Make Sure You Use This Withdrawal Strategy As Soon As You Retire
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- čas přidán 8. 07. 2024
- One of the most commonly asked questions I receive is, what should my withdrawal strategy be in retirement? In this video, you'll learn how to withdraw funds in retirement most effectively.
⏰ TIMESTAMPS
00:00 - Introduction
1:23 - How To Recreate Income
3:24 - The Guardrails Approach
5:39 - Guyton's Guardrails Rules
9:22 - Inflation
10:50 - Capital Preservation Rule
12:14 - Additional Considerations
14:43 - The Importance of Framework
16:07 - How Much Is Enough?
16:28 - Working With Us
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This was a great explanation. I think you convinced my husband that we won't go broke by taking more than 4%.
James, just wanted to let you know that you have the gift of taking complex and abstract topics and putting them in an easy to understand and digest language via analogies. Keep doing the great job you do educating us. Awesome job!
A dynamic withdrawal strategy like this is absolutely the best way to go if you can stick to it.
Basically: Sell high. Sell stocks/other assets when they are higher. This helps fight the “buy high/sell low” trap (which is very easy to fall into).
P.S. This guy is one of the best on the subject of Retirement. ‘Highly recommended.
James, thanks for the informative video. Could you please do a video that takes Guyton's Portfolio Management Rule and incorporate tax efficient strategies and considerations of the types of accounts (taxable vs. tax deferral)?
This makes so much sense! Thank you.
Terrific video.
I’m from the UK and what I like is that iths applies to anyone, anywhere, and is not just USA specific.
I have 5 years to retirement and I have watched a number of different videos on withdrawal methods. But this is the first one that gives a specific order from your portfolio, based on returns.
Thanks for this, very helpful
Glad to hear it, Chris!
😮
Same here, I'm Canadian but worked in the USA for 2 yrs, so I can "translate" the info considering Canadian specificities... But the basics all apply.
I agree. I have been looking for just this type of information. I appreciate your smooth and calm presentations. I have 'saved' this CZcams to review. Thank you very much and keep up the good work.
This is about rebalancing via withdrawals (i.e., withdrawing the higher asset class up to including the desired asset allocation) However one would assume if one asset class increased significantly to the desired asset allocation, the portfolio would have been previously rebalanced based on the trigger method of rebalancing.
Appreciated hearing this. Makes alot of sense to me.
So well explained.
Wow super helpful James!
These are great guidelines...thanks for explaining this in a way that is easy to understand.
Thank you James. You’re very clear in your video and you’ve been a great help.
You are very welcome
Thank you for your clear explanation James.
You’re welcome!
Gr8 video and explanation. These rules applies alongside the 3 bucket strategy. Thank you. 😊
Great explanation of a relatively complex idea. I am retiring in one year and plan to use this strategy.
Thank you James. 👍
Very welcome
I actually understood! Thank you for your very clear explanation. You’re very much appreciated. Thank you for your great work.
Thank you!
Great explanation. I have heard of the guardrail rule but never heard it explained this way!
I'm glad you liked the video!
Thank you.
i`m 62.... retiring next yerar , S/S at that age is not quite enough so i`m pulling from my 401k for 3 to 4 years, its the whole reason i put 15- 16 % into 401k all those years until S/S payments are adequate... also have a SPIA annuity kicking next april that will give me 659.00 a month
Yep, you save to your 401k so that in retirement you can enjoy that money!
great video. what is lost here (probably cuz the answer is, as always, "it depends") is how many year's worth of cash reserves u should have to pull from in the years both bonds/stocks are down. most bear markets only last 2-3 years, if i remember correctly, but we have longer stretches such as 2000-2010
The best explanation of this important but often hard-to-understand approach I have ever watched, great work. Unfortunately very relevant regarding current markets. I will "sort of" implement it - only "sort of" because at the same time I am applying an allocation glidepath according to M. Kitces (meaning to increase my equity allocation slowly but steadily in the first 10-15 years of retirement). As matter of fact, the only tweak to the Guyton rules is in the definition of "excess" which is evolving from year to year.
Thank you!
Thanks James. Get a lot out of your videos.
I’m glad to hear that!
this was great vid
Thank you!
That Pepperdine U diploma must be in education. Best presentations on the internet. Thanks!
Thanks, Jeff!
Protecting your capital is much more important than making money. Basically because if you lose your capital, making money is much harder. ''Missing the train'' vs. ''losing your money''. There are a lot of trains, but if your money is gone, it's over.
Your videos are concise nd to the point. This is the most helpful one for me.
Where I get confused is you for example plan on drawing 4% and the prior years inflation was 3% and it was an up market do you withdraw 7% or do you mean 4.03%
. Then do revert to 4% plus the following years inflation rate?
Some white boars examples over several successive years with associated dollars would really be helpful to me.
I like the rules presented in the video, with one caveat. The first place I’m taking money beyond my pension when I retire is dividends and capital gains from taxable assets, since those I’ve already paid taxes on. Second is cash. In good years I’ll replenish the cash with excess capital gains instead of reinvesting them all like I do now. Only about two years away!
Those two years will fly by! Good luck!
Sounds very much like the three bucket strategy.
🎉what if the prior year (2022) is lower, but your portfolio’s ‘correction’ is not at desired level.. this is particularly true when there are several years in a row. That is what I’m trying to figure out now.
I like Guyton Klinger guardrails or even Vanguard Dynamic Spending (ceiling and floor), but aren't we overcomplicating when you specify where you take the money from? Can't you just rebalance to your normal asset allocation annually after you withdraw the amount you need for the year? I am not sure it matters where you take it from if you rebalance every year.
Always common sense advice from James.
So what are the "certain thresholds" in the Capital Preservation and Prosperity rules?
Have you done videos to go over the other rules noted in Morning Star 9/30/23?
1 Base case
2 TIPS ladder
3 Forgo inflation adjustment
4 Guytons guardrails
5 Actual spending
Do you not agree with the others and prefer Guyton’s guardrails?
James, what about 2045 target funds ? I like those are simple easy.
Thank you for the great video. A quick question . I don't know if I missed it but , what is your initial withdrawal to start ? 4 % ? Keep the videos coming . I am also an avid listener to your podcast.
You're welcome! 4% rule is from Bill Bengen.
Excellent coverage, James...thanks.
Q: Do you think this is a more robust / flexible approach than the Bucket(s) strategy?
Thanks, David! There is overlap in each of the strategies, but I like the guardrails approach because i think it is more robust
James, I'd love you to do a video for those of us who want to die with as little as possible remaining in our portfolio. I'm single with no children and want to retire at 67 and I'm betting on being dead at 83. If I live longer I'll find a way to live on social security. The idea is to enjoy my savings I've worked for and help my loved ones like nieces and nephews while I'm still here with them.
Has anyone tested Guyton's order of withdrawal theory? Does it work for all circumstances? Would you show us applied examples to prove the theory, please?
Could you do a video on esop retirement rules and tax issues?
Hi Larry, I’ll add it to the list!
what if your portfolio is in balanced or target date funds?
Unfortunately 2022 changed this strategy. Stocks and bonds were both down. And of you had emergency cash it was worth 8% less due to inflation.
I wonder the same. Maybe this situation calls for cutting withdrawals to absolute minimum. Then if there is quick rebound in stocks, you could do a midyear adjustment? Good question.
Great video. Can you do a part 2 on the order in which you take from your accounts? I.e. Roth, 401k, and other. (I.e brockerage account?)
This is great and thought provoking as always, James. Thanks for this content. One question on the where to draw rules: Are these rules so different from just drawing what you need and then rebalancing back to your target. Yes, this is not identical (if stocks way over performed, you would pull only from stocks leaving them over allocated) but I wonder if you wouldn't be better off by just doing a draw from anywhere and rebalancing back to target. Simpler anyway, no?
You're welcome! Thanks, Dennis.
Completely depends on the situation, but I do value simplicity as well.
I suspect that you have to worry about taxes when rebalancing.
Is the money for the whole year withdrawal taken from stocks or bonds or allocated from cash in a lump sun on day1 jan 1 ?
I always thought guardrail was taking a little more than 4% in good years, and reducing withdrawals in down market years. Maybe 5% vs 3%.
First video ive seen on withdrawal ideas. Usually ppl say never sell. Im like so why are we putting money in if we never take it out!
Thank you!
Great video... I currently use the the Vanguard Personal Advisor Service (where 100% of my $2MM retirement funds are). They provide the same drawdown strategy you describe in this video. They charge .3% for this service. What is your fee? Thank you.
if we disregard tax location issues: it doesn't matter where you withdraw from. Because you will be re-balancing anyway. Lets take your 60/40 example, if I withdraw from the bond side, it then rebalance to my asset allocation back to 50/50. You would also rebalance to your AA if you withdraw from the equities. What am I missing?
I’ll bet (based on his other videos) the overall portfolio is not like you suggest e.g. rebalance to 60/40. Instead, figure out what the right amount of fixed income assets you require (e.g. 6 years of expenses) to protect you in a market downturn which allows you enough time for the stock portfolio portion to rebound. If your stock portfolio is growing handsomely the % of stocks in your portfolio could be increasing overtime not a rigid 60/40 mix
Another awesome video! But… what if I don’t plan to live to the age of 105 😅, how would this play out for a 30 year retirement? (and why do they use 40???)
They use 40 because you only live once and they don't want you to be broke for that one time!
Wouldn't it be much simpler to pull your yearly salary out from any taxable account and then immediately re-balance the entire portfolio which should be done yearly? As and example - take income from Bond fund, re-balance, and net result it 20/80 split. Or take income from all Stock, re-balance, and net result is 20/80 split again. No difference.
I don't know the exact answer but my guess is because you don't get taxed to rebalance in your traditional or Roth accounts, unlike rebalancing in brokerage accounts
What if you have a multiasset fund so it’s all contained
Does this mean that if you have a big enough cash bucket (at the beginning) to withstand a full bear market (across both equities and bonds), you theoretically never have to go into bucket 4 or 5? (ie, "sell low"...)
A LOT of Good Information....
Please invest in a quality Microphone or at least,
Don't Record In an
ECHO CHAMBER!!!
Ty 😊
If I make enough yearly with defined pension oas and cpp, why take out more than needed from my rrsp, or tfsa or investments? I'm single and live simply. Do not
Travel. I just plan to take what I have to from my rrif, when I change over in 4 years. I will also inheret at some point as well.
Would you take more than you need if say stocks are up a lot and then save it for the next year or would you only take out what you need for that year?
The guardrails paper would suggest selling some of the excess and keeping in your portfolio in cash, but it would depend on your specific situation.
Great explanation. Validates my plan. What about dividends? I have 1/3 of my portfolio in dividend growth stocks and ETF's. What is a scenario where I would withdraw dividends?
Glad it was helpful!
@@RootFP you didn’t answer Todd’s dividend question, James. How about it?
The dividend fund would be considered stock and the dividends received would be considered cash. If you reinvest the cash dividend then it’s stock again.
Oh that is nice in theory but life doesn’t work that way and after the first year it gets way confusing and no one‘s gonna do it
The easiest way is what I’m doing now and that is figure out what percentage of your portfolio you are comfortable in putting into stock mutual funds let’s say 60% as an example and then you put the 40% in the fixed index annuity‘s doing the growth option
Then for your income portion just live off of the 10% that you can take out penalty free from the fix index annuity each year you can argue over the percentage of stocks versus the fix index annuity that’s another discussion for another day but just keep it simple
I personally have 60% of my Nesta egg in fixed index annuity‘s and 30% in stock mutual funds and 10% in cash
Everybody’s percentage would be different according to risk tolerance
But they fixed index annuity replaces the old bond
portfolio
I’ve been doing this for about eight years now the life is so great and so simple
Thank you for reading
Finding the method that works for you is important!
Did you get a lifetime annuity or a fixed term like 20 years?
@@canyonoverlook9937 Neither......remember they charge a fee of around 1% to have an income rider. That is really not needed. For me I just use the increase that I get from the cap. Meaning when the SP goes up 5% I take as income 5% for income. This way I always have my principle. You don't have to take the entire gain.......just take a portion.
This year there will be no gain. So zero will be the gain.
I’m totally confused why you are not bringing up my tax deferred account which is the largest I have a 401(k) rollover in an IRA
How have you seen Required Minimum Distributions (RMDs) affect Withdrawal Rates and Allocations and Buckets in that Uncle Sam’s RMDs
> will exceed the 4% rule beginning at age 73 and
> will exceed 7% by age 86
* Granted, this only applies to the Traditional Accounts (401k, 403b, IRA), Not the Roth Accounts
The RMD may push withdrawal rates over desired amounts, but in those cases you have the option of reinvesting the “excess” withdrawal in a taxable account if you want it to remain invested
Since you’ve separated out stocks and bonds in the guidelines, how would you handle withdrawals from 401k that’s invested in a target date fund that includes both stocks and bonds?
You couldn’t do the same thing with a target date fund. The fund company would be responsible for your redemption but you couldn’t specific where it comes from within the fund.
@@RootFP makes sense, thanks!
It makes no sense to sell your best performers unless you constantly aim to rebalance your portfolio towards an average that is meaningless
In retirement return isn’t the most important factor it’s income and longevity.
60 40 is an old concept today
I'm no expert but this whole thing I just heard sounds too risky for my taste. Sounds like it's people who don't want to live frugally. Just want to spend spend spend. And they're looking for a way to get away with it.
Great content. I suggest you jack your chair up a bit so you don't look like a small child at a big table. Its optics....but its the video world we live in.
Haha thank you for the tip! I agree that’s important.
😂😂😂😂😂
Nice theory but nothing to do with reality. Skyrocketing healthcare, property insurance, food prices etc are never taken into account in these calculations. Government can also start taxing roth just like regular ira when you pass. Government just made regular 401k and ira obsolete for planning.
How did the govt make 401k and ira obsolete for planning?
LOL- where we're heading none of these "traditional" retirement strategies are worth a damn. Get out-get out, while you still can!