RMDs vs. 4% Rule | Best Retirement Strategy

[@rickdunn3883]

Good video. Some of points for enhancement of understanding. 1. If you'rs subject to RMDs you probably can't do the 4% Rule strategy. 2. Although the RMD causes more $ to be withdrawn (over the long term), it does not mean that you have to spend all of the RMD (you can put some $ into a taxable investment account) and use it in a bad year. 3. The point about spending less in down years and more in up years can be formalized using one of the Guard Rail spending strategies (probably a good idea for many folks). 4. The 4% rule is intended to account for Sequence of Returns Risk-which Erin shows in the Real World Example. 5. Your withdrawal rate needs to account for all expenses of the investments. 6. If you have some $ in a Roth IRA ... those $ are not subject to RMDs, 7. Remember folks: "Money Doesn't Grow on Fees".

[@joecochran7797]

Also, you could invest a portion of those RMD's into a Municipal Bond Fund or ETF and receive a 4% to 5% tax free dividend.

[@MrGoodaches]

What I most appreciated about this vid was running the numbers first as straight line for explanation and comparison of the basic topic. Then running the examples again using historical data was really excellent for showing potential real life expectations. As usual, great job making topics easily understood. I’ve shared other Erin vids with adult children of mine and of my wife. Those were topics relevant to their stage of life.

[@PaulsByarses]

I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my portfolio for retirement. I'm seeking to invest $200K across markets but don't know where to start.

[@AllsopsBrowns]

The professionals presently control the market since they not only have the essential business strategy but also have access to inside information that the general public is not aware of.

[@AuerbachsPettises]

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

[@PaulsByarses]

@@AuerbachsPettises 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?

[@AuerbachsPettises]

@@PaulsByarses MARGARET MOLLI ALVEY is a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and is a valuable resource for individuals seeking guidance in navigating the financial market.

[@PaulsByarses]

@@AuerbachsPettises Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible.

[@robertmadderom7753]

Erin, as much as the discussion and examples were great, the RMD is a real “rule” and the 4% rule is not a real rule, even though many talk like it is. As you are well aware, RMD stands for REQUIRED Minimum Distribution. It is required as a minimum for each and every year for income tax payment purposes. Fall short and tax penalties will apply. In your example the 20th year for the 4% rule plus inflation was pulling less than 3%, whereas the RMD REQUIRES over 9% withdrawal. The difference would no doubt create a significant tax penalty. You are correct that in the first year of distributions (or for normal post tax accounts where there is no RMD) the 4% is very close to the RMD; but in a very short few years (assuming inflation vs earnings numbers) the RMD is greater than the 4% plus inflation number. Another good way to look at retirement finances would include both pre-tax (IRA and 401k) along with post tax and Roth accounts. The RMD will vary every year but would be viewed as the base withdrawal, and the post-tax and Roth accounts can be the flexibility to complete annual needs. Depending on personal tax rates, some might consider withdrawing more than the RMD if the expectation is for future tax rates to be higher. The tax code and tax requirements are challenging to understand due to many variables. Just remember, IRA/401k withdrawals are always taxable income, even if inherited by family members. Even when someone withdraws more than the RMD minimum, any unspent monies can be reinvested in normal investment accounts. Too much complications to discuss in a short video. Thanks for your work!

[@teekay_1]

Exactly. I see one video being recommended that says "Do RMDs beat the 4% rule as the best Retirement Withdrawal Strategy". And you want to say "dude, it's not a choice!"

[@GAFB1122]

There is so much misinformation about the RMD. I have seen many comments about not having enough money to the end of life because of RMDs and that is a bogus argument. Yes, the government also known as "We the people" wants the tax on that money from those tax advantaged accounts (i.e. Traditional 401k and Traditional IRAs) hence why there are RMDs starting at a specific age, and I am OK with that because you received a tax benefit earlier in your life. BUT there is NOTHING forcing you to spend that money. Pull it out, pay the tax, spend as much or as little of that as you need to and then put the remaining into another investment account. And the principal you put into that account has already been taxed so that portion will be tax free if/when you withdrawal it. Obviously, any investment gains / earnings would be taxable. Long story short... you are subject to RMDs at a specific age, but you are NOT required to spend that money.

[@donh8833]

Get a part time job that offers a retirement plan and contribute your excess to ROTH 401. If you make $30k/year that's $30k you can add untaxed after you pay the taxes. Regular investment will severely penalize you. Basically you are doing a ROTH conversion in your retirement years which you are allowed to do. You avoid a double tax that way.

[@ErinTalksMoney]

You are so right, you don’t have to take that money out and spend it. You do have to take the RMD, but there is no requirement on what you do with that money. 😊

[@bucknut9475]

True

[@Coover90210]

@GAFB1122 stop confusing me with common sense! :-)

[@rab52764]

As someone said above, the tax advantaged accounts shouldn't be your only asset. The 4% rule would apply to your whole portfolio, not just the tax advantaged portions. Also, just because you are forced to withdraw money from the IRA accounts doesn't mean you have to spend it all. Take the money from those accounts, deposit it on your brokerage account, and only spend what you need or want. Keep the rest invested and growing.

[@bvoyelr]

Yeah, came down here to write that. I wonder what the RMD table would look like if it only spent the money that the 4% rule would have spent, taxed the rest, and put it back into principle? Which is a complicated way of asking how devastating are RMDs if I don't actually spend all of that money?

[@edinnorthcarolina--ovelhog5786]

That is my plan. Right now I plan to start taking 7% from my accounts at age 65 next year. I don't want to bump up against IRMAA or I would take more. My goal is to spread the tax pain over more years, rather than get hit with the "tax torpedo" at age 75.

[@donh8833]

Always start with your tax deferred bucket before you hit that ROTH.

[@BrianK-zz4fk]

does this apply to roth? my mom is 78 so probably escaped the gov mandate.

[@donh8833]

@@BrianK-zz4fk if you have 100,000 tax deferred and 100,000 ROTH. 4% is $8,000. Pull all that $8000 from the tax deferred. You are lowering your rmd burden later. If you pull it evenly your tax deferred balance at 72 will be much higher and you don't have an option of NOT pulling it without a severe penalty. And you will be taxed on that.

[@paulmartin8212]

I'm 71. Just ran across your channel. I've been trying to educate myself on "RMD's" and "QCD' terminology. Thank you for your videos. I also enjoy the bloopers at the end. LOL I have too much time on my side.

[@ld5714]

Good morning Erin. Great video! It is actually timely because the very quesiton of how close would the 4% compare to the RMD outcome has been something I've wondered and been curious about off and on most of this year. I'm 75, have no problem spending money and have been gifting quite often within the family when needed. I got started on Roth conversions a bit later than I should have and have been doing them for the past few years and will continue until the TCJA sunsets and then reevaluate. As part of my legacy planning, I have an eye on the tax backets of my kids and it varies widely so what accounts they will inherit enters into my thinking and plans. You have the financial calculators and did all the number crunching for me so I really appreciate that part. I expected the RMD to be higher than the 4% method but was a little surprised with the actual spread. but having now seen it, it makes total sense. Thank you for putting out the very useful and informative content each week Erin. Have a blessed week and I"ll see you on the next one. Larry, Central Valley, Ca.

[@ErinTalksMoney]

Thanks so much, Larry! I’m glad I could do a video on a topic that was in the forefront of your mind. Makes me feel like a little bit of a mind reader. I’m really curious how the spread will be different between these two strategies 20 years going forward. Because we have no idea how the market is going to perform. It will surely be interesting to see. But I love that you are planning for the next generation, I hope you have a great weekend! 😊

[@Ethan-bu2zy]

Withdrawing more in the up years and less in the down years is what I plan on doing. As you stated, balance is important.

[@NataliaFloor]

Planning ahead can really minimize taxes! I’ve been in the crypto/stock markets for half a year now, and it’s been a game changer. I was able to reinvest my RMD strategically, and I’m now pulling in about $25k a week, despite doing very little trading myself. It’s a nice cushion against financial stress. Best of luck with your RMD decisions!

[@Richardarding]

@@NataliaFloor 25k a week? Amazing! how did you get started?

[@NataliaFloor]

@@Richardarding I signed up for a 1-on-1 trading session. It's like copy trading, but with personalized guidance.

[@NataliaFloor]

It's a secure and supportive way to improve your trading skills while earning, the best part is there's no upfront payment required

[@IsabellaRozz]

Honestly I really need help learning to trade. Seeing my portfolio low makes me very sad.

[@BoxOfRain]

One of Erin’s best videos! About two thirds of my retirement savings is in IRA accounts. The rest is in after tax accounts. My plan is to use the after tax accounts as a buffer when the RMD amount is either more than what I need or less - withdrawals from the after tax being limited to the RMD amount. As I am rather frugal, I don’t think that I will need to dip into my after tax very often. On another note, it would be interesting to see Erin’s case studies run in a Monte Carlo simulation.

[@ErinTalksMoney]

You know, it might be interesting to do a Monte Carlo simulation in a video. I know there’s a lot of people who actually haven’t looked into Monte Carlo simulations. So it could be a really value added video. 😊

[@paulseidel5819]

@@ErinTalksMoney I would be interested in seeing that. I would love to go over the underlying math, but that's just me, and probably for another channel.

[@teekay_1]

If you know excel you can do that analysis fairly quickly using a Monte Carlo simulation. I will tell you (as you probably know) that people counting on 7% increases in the market year after year will be disturbed to know that there will be years (or multiple) when your 401K balances will shrink. There are ways of buffering this for yourself, but you can't stop it.

[@johnkingman8660]

Great video Erin. I’m 74 and using the RMD method. Instead of stocks, I have a high quality individual 10 year bond ladder yielding 5%, making the withdrawal rate more stable.

[@TerryRadcliff]

you did a great job laying out the basics for both. well done

[@TBIhope]

This is so good to know, and I'm so thankful I have all my retirement in Roth!

[@kahvac]

Life is good when you have your money right !

[@tft24tft]

Excellent video Erin! love the way you make the complicated simple

[@ErinTalksMoney]

Thanks Tony!

[@jdeang3531]

Erin, love you videos! Just one note, your RMD table at the 5:30 mark shows 2 years @ 16 years out. The same table later seems correct.

[@GAFB1122]

Heading out to the park on a pleasant sunny day for a walk. Just a reminder folks, on my drive to the park I pass a mobile home community and many of them have no clue about RMDs or 4% rules because they don't have much if any retirement because they didn't have much left over to save after keeping the roof over their head, the lights and heat on and food in their bellies. Perspective, all about perspective!! I do my best to remember perspective and if I'm examining the differences between RMDs, the 4% rule and other retirement strategies, I'm doing 🤞ok!! Enjoy your day!!

[@katz20200]

I agree with your perspective completely. Many hard-working people have no savings or investments due to just trying to survive week to week.

[@youngtimer964]

That’s one possibility. Another might be that they simply spent any extra money they had instead of saving for retirement.

[@JohnJohn-wr1jo]

Live within your means. Simple advice but sadly many people either can't or won't do it.

[@scissorsandthecity6318]

Two comments, first I always assumed the 4% rule took 4% of the current value plus inflation. Second really glad to see you included the blooper again. Dale

[@ErinTalksMoney]

Those bloopers seem to be popular 😂

[@jkd1975]

Common misconception

[@mariahakinbi]

this is a fantastic video! thank you so much for breaking this down. I've wondered how RMDs compare to the 4% rule and this is super helpful. love hearing your take on things!

[@anneberman7054]

Hi Erin, You are spot on wrt the importance of Algebra! I think your assumption of 8% yearly growth is wildly optimistic. Further, I would imagine that not many retirees will have 100% of their investments in equities. I would imagine that most retirees have closer to >= 40% of their investments in bonds, money market, etc. In short, I think for these discussions you should assume a much lower rate of yearly return - something closer to 5% (or even less). Honestly, if an entity would guarantee us 5% yearly return on our investments and they get to keep anything over that I would take it in a heartbeat!

[@travis1240]

I think it's important to remember that the 4% rule is really a rule of thumb to see if you are in the financial ballpark for retirement, and RMDs are designed to drain retirement accounts and fund the government. I think there really needs to be better practical real-world spending strategies. I've seen Guyton-Klinger but that is pretty complicated and can leave you with very little if the sequence of returns doesn't work in your favor. It seems to me there ought to be a simpler spending strategy that doesn't have all these flaws because once you're retired presumably you can adjust your spending based on new information.

[@scotth3354]

Every other explanation of the 4% rule I've heard would reset the 4% withdrawal to the value of the portfolio at year end, not just adding in the rate of inflation to the original withdrawal. In the chart shown at 4:45, even the withdrawal at year 2 is too low, and it gets worse as the years accrue. By the time the portfolio reaches 1 mil, the withdrawal should be 40k, not the 30k shown in the chart.

[@commandoclark]

Thanks for the great video. I have about half of my retirement savings in tax deferred accounts and half in taxable accounts. I intend to follow a modified 4% rule for the taxable accounts and RMDs for the tax deferred accounts. My modified 4% rule will allow me to withdraw a bit more in strong up years and cut back a bit in down years.

[@_Randwulf]

Thx 4 the video Erin. I really appreciate your time and concise presentation. And bloopers go without saying.. 👍😎💰

[@Fred-ci1ps]

Hi Erin, I just recently started watching your video's and love them "thank you". I am 64 and retiring in a couple months, so I'm trying to prepare as best as I can. My intensions are to pull funds out of my taxable IRA each year and put the remaining funds back into my Roth prior to having the RMD"s taken out at 75. I hope you have already made a video and if not could you create one.

[@13noman1]

Thanks! As a semi-recent retiree (2 years in), I appreciate both the comparison here and the focus on living! It's a bit ironic that the largest withdrawals and balances happen here @ 90+ when (as a geriatrician) I know most of us will be in the "no go" years, slowed down by health issues and age at least. At least your heirs might appreciate your financially prudent life!

[@teekay_1]

Yes, every year that you age, the percent goes higher. If you make to the century mark, you'll be forced to withdraw 21% of the balance.

[@mackmckay588]

As a related side note I believe back during the Great recession in 2008 and 2009 that Congress rule that you did not have to do an rmd during that year. I think they did the same thing during the covid pandemic.

[@mdcummins62]

The outtakes! Pure gold! 😄👍

[@fredswartley9778]

I agree with the idea of basing your withdrawal rate on the market performance rather than a fixed number.

[@kahvac]

Excellent explanation thanks Erin !

[@Brad4083]

To reduce the variability of the RMD strategy, I use 3-year smoothing. In other words, I calculate the average RMD of the last three years and use that as my guide for the current year.

[@egs2169]

Really good job explaining all this.

[@ErinTalksMoney]

Thank you so much! 😊

[@krishnadevulapalli315]

Well done! I agree with RMD . For best quality of life, the first few years of RMD, withdrawing to fill up the next tax brackets to spend money or converting to Roth for heirs may be a good strategy. Later on in life , the money may not be of much use except for long term health care.

[@LostInThe0zone]

Love the examples.

[@ErinTalksMoney]

Thanks so much for watching! 😊

[@charletfoster8917]

Great video, very informative 🙏🏿😊

[@ErinTalksMoney]

Thanks for watching! 😊🙏

[@kirklandphil]

Great information Erin, thanks.

[@Coover90210]

"algebra for the win" ha ha 100%. My kids were so tired of hearing me say "math is money" ...but as young adults they are off to a good start. (and 2nd your opinion on calculus. To this day I still couldn't describe what it was I was doing!!!)

[@OEA2580]

Wouldn’t you have to take RMDs regardless if you do the 4% rule, if you’re at the required age for RMDs????

[@erasmoconcepcion999]

If your 4% rule withdraws more than the RMD, then you have satisfied the IRS withdrawal rule. This year is the start of my RMD, I have been withdrawing from my IRA at the 4% rule. My withdrawal is more than what my RMD requires, so I have satisfied the IRS.

[@SpookyEng1]

You have to withdraw the RMD, you don’t have to spend it. You can reinvest into taxable.

[@rick_vv7754]

The current RMD tables for joint start off lower than 4% but within 4 years increase to above 4% and steadily rises thereafter. RMD is only the requirement to withdraw funds and pay taxes. RMD rates should not equal spending rates. You can always take your RMD, use some to pay for your retirement expenses and invest the rest in a traditional brokerage account.

[@wolfe5047]

I am a disabled 61-year-old and have been taking an approximate 3.95% withdrawal since 2021. The account I am taking my distributions from is approximately 65% of my entire stock portfolio. I take a 6% withdrawal from it and over the last 22 years my average return has been about 8% per year. So even with my 4% withdrawals it has continued to grow. I may bump up the rate next year to 6.5 or 7 % just to have a little more free cash. But most months with my SSDI and my withdrawals I have enough to save for the months that my spending jumps unexpectedly. My other 35% I don't take any withdrawals from and continue to grow at about 25% over the last 6 years.

[@mrthemoo]

If you could address recessions and their history - the ways they have impacted savings, it would be helpful.

[@russthompson4296]

Biggest take away is that that RMDs are not the big bad boogeyman that so many make it out to be. Many people are hurting themselves by overdoing Roth conversions to 'hide' from RMDs

[@elcheapofl]

I like your overall take on retirement; work, save, invest, and enjoy.

[@ErinTalksMoney]

Absolutely!

[@ltcterry2006]

"I think I favor the RMD method because..." all valid points, but you have to take it out iaw the rule or pay a penalty. So, that is the rate of draw down, even if you'd rather use 4%. No choice. But, you can have a mix of traditional and Roth and apply 4% to that, while applying RMDs to traditional.

[@matthewpirog5907]

Excellent !!

[@andrewcargile2890]

I am not too competent in all this. I am meeting with a CPA person this next month to talk about all this. Your information at least gives me some insight into my retirement planning. I’m 71 yoa

[@jonathanherston4245]

Love your videos! Quick note, I think your table at the 6 minute mark has two 16’s instead of a 15 and 16 (and I think those two lines are reversed). Thanks for the great videos, keep them coming!

[@lonnieevans4127]

I always thought the 4% rule was simply 4% of your portfolio value each year, not indexed for inflation. This causes you to withdraw a smaller amount in down years rather than basing your withdraw on the starting point.

[@Coover90210]

That would make sense and is not "wrong" but the original "rule" was to only calculate 4% the first year and up it by cola every year thereafter.

[@allen7218]

I hadn't thought about RMD before. Most of my retirement investments are in Roth IRAs and cash/bonds. There will be some RDM, but overall, think I am looking good. Thank you.

[@ErinTalksMoney]

Thanks for watching! 😊

[@donh8833]

Thank you. I was wondering how this would impact me. I was debating withdrawing my tax deffered and delay SS a couple years to avoid larger RMD knocking me up a tax bracket.

[@ErinTalksMoney]

Thank you for watching!

[@thomassittinger8150]

Have it all in SCHD, withdraw the dividends 3.5% annually without selling shares? Maybe early on in retirement back door Roth whatever you can into SCHD instead of waiting for the conventional side to snowball out of control and become a major tax liability? (Prof G has me sold on SCHD and SCHG 😁)

[@gigimccoy1753]

I agree with Erin, we shouldn’t be limited by just the 4% rule or the RMD calculations. Because nowadays a lot of retirees are childless, so there is no need to leave 1 million or million and a half on the table when you die even if the $500,000 at age 72 is the only source of income in addition to the mighty social security 😊

[@ErinTalksMoney]

That’s right, plan your withdrawal according to your lifestyle!

[@HALWG51]

I'm definitely glad you are covering the RMD. I just started my RMD this year and I have a spreadsheet of yearly withdrawals prepared by my financial advisor. With my SS and my RMD, I have more money coming in now than I had working. And my money will not reach 0 until I am 120 years old. I have 2 other buckets of money that are not subject to the RMD, so I should be good until 150! 😂😂

[@BillBritt-iz2zs]

Who cares how rich u are

[@williamwilliams-y1i]

Erin. Can you please make a video explaining IUL’s? Please 😉

[@Jim-mz1cf]

The 4% rule likely leaves you with a larger portfolio in the end, but in most markets and RMD based approach you larger withdrawals, but also guarantees you will never run out of money at the cost of potentially very small withdrawals in severe down markets

[@teekay_1]

Well, with a 401K or an Roth account, you don't really have a choice. You're taking RMDs or you'll be penalized by the IRS.

[@droops63]

Goof stuff, really good stuff. You might want to apply the Table 1 figures from Publication 590b to those who retire at, say, 55 or 60, and compare that to the 4% rule. That is to say, applying the RMD methodology for withdrawals to a time before you're 73 or 75 could allow you to take this out 30 years or more.

[@jerrysanders8774]

Using your table of RMD over the last twenty years, I would make a couple of adjustments for withdrawal. For this example, I would have a baseline budget that may require 20K. In 2004 and 2009 I would take out 20K instead of the RMD values. Likewise, I would look at where I am and where I expect to be in terms of tax bracket. Let's say in 2017 I project out and determine that I will soon cross into a higher tax bracket. I would take out more than the RMD value now to stay in my existing tax bracket for a few more years. One last thing is that spending looks more like an inverted bell curve during this time in life. When you are younger you will spend more doing things. When you are older, health expenses will increase causing you to spend more. The net effect is that my hypothetical 20K baseline budget that I mentioned may be 30K for the first and last five years and drop to 20K for the middle 10.

[@bigbirdthug]

What would the overall portfolio look like throughout retirement using the exact same historic variables, BUT you use a hybrid version (using the 4% rule except when the RMD is higher so using that instead). Since the RMDs are required you may like the 4% rule, but you still have to do RMDs. But in those down market years where the RMD drops, if you still pull based on the 4% rule then you level off your withdrawals but take a bigger hit on the portfolio balance. Would it sustain?

[@jjdonham]

3:42 Sorry, math stickler here. $20,000 x 2.5% = $500 $20,000 x 102.5% = $20,500 I know what you were going for but the equation on the slide is technically incorrect. Loved the video. I doubt I will actually use the RMD withdrawal method, but it could be useful as another benchmark to compare your spending to.

[@KrustyKlown]

Excellent idea for a video!!

[@etutlf4176]

Brilliant video!

[@ErinTalksMoney]

Many thanks! 🙏

[@neumeisteranimalhospital2627]

Love the outakes.😀

[@nooralimanjee9102]

Thanks

[@michaelgeraghty953]

The 4% should be adjusted every few years. Recalculating the portfolio would lead to much higher payouts and would lead to a more enjoyable retirement.

[@ErinTalksMoney]

That’s the thing, when it comes to your retirement, you should be using a withdrawal strategy that works best for you. If this is a strategy that you think works best for you, go for it! These general guidelines and rules are not a perfect fit for anyone.

[@tfish7330]

In addition, if someone with a retirement account passes away and leaves the funds to a beneficiary, the beneficiary can roll over the funds into their own account, but must deplete the entire account within 10 years. This way the government can collect all of the taxes from the monies. This does not happen with a roth type of account. Also if the original retiree was taking RMD's at time of death, the beneficiary must also take the RMD's regardless of age.

[@valerieproctor517]

Wow! Its so interesting to see how 500K works for retirement. Everybody always says you need to have at least a million maybe two!

[@donh8833]

It's a bit more complicated than that. Don't let those numbers fool you. Inflation is a factor. Longevity is a factor. Once you get past a certain point the balance declines quickly. And the government will force you to withdraw just about all of it as you approach life expectancy.

[@RimMellow]

That's assuming your withdrawal covers all your expenses. And the withdrawal examples haven't taken out taxes, so the actual withdrawal is less.

[@nathanyoder4509]

Always look forward to your videos on Friday! I don't know what percentage I would withdraw, but I would want to be sure that my account balance stays the same or increases slightly over time. Hope you have a wonderful weekend Erin!

[@ErinTalksMoney]

I’m with you, Nathan, with retirement being at least 30 years away or so, I don’t know what my withdrawal rate will look like. Right now I just focus on being in my compounding years. Let’s let those accounts grow. 😊

[@jimmyr3591]

While I’m working I plan for the 4% rule in retirement. When I’m in retirement I might change that rate depending on the portfolio value. But I’d rather be conservative up front and have a big enough nest egg in retirement to have choices.

[@josephregallis3394]

Very interesting.

[@gelfbrandt]

It would be interesting to see what would happen to the RMD withdrawal strategy modified to never drop less than the prior years withdrawal. So 2009 would have the same withdrawal as 2008 and then increase from that point. That is working on the assumption that your cash needs have grown to match the income from the prior year.

[@michaelgeraghty953]

That's a good point. Since RMDs are just the minimum, a retiree could take out more during down years.

[@duaneulman9915]

So take the RMD and put it in a CD ?

[@GeneD283]

With regard to 401k accounts your free to follow the 4% rule provided 4% exceeds the applicable RMD. The penalty for failing to withdraw your RMD is just to significant to ignore. If the 4% rule is less than RMD you can always reinvest the surplus RMD into as an after tax investment. Withdrawing your full RMD doesn't necessarily mean you should spend the entire sum if your following the 4% rule

[@christiansailor2880]

Thank you!!!

[@ErinTalksMoney]

You're welcome! ☺️

[@michaelmcmullen354]

4% is problematic as it is based on a 30 year retirement starting at 65. If recalculated further into retirement it would potentially be higher. Unfortunately the RMD method is more generous later and a pretty low distribution earlier, but it does reflect life expectancy and adjusts for portfolio performance. It has the right idea though, not tied to any particular age at retirement, loosens up if things are going well or tightens up if not so well. Probably a higher fraction of the RMD, say 125 % of RMD would be a better fit for needs, and some smoothing to reduce the ups and downs (apply to moving average portfolio balance over the previous 3-5 years?)

[@TomNemmer]

Is it possible to split the RMD amount with a charitable contribution such that you maximize the deduction without pushing into a higher tax bracket?

[@cpizani]

Good one Erin.

[@ErinTalksMoney]

Thanks so much! 😊

[@cpizani]

@@ErinTalksMoney I watch everyone you release.

[@ErinTalksMoney]

🙏🙏 (I can’t even get my parents to watch my KZbin channel 😂)

[@papster33]

Great explanation - thanks Erin. An interesting take would be to start that withdrawal comparison at age 65 - using the life expectancy tables starting at that age vs 4% at 65. I believe what you will find is that using the life expectancy method will not only result in more volatility in the amount taken, but will also suffer from low withdrawal amounts early on (the go-go years, and higher amounts later in life (the no-go years). Really counterintuitive. At the end of the day your last few minutes say it all. You need to base your withdrawals on the lifestyle and need you have, rather than an arbitrary 'rule'. The 4% rule is a great way to get a general idea and to bump your plan up against to make sure you are not being too aggressive, but it is not something that should dictate (by itself) how you spend your retirement $$. Bloopers rock!!😄

[@ErinTalksMoney]

Such a great point! More likely than not, you would want to withdraw more money during your go-go years. Spending in those no-go years, really depends, depends on if you end up needing long-term care or a assisted living facility, which really could cause an uptick in expenses. But if you’re able to age gracefully within your own home, your expenses could drop quite dramatically.

[@darylfinch5250]

Thank you very helpful

[@ErinTalksMoney]

I’m so happy to hear that!

[@thomasmoshier3920]

You’re really talking about sequence of returns there at the end. Difficult to retire at the beginning of a major market downturn. But not impossible.

[@ralphparker]

at 7:00, you are not required to wait to take distributions from and IRA after 55 or 59.5 or the other rule. I see both approaches as rules of thumb and as poor strategies as a whole. And since tools are readily available that will incorporate pensions, Social Security, expected future expenses(new car(s), vacations, surgeries, etc) and incomes, I would recommend using those tools to calculate a safe spending rate.

[@miamivicefanatic9736]

Be aware that a Roth conversion does not count toward the RMD. Congress/IRS really wants to start taxing the money in your tax-deferred account, so that's why the distributions are required.

[@educatedwanderer9293]

I'm considering using the Vanguard Dynamic Spending withdrawal strategy but I'm a few years away from retirement. It would be interesting to see it compared to the 4% strategy using a million dollar portfolio.

[@ErinTalksMoney]

You know, I don’t think I’ve done a video on Vanguard’s dynamic spending plan. I think that’s going to be coming in the near future. Thank you for the idea! 😉

[@buyerclub2]

Erin, although you might have said this in the end. Withdrawal doesn't mean spend. The government wans to get their tax. And therefore makes you withdrawal from a traditional IRA to create the income.( The RMD) But once it comes out of the IRA and you pay your taxes you can do what you want with it,. I think if you only need 4% of your income the results for the RMD table would be large if you simply reinvest the money outside in a traditional brokerage account that you didnt spend. Also how much of your portfolio you use. Should NOT be based on either table The 4% rule gives the guideline of how much you can spend. safely. RMDs doesnt even do that. And for larger portfolios. I am NOT an advocate that people MUST spend the 4% of their portfolio annually. They CAN but it should not be considered a requirement.

[@randolphh8005]

Agree with that! Most advisers use some safe withdrawal strategy similar to the 4% rule, but what if you are over funded, and really only want to spend $60 or $100k per year. Then all these general rules are mostly useless. Also the risk equation is completely different.

[@kiranraiz8261]

Very nice job covering the basics. I am sharing this not to brag but to show what’s possible. I’m retired and I have 2 separate portfolios. One is a long term growth dividend portfolio of stocks where i sell covered calls strategically and my 2nd portfolio is the Crypto trading strategy where its all about income. This year I am on pace to make $120K in realized options profits and around $730K in crypto profit... What is great is that my long-term portfolio is still up significantly as well. As such, it’s possible to generate excellent income but still have a total return perspective. ...Amidst this, the insights of a knowledgeable guide like that of Francine Duguay can be crucial. Her expertise in navigating the nuances of trading has been the key for Me understanding and making the most of these emerging financial trends.

[@websterdrake]

I appreciate the professionalism and dedication of the team behind Francine's trade signal service.

[@23Bradshaw]

Francine goes deeper than just looking at surface-level trends. she explores technical, fundamental, and sentiment analysis, offering a comprehensive perspective on the market..

[@bloggerrdc]

The clarity and precision in Francine market predictions are astounding. I'm so grateful to have found her reviews here on KZbin as well.

[@kenblack2]

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

[@Kathy2Litton]

It really helped trading with Francine Duguay analysis and info, even with the market in a downward trend. Definitely riding the market wave is a good perspective..

[@russlavalle]

I'm confused about the 4% rule. I thought it was taking 4% of each year's total. Not 4% the first year, then adjust that dollar amount each year by the inflation rate.

[@douglasfort1930]

Great information, and you made it very easy to understand. Thank You!

[@ErinTalksMoney]

Thank you so much!

[@kahvac]

Are ROTH accounts still exempt ?

[@greenrush4313]

Absolutely Beautiful

[@paulseidel5819]

My takeaway? Use a withdrawal strategy that meets lifestyle needs and goals. I have no need to leave a large estate subject to taxes.

[@ErinTalksMoney]

100%!

[@dusty4208]

Sounds to me like you can start with a 4% rate of withdraw but at some point (around age 73) the RMD will take over and 4% wouldn’t be enough to satisfy the RMD.

[@comicus6769]

Not likely. Don't forget it is 4% + an inflation adjustment. So unless inflation gets to 1% or so RMD's won't exceed the rule until 20 or so years in. For example I am 6 years or so in and my "4%" withdrawal rate is almost 5%. Now I don't actually use it to guide my withdrawals but it is useful as a benchmark. In other words, if my actual withdrawals are materially different then the rule I need to understand why.

[@rexstrom5362]

I don’t understand why you present these as alternative strategies. Based on the implied assumption that the money is in a traditional IRA, you don’t get to choose the 4% rule. You must follow the RMD requirements. The only way to follow the 4%rule is to have money in a Roth account or anything else that is not subject to RMD. Th main takeaway seems to be that the 4% rule may not be an option.

[@ErinTalksMoney]

The point of the video was simply to explore the comment that was made on a previous video, when someone stated that if you follow an RMD schedule or the 4% rule, your withdraws would look nearly identical. I stated that in the opening of the video, perhaps it wasn’t stated as clearly as it should have been? Do you feel that was the case? You bring up a wonderful point in that the RMD is required.

[@hanwagu9967]

I'm not sure I quite agree with your 4% rule explanation. First, it isn't a "should" withdraw, it's a "can" safely withdraw. Second, you also reduce according to inflation not just increase. The three year mark is when RMD outpaces 4%. The problem you didn't mention, is that RMD forces you to be a seller in a down market, so relying on being forced to withdraw is not a good plan. Now, just because you have to take RMD doesn't mean you have to spend it. You can take the 4% and then reinvest the difference. This goes back to the 4% can safely withdraw is based on you only relying on 4% of your investable assets to cover your expenses. That differs from RMD.

[@RupertMDoc]

Though you did have a "real world" example, its important to remember the 4% rule does NOT make sense when paired with a consistent growth. The point of 4% rule is be very certain you don't run out of money during a retirement due to a down market. The most likely outcome when following it is your account will grow in value. However, if you do have a down market early enough in retirement, you can keep with the 4% rule, and the RMDs will probably be less than that. If RMDs are GREATER than the set withdraw rate, than probably means the market is doing well... or at least better than awful which is what the 4% rule protects against.

[@ErinTalksMoney]

Sequence of return risk is definitely something to consider for sure! Thank you for sharing!

[@mrthemoo]

I believe that many retirees worry about another “great Recession” visiting their retirement savings and your calculations address that worry. We just have to hope that another “Black Swan” will not come visiting us in the future.

[@xlavahott4547]

But you will always have things like IRMAA that hit your spending if you have too much retirement income, either by choice or buy the 4% and/or the RMD.

[@michaelellis6847]

What worries me, is leaving my daughter a large amount in my portfolio, and thanks to our congress and the secure act 2.0. She would only have 10 years to empty it...please lend me your thoughts, ty.

[@scoutandscooter]

Other RMDs. If you inherit an IRA now, 10 years. If you inherit an annuity now, 5 years.

[@prettygirlus9008]

@2:33: "We'll assume that their portfolio grows at an annual rate of 8% per year" LOL! 😭😭🙁

[@darrylloo4080]

What if inflation out paces it?

[@ErinTalksMoney]

I think the stat is something like in 97 or 98% of the cases the rule of 4% holds up. if you have real concerns, you can use a dynamic withdrawal strategy, or a more conservative withdrawal strategy. I do have a video that goes in more detail on the 4% rule, and goes over it success rates that you might be interested in checking out?

[@darrylloo4080]

@@ErinTalksMoney Informative, thanks.

[@sabbyct]

"I'm tired", I felt that😂

[@ErinTalksMoney]

😂

[@tscoff]

I’m 53 and my plan is to retire when I’m 65. But if the market is down that year I may wait another year or two, I’m a white collar worker and I can work even when I’m not feeling well. I’m going to have a small pension that doesn’t have a COLA, Roth accounts, traditional accounts, an HSA, a non-tax advantaged account, and Social Security. My plan is to: 1. Use my HSA for all medical costs until it is depleted 2. Withdraw enough money from my taxable accounts to “fill up” the 12% tax bracket until I have to start taking RMDs 3. Withdraw the rest of what I need from my Roth accounts until I have to start taking RMDs 4. After I have to start taking RMDs, take them and if I need more money withdraw the rest of what I need from my Roth accounts I’m prepping for this now by investing in a Roth 401k instead of a traditional 401k. I expect to be in a higher tax bracket in retirement than I’m in now so paying taxes at a lower rate now makes financial sense to me.

[@randolphh8005]

Some would argue that saving some of your post tax accounts for later makes sense as it allows tax free growth also. Pretax accounts cause more taxation from growth, as well as potentially from penalties on Medicare and Social Security, so spending them down earlier can make a lot of sense.

[@tscoff]

@@randolphh8005 You’re correct. However I have enough in my post tax accounts that I’m not going to deplete them.