Flexible Spending and Early Retirement: A Perfect Match or Just a Myth?

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  • čas přidán 29. 08. 2024
  • Can one retire early if they have the ability to significantly cut back on discretionary spending during retirement if they must? A recent article on the MadFientist blog claims that following a Discretionary Spending Rule in retirement can significantly increase a retirees Safe Withdrawal Rate. And with a higher SWR, one can retire early.
    Karsten Jeske (Big ERN) of Early Retirement Now responded with his own article. He called flexibility in retirement a myth, and detailed why he thinks the Discretionary Spending Rule won't work.
    In this video I give my take on both articles. We also look at a free Safe Withdrawal Calculator you can use to model your own retirement plan.
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Komentáře • 59

  • @Farmwald853
    @Farmwald853 Před 9 měsíci +177

    Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My Husband and I both spent same number of years in the civil service, she invested through a wealth manager and myself through the 401k. We both still earning after our retirement.

    • @SallyW414
      @SallyW414 Před 9 měsíci +1

      This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha...

    • @AustinButler-kd4ny
      @AustinButler-kd4ny Před 9 měsíci +1

      Interesting . I think this is something I should do, but I've been stalling for a long time now. I don't really know which firm to work with; I feel they are all the same but it seems you’ve got it all worked out with the firm you work with so i surely wouldn’t mind a recommendation..

    • @SallyW414
      @SallyW414 Před 9 měsíci +1

      I definitely share your sentiment about these firms. When I was starting out, I checked out a couple of freelance investors online, so you could do the same. I personally work with Catherine Morrison Evans, and she's is widely recognized for her proficiency and expertise in the financial market. With a comprehensive knowledge of portfolio diversification, she is acknowledged as an authority in this field...

    • @AustinButler-kd4ny
      @AustinButler-kd4ny Před 9 měsíci

      Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.

    • @user-vs3jj5wn3y
      @user-vs3jj5wn3y Před měsícem

      These are all bots. IGNORE SCAM

  • @mrallan8063
    @mrallan8063 Před rokem +5

    If you don't have any flexibility in spending, you aren't ready to retire early.

  • @Raymondjohn2
    @Raymondjohn2 Před 8 měsíci +44

    High prices for everything have severely affected my plan. I'm concerned if people who went through the 2008 financial crisis had an easier time than I am having now. The stock market is worrying me as my income has decreased, and I fear I won't have enough savings for retirement since I can't contribute as much as before.

    • @bob.weaver72
      @bob.weaver72 Před 8 měsíci +4

      It's recommended to save at least 20% of your income in a 401k. You can use online calculators to estimate how much you should save based on your age and income. Saving at least 20% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. By saving this much, you can take advantage of investing in the stock market and potentially grow your retirement savings over time.

    • @martingiavarini
      @martingiavarini Před 8 měsíci +3

      Considering the increased complexity since the 2008 crash and COVID, I suggest diversifying your financial portfolio. I hired an advisor and successfully grew my portfolio by over $150K during this turbulent market using defensive strategies that protect and profit from market fluctuations.

    • @hermanramos7092
      @hermanramos7092 Před 8 měsíci +3

      Could you kindly share the contact details of your investment advisor? I really need one urgently.

    • @martingiavarini
      @martingiavarini Před 8 měsíci +3

      ‘’Natalie Lynn Fisk’’ is my adviser and she is highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversity and is considered an expert in the field. 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.

    • @hermanramos7092
      @hermanramos7092 Před 8 měsíci +2

      Thanks for sharing this. I did my own little research, and your advisor looks advanced and experienced. I wrote her and dialed her twice but she didn't pick up so I scheduled a phone call.

  • @mlhundt2064
    @mlhundt2064 Před rokem +8

    No one has a crystal ball. Most retirees have an income and expenses just like when you were working. If you want to spend more than your income you have to dip into savings just like when you were working. Unless you are trying to work down to zero, your discretionary spending should still be looked at as when you were working. Just because you are retired does not mean you don't keep a comfortable cushion. Only certainty is prices will always go up regardless of who's in the White House.

  • @Bluponi
    @Bluponi Před rokem +2

    Great video... I actually like the Guyton -- Klinger guardrails, only withdraw 4% when we are in a bear market, and in good times, you can withdraw 6 %... When Social Security kicks in at 65, you can supplement your income and cut your withdraw percent down to 2%... You don't have to make your income last for 30 years, social security provides a nice margin, especially if you retire overseas in the Philippines, or Vietnam, where the cost of living is 50% of that in the United States

  • @rickwalker8763
    @rickwalker8763 Před rokem +3

    I retired early and plan to withdraw over 10% annually until the mortgage is paid off and SS kicks in. By embracing flexibility and dynamically adjusting withdrawals when necessary I've also made the plan fail proof (0% failure rate). My portfolio will last no matter how long I live (I'm not a fan of scheduling my own demise). I won't be leaving a ton of money to anyone else--my wife and I will be spending most of it and enjoying retirement to its fullest while we are able. Like Rob said, flexibility makes a huge difference.

  • @user-vs3jj5wn3y
    @user-vs3jj5wn3y Před měsícem

    Rob, after watching many of your vids, I enjoy how you can dig deep into minutae and small details, while also being able to see the big picture, and the forest through the trees.
    I don't always agree with you (though I usually do), but I've learned much from you, and I greatly respect your approach.
    Kudos & thanks.

  • @shaynebowen5436
    @shaynebowen5436 Před rokem +3

    Incisive, clear, thoughtful, I love your analysis week after week. You bring a great deal to the table. Context, alternative ways of looking at papers, tools to use, just fantastic work!! BRAVO BRAVO!!!

  • @TwoSidesOfFI
    @TwoSidesOfFI Před rokem +2

    Great analysis as always, Rob. Thanks for the shout out!

  • @jshoe2490
    @jshoe2490 Před rokem +4

    Another excellent analysis and comparison of current thinking, with clearly labelled opinions and extensive context clarity. Well done, Mr. Berger, well done. This kind of content is why I subscribe to your newsletter and your CZcams channel. Thanks.

  • @larssmith2170
    @larssmith2170 Před rokem +1

    Great video. As someone who follows both ERN and Mad FI this is some of your best work.

  • @joekuhnlovesretirement
    @joekuhnlovesretirement Před rokem +4

    Hard rules break down in reality….. example: what if your portfolio was up 50% last year and down 20% this year. Portfolio still up. So decrease spending in your young and able. Mistake.
    Great content Rob.

  • @Mike-123
    @Mike-123 Před rokem +2

    The falling bridge in that photo is actually a classic. It's referred to as Galloping Gertie. I remember it from my engineering intro class in college. I'm not a civil or mechanical engineer, but I did joke with one about it years later, and he said "yeah" that's a classic example that all construction-oriented engineers have all heard about (and he knew much more of the history behind it than I did).

  • @royprovins7037
    @royprovins7037 Před rokem +1

    This is why I bought a QLAC that kicks in at 80 with a small portion of my retirement money. I want a zero percent fail rate

  • @williamfusselman2260
    @williamfusselman2260 Před rokem +2

    Big Ern's use of CAPE adjusted withdrawal rates has a certain mathematical elegance.

  • @canyonoverlook9937
    @canyonoverlook9937 Před rokem +1

    I would have liked this compared to the Wellington fund. That goes back to 1929. I would also like to see Wellesley used in this. Wellesley started in 1970.

  • @MrBass5er
    @MrBass5er Před rokem +1

    I agree with Rob's point of view, I saw the reference to these articles on his newsletter, read them, and also thought both articles had some aspects to consider, but not blindly, some personal analysis is always a good/necessary thing.
    Rob, Thanks for sharing!
    PS: About the “absolutes”, using a Star Wars reference "Only a Sith deals in absolutes" 🤓🤣

  • @zenfishbike
    @zenfishbike Před 11 měsíci

    Man, Rob is good

  • @paulbiel517
    @paulbiel517 Před rokem

    Great analysis Rob--you're my favorite speaker on retirement issues as you get to the point, provide factual data and analysis, have nothing to sell, and offer thought-provoking insights. Based on your reading--I'm curious about your thoughts on asset allocation. Based on your own investments and the 3-fund portfolio, it doesn't seem like you think it needs to be very much. Your own stock investments seem to be just in a handful of stocks you are interested in, an all stock index fund, small cap index fund, and international index fund. No REITS or commodities and very small exposure to a dividend focused index fund.

  • @brianjp18
    @brianjp18 Před rokem

    I would love for you to make a video on big ERN’s spreadsheet to review any potential flaws in using it as well as explaining some of the more detailed parts of the spreadsheet!

  • @scott1441
    @scott1441 Před rokem

    I compare the P/E ratio based on my stock in the specific sector not the current S&P P/E.

  • @camaro6810
    @camaro6810 Před rokem +1

    Rob, really enjoy your videos, I've watched them all. Could you do a video or two about protecting assets as we age. I'm not quite 40 yet, and a new father so it has be thinking about transfer of assets in the future. I've known a couple people that had pretty sizeable nest eggs in the later years, only to become ill, enter a home and have them drain the assets (home, accounts) to the tune of $10-15k+/mo....even with millions, an extended stay, dementia etc..where you could need care for 3-5 years...or more...will drain an inheritance pretty quick. Obviously there is long term care insurance, gifting before you get to the later years at the max/yr allowable tax free...and trusts...what do you recommend or what is your take on it? I grew up well below the poverty line and would hate to spend a lifetime building wealth only to have it consumed by a mediocre care facility where Im drooling on myself being fed applesauce by a CNA getting $9/hr while they charge me $15k/mo. Irrevocable trust? I dont care if Im in control of the funds when Im 80+ yrs old...if something terrible happens younger, hopefully its quick and I dont rack up a mountain of medical bills. Just dont want to be a burden on loved ones and would like to leave them as much as possible.

  • @pware9643
    @pware9643 Před rokem

    Average Retiree Investor that had 80 percent stocks would panic and sell out (at the wrong time of course) after a historic bad year.. Not sure how many advisors would put their retiree clients in a 80/20 set up. When bonds and guaranteed money is paying more than historic inflation, wouldn't it be prudent to load up on them? 6.25% on a 7 yr cd from insurance company with your state's insurance comm providing a backstop.. (myga).. is very compelling. Waiting until 70 with Social Security allows you to have some inflation protection and lower your risk ratio too. Planning to have your house and cars paid off at retirement means inflation won't affect you as much also. The S&P 500 is not what it used to be.. top 15 companies control the returns, making it more volatile.

  • @randolphh8005
    @randolphh8005 Před 6 měsíci

    Honestly at the margins this is all mental mast…….
    The fact is that the majority of people will not want to draw a steady percent every year. Income needs are dynamic for most and vary with other income streams.
    Our needs vary from 6% to 2%. And ALL necessary costs are covered by SS at age 70.

  • @briankelly7632
    @briankelly7632 Před 10 měsíci

    Question: would anyone in the world actually follow those burdensome, detailed, granular dynamic spending guidelines as they related to bear markets, etc? The plan seems so unwieldy as to be useless, IMO. Just have a budget, withdraw what you need, and tighten your belts in tough market years. Use good old fashion division to see how many years of expenses you have and when you need to tighten.😊

  • @simonk8257
    @simonk8257 Před rokem

    Great points 👌🏼

  • @willharris5562
    @willharris5562 Před rokem +1

    Rob, if you don’t mind sharing, what spending rule do you prefer overall (understanding that it may not work for everyone)?

  • @jdthompson5778
    @jdthompson5778 Před rokem

    The one thing this whole discussion is lacking esp if you are evaluating retiring early is how much (%) of your essential expenses will be covered by SS, pension, annuities, etc. in x number of years vs your portfolio. If say 80% of your “essential” spending is covered by these guaranteed sources you may only need some higher % of withdrawals over 4% your first 5 or 10 years of retirement to meet discretionary goals that will be sharply reduced once you collect SS or pensions, annuities start etc. In this sense this type of flexible approach on some discretionary items could indeed help you retire earlier than a simple calculation of 4% rule on investments would reveal.
    For some who retire in their 50s or early 60s and delay SS it’s possible RMDs starting at 75 are actually not even needed to meet annual spending due to SA, pensions, annuities, reverse mortgages, etc. Would be nice to realize that and plan before you slave away another year or 10 that you could have spent on family, hobbies, etc.

    • @TwoSidesOfFI
      @TwoSidesOfFI Před rokem +2

      Big ERN covers this well in his own work and the SWR Toolbox Rob showed here has functionality that lets you model those kinds of additional inflows which you mention. That makes it easy to determine your SWR net of these factors.

  • @1jet55
    @1jet55 Před rokem

    I recall a few Mondays ago you stated that the SEC yield on a bond fund will hold ( more or less) for the period of time calculated by the effective duration, multiplied by 2 and subtracting 1. Not sure if I got that correct but using VCLT as an example with an "effective duration of 13.32 x 2 + 26.64 - 1 =25.6 years at the yield of 5.46%. Did I get that right and why/how is the 2 multiplier arrived at, seems like a high rate for a long long time.

  • @johnbrown1851
    @johnbrown1851 Před 10 měsíci

    Rob, how do you have a lower P/E ratio than the S+P 500 in your portfolio?

    • @rootedrotor525
      @rootedrotor525 Před 6 měsíci

      Small caps I'm guessing. They're 20% off their all-time high.

  • @daveschmarder-1950
    @daveschmarder-1950 Před rokem +2

    How do I know when I'm halfway through retirement?

    • @alex182618
      @alex182618 Před rokem +2

      When viagra stops helping.

    • @george6977
      @george6977 Před rokem

      Use life expectancy tables

    • @travis1240
      @travis1240 Před rokem +1

      Just like when you start your retirement, you take an educated guess on when you are going to die. Or you can ask a carnival fortune telling machine.

    • @daveschmarder-1950
      @daveschmarder-1950 Před rokem

      @@alex182618 That train has left the station.

  • @denniskirschbaum9109
    @denniskirschbaum9109 Před rokem +1

    Someone got an Apple Watch Ultra!

  • @user-le6xj3fs9t
    @user-le6xj3fs9t Před 11 měsíci

    HMMM

  • @twhite8308
    @twhite8308 Před rokem +1

    Do I include taxes I need to pay in the total withdraw. In other words, does the 4, 5 or 6 percent include the taxes I will need to pay. A larger withdraw may kiick me into a higher tax rate...

    • @bradk7653
      @bradk7653 Před rokem

      Yes, the 4% rule includes your taxes. Taxes are just another expense in your budget.

    • @hanwagu9967
      @hanwagu9967 Před rokem

      your total withdrawal rate covers all your expenses, which includes taxes. A larger withdraw wouldn't necessarily push you into a higher tax bracket, because it would dependon which assets you are withdrawing (e.g. tax deferred, tax exempt, cap gains).

  • @george6977
    @george6977 Před rokem +2

    What if you get Alzheimers and need to go into care? It's about £50,000 a year in the UK.

    • @bradk7653
      @bradk7653 Před rokem +1

      That is a what if, but in reality, it does not affect most people, probably less than 15% of the population. That being said it did occur with my mom, she had it for the last 4 years of her life, costs averaged about 60k per year in the US in memory care facility. So not cheap, but if someone owns their home the equity will often cover their long term care costs.

  • @ThisIsGoogle
    @ThisIsGoogle Před rokem

    You need to stop using english terms that only apply to your system. You are losing subscribers.

  • @ArthurDentZaphodBeeb
    @ArthurDentZaphodBeeb Před rokem

    Ah, nothing like paralysis by analysis. I find Big Ern and all the other vloggers with their 238 part series on financial minutia hard eye-roll-back-in-my-head nonsense. These so-called FIRE bloggers never seem to actually to be retired, never seem to follow their own advice, and always seem to be 1%ers who could go back to work if stuff hit the fan. Of course, they bloviated ad nauseum about the necessity of owning bonds. Yet when the first correction hits, their advice was worse than terrible (they oh-so-confidently used historical data to 'prove' bonds were necessary to smooth volatility). They blindly ignored the 600 lb gorilla - that 40 years of falling rates wasn't a realistic data set. The only rational conclusion was bonds were going to implode as soon as rates - inevitably - rose, and to avoid them like the plague (stay in cash). And thus the first test of these oh-so-confident portfolio recommendations (20-30-40% bonds) was a disaster - 2022 suffered worst bond performance in history. They all shrugged and said 'who could have guessed'? Ironically, now is a decent time to get into bonds - after they've blown up.