shaped spending curve), so why adjust for inflation? I upped the 4% rule to withdraw at 6% but stayed in the S&P and don't ratchet up each year for inflation. Very simple set and forget, and my IRA keeps growing. Might have to reset to 8%.

[@xwhyzzwhy]

Yeah, so far so good, but the last 20 years have seen crazy good returns and almost no inflation. You should expect that to end at some point, and expect to adjust your rate down or adjust for inflation, depending on which way it breaks.

[@1jet55]

Why does the 40% have to be 50/50 split. In 2006 Bengen noted he thought the safe rate should be increased to 4.3 and currently thinks it is more like 5% but in a recent interview I see he went from 55/45 and most recently is almost all in cash. After looking at he transformation I am convinced 17 black on the table is safest way to go. JK

[@reneelewis4268]

thanks for this information. i totally disagree with a 4% rule. take out what you need to live on. live below ur means as we age, enjoy life. i would never need to keep pulling more as i age. does not make sense to me, but that is just me. happy retirement to all.

[@FrankBatistaElJibaro]

throughout the video '1' means worst. At the end of the video, '1' means best.

[@austingonzalez1148]

The information in this video is incorrect in a long of places. A x% withdrawal ratw strategy can be implemented on a portfolio with any asset allocation. The original paper may have said 30y 50/50. But you can have a 2.6% 50y strategy on a portfolio that is 100% stocks. The asset allocation is a different discussion. Maybe you could have a video saying how each strategy changes thw optimal asset allocation. Or for a given allocation, which strategt maximizes income. But this video is just all over the place and unhelpful.

[@thetjt]

...And how, say, 3 years in cash/MM funds changes the allocations. I guess that's counted as "bonds" then...

[@scoaste]

Forgo Inflation is also a decent strategy.

[@richrogers5614]

Good content, probably get more subscribers at 1.0 speed.

[@karenmcgovern3452]

Yeah, I’ve never understood why most everyone doesn’t do guardrails approach. Aren’t most of us going after the greatest bottom line?

[@ThePeakFP]

Different people have different priorities. Some people want to maximize stability and legacy. Some want to get the most spending while alive. There is a way to achieve either outcome! Thanks for the view and comment :)

[@arnaudn8100]

Don't listen to this guy or all the experts that want ur money. Im retired and its not complicated. I have everything in sp500 etf AND always around 3 years ( 2 would be ok) in cash. When market is up at the end of the month i take from etf, when its down i use cash

[@kurtcreegan6135]

Where do you get the cash?

[@danielh7104]

If you have two instruments (withdrawal amount and equity:bond ratio) and are trying to optimise at least five outcomes (10 year withdrawal total, total withdrawal, success chance, amount left over, peace of mind), you haven’t much chance of doing it well.

[@ThePeakFP]

I happen to agree with this statement wholeheartedly.

[@thetjt]

@@ThePeakFP One small question... does the 4% rule take into account what sales tax or does it assume that there are no taxes on winnings? We have 30% tax here in Finland - ouch.

[@stephenbonaduce7852]

But aren't bonds absolute crap?

[@azflyer3297]

Call me crazy, but I think it’s very irresponsible to have anything in stocks after about 70. I saw too many soon to be retirees get hammered back in 08. Retirement funds should be at minimal risk. You don’t have time to make up losses.

[@larryjones9773]

I retired in 2009, with 100% stock index funds. I'm 63 and still have a 100% stock portfolio. My savings at retirement was $426,470. My savings today is $2,261,360. I did receive a $103,000 inheritance and I pulled $250,000 of equity out of my house with a cash-out refinanced mortgage at a 3.75% interest rate (both in 2019). If a 70 year old lives to 95, that's 25 years. A good amount of time.

[@seandelaney1700]

Dad's 90 and I would guess he is mostly stocks like BH as the market over his 45 years of retirement strongly outperforms and he was able to survive the "bumps" or rather slumps. Unfortunately he always worried about money until 80.

[@tombkk1322]

⁠@@larryjones9773Compounding interest is an amazing. Almost $2 million. In compounding interest over 15 years since 2009. Congratulations on staying the course!

[@kennethwers]

Did they panic and sell before the market when back up? Did they have a cash account for bad years? Or did they run naked.

[@drmitofit2673]

I recommend investing 100% S&P 500 while working and well into retirement. It's diversified with the 500 most successful companies in America that are better equipped to handle downturns. No individual stocks which ARE risky. Imagine Elon Musk having a very bad day. With astronomic, unpayable national debts, I am not convinced that bonds are as stable as people think. A bond crash is not out of the question, in my opinion. But maintain the working safety net cash fund well into retirement to wait out bear markets. Big investors buy the dips, so corrections bounce back quickly nowadays.

[@TheMoonSeesMe]

When your young put it into the NASDAQ. 17% average growth each year over the long term. Only 10% since injdex inception, but 17% for the last decades.

[@seandelaney1700]

You can buy some TSLA as it's cheap and will likely crush the future.

[@azflyer3297]

And what’s the deal with all of the edits in your videos? I enjoy your content, but why so many jerky edits?

[@geoffgeoff143]

Who has 1m at retirement i real life? Avery small percentage.

[@tombkk1322]

Only 3% of Americans have 1 million saved in a retirement account. Very true.