Its a great starting point, but I think we should also consider our flex rate and the ability to earn additional income in retirement, so it should be more of a guide rather than doctrine
I’ve never quite understood how the 4% (or any %) Rule can work in reality. We have expenses. And, the other reality is we are probably going to want to replace 100% of our income in retirement. Over the course of that retirement are going to be life event expenses like a new downsized home, a replacement car or two, Medicare (which could be a reduction in healthcare expense), 529 seed money for a grandchild, etc. And, there is going to be life event income like Social Security, a pension. These are the spikes that naturally occur which invalidates that nice, smooth line of projected spending. The only model that makes real sense is to create a spreadsheet that has for each year the income you have minus the expenses (based on past years). Those life event expenses are sprinkled in at projected times, too. That gap analysis will describe how investment withdrawals will have to happen each year. Yes, not everyone can or wants to do that kind of work, but I think Life shows us that this is closer to resembling how actuals will play out.
I think retirees (and all savers) should welcome higher interest rates, so that immediate annuities (with a refund feature) can again help solve the retirement income puzzle without requiring an undue amount of capital. Under more normal (non-Fed manipulated) interest rate conditions, this can create secured incomes for life, leave one’s remaining capital available to invest in a portfolio that will outpace inflation, and eliminate the need to answer the withdrawal percentage rate question.
Okay, I have a different related question. So whether its 4% or some other number, what is is it 4% of? For example do you include home equity or other assets, not just the investment accounts? Some would say your 60/40 basis should include other equity, treated as a real estate investment in terms of asset allocation. Also, I’m thinking the 4% or so should be taken out monthly versus annually so it can better be matched with on-going expenses. Thoughts?
Its a great starting point, but I think we should also consider our flex rate and the ability to earn additional income in retirement, so it should be more of a guide rather than doctrine
I’ve never quite understood how the 4% (or any %) Rule can work in reality. We have expenses. And, the other reality is we are probably going to want to replace 100% of our income in retirement. Over the course of that retirement are going to be life event expenses like a new downsized home, a replacement car or two, Medicare (which could be a reduction in healthcare expense), 529 seed money for a grandchild, etc. And, there is going to be life event income like Social Security, a pension. These are the spikes that naturally occur which invalidates that nice, smooth line of projected spending. The only model that makes real sense is to create a spreadsheet that has for each year the income you have minus the expenses (based on past years). Those life event expenses are sprinkled in at projected times, too. That gap analysis will describe how investment withdrawals will have to happen each year. Yes, not everyone can or wants to do that kind of work, but I think Life shows us that this is closer to resembling how actuals will play out.
I’m all for 0%… using dividends and other non-principal $$$ only is my goal.
I think retirees (and all savers) should welcome higher interest rates, so that immediate annuities (with a refund feature) can again help solve the retirement income puzzle without requiring an undue amount of capital. Under more normal (non-Fed manipulated) interest rate conditions, this can create secured incomes for life, leave one’s remaining capital available to invest in a portfolio that will outpace inflation, and eliminate the need to answer the withdrawal percentage rate question.
Okay, I have a different related question. So whether its 4% or some other number, what is is it 4% of? For example do you include home equity or other assets, not just the investment accounts? Some would say your 60/40 basis should include other equity, treated as a real estate investment in terms of asset allocation. Also, I’m thinking the 4% or so should be taken out monthly versus annually so it can better be matched with on-going expenses. Thoughts?