You should be planning to spend MORE in retirement than just following the 4% rule.
Why? Because the 4% rule is simply the Maximum SAFE Withdrawal Rate since the dawn of the modern era of investing. This means that if you took 4% out of your 60/40 stock bond portfolio each year, adjusted for inflation, you’d never have run out of money.
Okay, but if you only took 2% a year out of your portfolio you also would have not run out of money without the need to be in 60/40 portfolio.
Is this acceptable? Probably not. So, why do we accept the premise that 4% is okay for retirees when in fact it is literally the WORST CASE SCENARIO!
In fact, as the video shows you , the MEDIAN portfolio distribution amount was 5.6%. which means 40% more income each year than the 4% portfolio And even with “risky” distribution amount, half the time you had money left over when you died.
2/3 of the time you could safely withdraw 5% a year without running out of money. In fact the 4% is such an anomaly in terms of the actual amount of time it even came into being it boggles the mind.
Yes, historically if you only took out 4% a year you’re “safe”. So what??? Why limit yourself if the numbers are so large that you can safely take out more than that in the vast majority, the HUGELY VAST majority of times?
It’s crazy talk. But, as always, I have a hunch why the 4% rule has been glommed on to. The 4% rule doesn’t include advisory fees. So, if an advisor can sell his services via the 4% rule and charge you a 1% fee HE will be safe in HIS earning perpetual money off your account all the while you sacrifice your own spending.
Essentially, with a 1% fee, the 4% rule makes sense. So, I hope you didn’t want that extra $10,000 a year spending money because with your advisory fee you’re paying, if you want to stay ‘safe” you better adhere to the 4% rule.
Or, even better, just fire your advisor, buy some index funds and spend more. Simple as pie.
On a side note, if you never hear from me again, you may know why! 🙂