The 4% Rule is DEAD! (Do This Instead For Retirement Income)

The 4% Rule is DEAD! (Do This Instead For Retirement Income)
Is the traditional 4% rule for retirement income still relevant in today's ever-changing retirement landscape?
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In this eye-opening video, we debunk the myth of the 4% retirement rule and present a smarter approach to securing your retirement income.
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[@yourfinancialekg]

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[@roburb73]

I understand being conservative, but I have one question. If you’re being conservative to that point with projections, aren’t you scared that your projections will cause your clients to work an additional 1, 2, or 3 years that may not be needed? I understand that having more money is never a bad thing, but working 2 to 3 years when you didn’t need to - that’s a bad thing!

[@yourfinancialekg]

Great question! I am more worried that individuals listen to advisors or “experts” who say you can get 7, 8, or 9 forever and they run out of money in retirement or are forced back to work.

[@roburb73]

@@yourfinancialekg I agree with advisors who'd have their clients project using 9%+. However, I see it the same way if the advisor low balls 🤣 I use 6.5/7% for all future projections, believe that's a solid average as opposed to soke radio people who think 12% is what you should use. I lost my mind when he said that! He lost a lot of credibility on that episode - a lot!!

[@bobknob8440]

@@roburb73 I feel like the use of 4% versus 7% would be obvious for those that have researched this some already. Many people in retirement have targeted around 4 or 5% returns to keep money safer and reduce what is lost in bad years as opposed to those that want straight growth and not worried about bad years. 6.5 to 7% represents a good mix between lets say stocks and bonds when trying to grow your money and limit downside at times but I've seen many financial advisers targeting 4 to 5% in full retirement.

[@roburb73]

@@bobknob8440 Yessir! I agree, "for those that have researched...". However, many people hire an advisor because they don't want to do the research and/or don't understand it. I don't see 7% and think of any bonds, specifically since the market averages around 8% when you account for inflation. Personally, I'm 100% stocks and aggressive today and will be in retirement. Our situation allows that, so the risk of seeing a 40% drop doesn't scare me.

[@Jane5720]

My last meeting with my financial advisor really recommended 4% but I pushed I pushed for five. Reluctantly, he said OK. I am 63.6 and I have not drawn on any Social Security or my investments, this was just when we were talking about projections.

[@punisher6659]

Thanks as always for your content. Hello from St.Louis

[@yourfinancialekg]

Thanks for watching!

[@daveharness70]

I gotta say, this is probably the best video you've done. And I've been critical of your content, only because I want you to continue to improve and share your message. You were clear, mathematically correct, got in some Gospel.(woo hoo)..and you even summarized the Rule of 55 correctly! I may not agree with a straight-line increase in costs due to inflation (late aged retirees spend less overall, not more, even with inflation) or the "reduction" in the SS for the retiree at 55 (they likely knocked it out of the park and working an additional 10 years doesn't really move the needle), but your scenario is clear and to the point!

[@yourfinancialekg]

Thanks for watching and commenting!

[@brandon8531]

Can you time stamp what you mean? Or give more specifics on summarizing the rule of 55??- I think I found what you mean.

[@tima.9125]

I am lost on the increase in spending, for the last 10 yrs I have tracked my spending, and with the last 3 years and Government caused Inflation my spend has increased by 3% before that it was Zero, every year my cost are not going up most fixed cost stay the same so the with drawl would not be as high as shown, so If I know what my yearly expenses are for 10 year average why would I calculate such a high increase? my spending has increase 3 % in 10 years not every year.

[@ariefraiser140]

The 4% rule is not dead and I will defer to William Bengen. First the 4% rule looks at the absolute worse case scenarios in US history to determine what percentage a retiree can withdraw from their portfolio over a 30 year retirement. That is the definition of the 4% rule. So if you plan an early retirement and over 30 years of retirement that's not an issue with the 4% rule. That's you going beyond the parameters of the rule. Second...this is the floor. Meaning you could take out more and have your portfolio survive 30 years.

[@yourfinancialekg]

Thanks for commenting!

[@OShackHennessy]

His study showed that a 4% withdrawal at a 50/50 mix lasted at least 33 years and in most cases at least 50. Withdrawal rates of 3% never lasted less than 50 years and are almost the same as up to 3.5%.

[@bruced.370]

​@@OShackHennessy 60/40 and he revised his study to about 5%. Stupid rule for stupid people

[@OShackHennessy]

@@bruced.370 I’ve read all of his papers including the revisions and what I stated is not factually incorrect. I’m not saying to use any of his scenarios as a rule in fact he never said it was a rule that was the media that coined that term. I also think calling people that use it “stupid” is a bit harsh. It’s just a rough guideline.

[@XDetoursX]

Good one Drew

[@yourfinancialekg]

Thank you!

[@dc76384]

I like that answer Drew. I'm 47 y.o male. I have a pension (for now). Roth 401k with my employer, and a Roth IRA. If I have to count my pennies, and fret over every dime I spend, and Lay awake at night worried if I've spent too much...than why did I retire.y goal is to save enough money that I can live how I want, and still have my investments grow.

[@yourfinancialekg]

Good point, thanks for sharing!

[@miragexl007]

Do you not take into account taxes question mark.. So 40000 a year... But take taxes from. That? What would you take a higher Amount and then take taxes off to get to the forty thousand

[@yourfinancialekg]

Yes, taxes are accounted for. That 40k is a NET figure.

[@vpmassacre4771]

I have over 1 million in various 401ks, 403b, Roth, FU Life - no errors, i.e. heirs...I'm 56 and have Tricare, house is paid off, can I retire?

[@yourfinancialekg]

Seems pretty good but expenses and future spending need to be looked at. Great job!

[@kevink1214]

I would imagine the yearly expenses at 55/65 years of age are vastly different than when you are 75 plus. I think that expenses are going to go down because someone that is 70 and above, especially 75 plus is going to be reduced. They will tend to be home more, maybe going out to eat once and awhile but mostly homebodies.

[@yourfinancialekg]

Good point, except always consider health care later in life

[@DavidWilliams-yd8si]

I am a bit confused. You said the stock market average 10% since 1950 and 8% with inflation, i assume that is 8% plus 2% inflation for a total of 10%. So if we cut 8% in half and assume inflation is 3% shouldn’t we assume an investment rate of 7%. This would be 4% with after inflation.

[@yourfinancialekg]

I am using the inflation on expenses not on the ROR, but good question!!

[@OurRetireEarlyJourney]

Ramsey is speaking for himself because he’s wealthy… the rest of the world would run out of money. And we agree with you.. it’s personalized and flexible year to year. Well done!

[@yourfinancialekg]

Thank you so much!

[@craigschray4486]

Retire debt free!

[@yourfinancialekg]

Yes!

[@PortlyPour]

One can be 50 and debt free but not have enough to retire. At the same time, one can be 50 with debt and enough to service debt and have enough to retire. Never the same for all

[@OurRetireEarlyJourney]

Live debt free 😊

[@PortlyPour]

@@OurRetireEarlyJourney Die with debt and you dont need to pay back 😂

[@OurRetireEarlyJourney]

@@PortlyPour 😂😂😂 that’s one way to do it!

[@Thisishard2333]

I retired at 60 with a pension. As long as you have no bills , you’re fine.Wife and I just started collecting SS at 62.Dont know what to do with all the cash now

[@yourfinancialekg]

I can give you some ideas 😂

[@jhouser972]

Can you please do a video similar to this, but with the ballpark numbers needed for each age where you don't run out of money using the 4% rule? For example, at 55, you need X invested in your 401k and you will most likely not run out of money. At 60, you need. Etc.

[@yourfinancialekg]

WOW, great idea!!

[@Lessons114]

Isn’t 3.5% withdrawal safe for retirement longer than 30 years?

[@yourfinancialekg]

Depends

[@akroguy]

Which is what I'll be wearing if I live past a 30 year retirement. *rimshot*. @@yourfinancialekg

[@OShackHennessy]

Based on Bengen’s study withdrawal rate of up to 3.5% should last at least 50 years.

[@jnachtig2]

It’s amazing how many times the 4% rule has been “dead”. Yet every time someone comes up with a new withdrawal strategy they first compare it to the 4% rule. And the answer given by these many strategies is always close to 4%. Just saying.

[@yourfinancialekg]

Thanks for saying

[@aj1918]

The 4% should be used as a rule of thumb when spitballing about retirement. Also, Bengen’s testing was on 30 year periods.

[@yourfinancialekg]

Thanks for commenting!

[@johngill2853]

I may have seen a dead person walking Drew, Year 2000 retires using 4% are still walking. They will make 30 years most likely with this strategy But seriously can't wait to watch your video

[@yourfinancialekg]

😂 ....Just wait and see. Thanks John!

[@miragexl007]

Fifty million scenarios. We don't count on social security to really supplement... We'll plan on using that to cover medical coverage. When we retire early..

[@yourfinancialekg]

That's a great idea!

[@MarcIverson]

Have your local food prices gone up only 3% this year or last? Is rent or home insurance going up only at that rate? Didn't think so. The CPI is a highly politicized figure put out to make the government look good. True inflation is always far higher. If we measured present-day inflation the way we did in the 80's, it would be well over 10%. One of the worst aspects of that is that the COLA allowance for social security payments is made on the basis of those fantasy CPI figures. That way the government can keep printing money like crazy to effectively retire its social security "debt" to you while you think you're the one retiring. We need to be much more conservative if we want to take true inflation into account.

[@yourfinancialekg]

Thanks for sharing!!

[@reneeann5340]

So if I have several 401K accounts from various employers do I still qualify since I'm over 55 to not incur the 10% penalty

[@ChristopherEvans-650]

No, you do not. But if you roll all those 401k's into your current employer's 401k, then retire, then yes, you will not incur a 10% penalty. Also, check with your current employer's 401k administrator to see if they honor the Rule of 55 and if so, what conditions. Plans are not obligated to honor the Rule of 55, and some may honor it, but make you take distribution in one lump sum. Please check before doing anything.

[@yourfinancialekg]

See below answer.

[@OShackHennessy]

I’m a little confused as to why you are discussing the 4% rule and then used a 4% rate of return. Bengen specifically warned against advising based on rate of return in his paper as that was his foundation. Obviously I understand that’s not what you’re doing but this scenario is odd in that you chose a 4% ROR. I’m wondering why you did that?

[@yourfinancialekg]

The ROR is different from the withdrawal rate. Does that help?

[@OShackHennessy]

@@yourfinancialekg ok, but I’m still left wondering why the 4% rule is dead unless a client has not invested anything in the stock market. Are you suggesting 4% is not going to be sustainable long term?

[@donaldrichey3318]

The other calculation should include the growth that took place during that 10 year difference. At 55 he had $1,000,000.00. At 65 he should have 2,000,000.00. Now the 4% burn rate is the same but will get twice the income. Plus the 3 year wait to collect SS has increased the monthly benefit.

[@yourfinancialekg]

Thanks Donald!

[@ario2264]

The 4% rule assumes a higher return than 4%, enough to cover the 4% withdrawal + inflation. You seem to have assumed a return of 4% so it's no wonder you run out of money.

[@yourfinancialekg]

What ROR would you assume?

[@johnspelman8976]

I use 6

[@johnspelman8976]

No it doesn't

[@TreyGaspard]

Clarify the year or later that you turn 55…… makes a difference 13:24

[@yourfinancialekg]

Thanks for commenting!

[@kalamala13151]

The watch after market is dead as well.

[@yourfinancialekg]

Thanks!

[@fialee8ca132]

Your analysis does not account for 10 extra years of inflation when retiring at 65 vs 55. You need to adjust the 65 spending by 25% or more for inflation. Granted, if you had $1M at 55, you'll have a lot more at 65 than $1M.

[@yourfinancialekg]

Thanks for commenting!

[@jeanettebonf631]

Can I retire at 62?

[@yourfinancialekg]

I hope so!

[@josephjuno9555]

If 55 goes Broke by 84 but 65 grows 150% ? Wudnt that mean 62 shud still have money and Be Able to retire successfully? 🎉

[@gitarzzan1]

4% plus inflation isn’t going to be more on $369k than it is $1M

[@RebeccaDembicki]

I have a scenario, a widow at 48, remarried before 51, want to retire at 60. Could I get my deceased husband SS until full retirement age of 67 for me? My deceased husband was 3 years older

[@jdollar5852]

It's math. That seems to confuse some people. Inflation is the insidious creature in the equation. Dave's math is correct. If you average 12% per year, and have 3% inflation, and withdraw 8%, the math works. Unfortunately, you may average 12%, but it won't be linear. His approach is overly simplistic. His methods for getting out of debt are spot-on. The original 4% rule called for taking 4% plus inflation, allowing the market to do it's thing, and you'll die with money. It assumes a 30 year retirement. Your example doesn't work because the 4% annual growth is eaten up by inflation. As you said repeatedly, this is not a retirement plan. It shows why the 4% rule "doesn't work", using these numbers. Make the average return 6% and it probably works. This is why everyone needs a financial advisor. Every one of us is different. I'm 4 years into retirement, pulling 4% of my invested assets, and have more money today than when I started because markets have been good to me. I've survived the early sequence of returns risk. I DO NOT include real estate in the 4% figure. I have a farm, a house, and a rental house. Those will all eventually be turned over to add to my investments, if I live that long.

[@yourfinancialekg]

Thanks for sharing!

[@johnnow1]

I will take the risk and enjoy my life at 55 (like the first sample).

[@yourfinancialekg]

Awesome!

[@BBones-w3y]

You are doing it wrong. 1MM after 1 year becomes 1MM*1.07 = 1,070,000. if you take out 4% (40K), you are left with 1,030,000. That way you never run out of money and live off returns. The 4% withdrawal rate is based on 7% growth of portfolio and 3% inflation rate

[@yourfinancialekg]

Thanks for sharing your thoughts!

[@aggibson74]

Want your investments to last forever and live a destitute life? Use the 0% rule!

[@yourfinancialekg]

Good point

[@marcalvarado1915]

This is not a “realistic “ video when you consider a return of 4% a year and the stock market has ALWAYS returned more than that over thirty years.

[@yourfinancialekg]

Check 2000-2010 and then let me know

[@marcalvarado1915]

@@yourfinancialekg that is one TEN year period. Notice I said over a THIRTY year period like what was done in the Bengen study. It seems like FAs want people be afraid and keep working so they can continue taking in that 1-2% management fee for longer and longer periods of time…

[@greenlantern1986]

@@yourfinancialekg 30 year Stock market returns including your 10 year period: 1980-2010 is 11.25% per year 1990-2020 is 10.33% per year Sure looks like Marc Alvarado is correct.

[@miragexl007]

Hate to retire right at the beginning of that ten year span. ​@@marcalvarado1915

[@alr9967]

Ramsey is an arrogant gaslighter. I know my % very well but I have absolutely no idea what the % is for anyone else on this planet

[@yourfinancialekg]

Good that you know your %!

[@scottjackson163]

I appreciate the math demonstration. Just the same, I have no idea who lives on $3,333 per month. Where I live, that wouldn’t support Ted Kaczynski’s cabin.

[@yourfinancialekg]

Totally get it!

[@lhansel7584]

Really?!