By Dr. Jim Dahle, WCI FounderI've written numerous times about the concept of a safe withdrawal rate (SWR), including these posts:
- The 4% Rule and Safe Withdrawal Rates
- 3% Is the New 4%? The Safe Withdrawal Retirement Rate
- How Much Will You Probably Die With?
However, the silliness of it all continues, and today I'm going to rant like never before on this topic in the hopes of realigning how people think about this concept.
What Is a Safe Withdrawal Rate?
The concept of a safe withdrawal rate is that a retiree can withdraw a certain amount of the portfolio value at retirement each year (usually indexed to inflation) with little risk of running out of money. That amount is the safe withdrawal rate. Note that it is NOT a GUARANTEED withdrawal rate. It is a SAFE withdrawal rate. If you want guarantees, look into insurance products such as Single Premium Immediate Annuities (SPIAs). Unfortunately, you can't really get inflation-indexed SPIAS anymore. Your best option there is to delay Social Security to 70.
Where Does the Safe Withdrawal Rate Concept Come From?
While not the first people to look at the concept, the SWR concept was popularized by the Trinity Study in the 1990s. Back then, financial advisors were telling their clients that if their portfolio was earning 8% a year on average, they could spend 8% a year without any fear of running out of money. Some were even more aggressive with spending because of the outsized equity returns of the late 1990s. However, the problem with this approach (aside from the fact that late 1990s equity returns were far above average) was that it did not address the problem of Sequence of Returns Risk (SORR). In a nutshell, SORR is when, despite having adequate (again, let's say 8%) average portfolio returns throughout retirement, the portfolio will run out of money prior to death if the crummy returns show up first during early retirement. Withdrawing a large amount from a portfolio while it is falling in value can decimate a portfolio relatively quickly.
The Trinity researchers looked at the best database available (US stock and bond returns from 1927 on in rolling time periods), applied various time periods (15, 20, 25, and 30 years) and various asset allocations ranging from 100% bonds to 100% stocks, and then applied withdrawal rates from 3%-12% to see what percentage of the time the portfolio survived. This is what the data showed:
For a 30-year retirement with a 50/50 portfolio, a 3% withdrawal rate survived 100% of the time, a 4% withdrawal rate survived 96% of the time, a 5% withdrawal rate worked 2/3 of the time, a 6% withdrawal rate worked half the time, and an 8% withdrawal rate worked 10% of the time. Thus, advisors telling clients they could take out 8% were doing a huge disservice to them.
This is the birth of the 4% Rule. Four percent is a “safe withdrawal rate.” Maybe you could call 3% a “guaranteed withdrawal rate” (although there is never a guarantee in life, especially when it comes to market returns).
More information here:
4 Methods of Reducing Sequence of Returns Risk
What Is the Problem with the Safe Withdrawal Rate?
The problem with the SWR is engineers. What do I mean by that? Well, nothing too sinister. My father is an engineer. But engineers love to solve problems. And they love data. And they love spreadsheets. And they love planning way in advance. We need engineers for many things in life. But we don't need them when it comes to planning your retirement. What happens when you get engineers involved? You get people arguing about whether 3.67% or 3.74% is the correct safe withdrawal rate. Reminds me of the old joke:
“How do you know economists have a sense of humor?
They use decimal points.”
If you think economists use decimal points, you should check out engineers.
Injecting precision that doesn't exist into a process might make you feel better, but it certainly doesn't make the data any more useful. Consider the source of the data: less than 100 years of market returns in a single country. While there might be dozens of rolling 30-year time periods, there are fewer than four independent 30-year data points. You can't use a dataset like that and then pretend you can get some sort of precise answer out of it. The correct answer to “what is a safe withdrawal rate?” is “something around 4%, probably in the 3%-6% range.” Not 3.59% or 4.21%.
Pessimism Is Sexy
The other problem with the folks that get into this SWR stuff is that they like to look at all the possible reasons why a SWR could be much less than 4%. Maybe they project lower equity returns or bond yields are lower or the world seems scarier or whatever. They forget that the Trinity Study database (including updates) includes events such as:
- The Great Depression
- World War II
- The inflation of the 1940s
- The stagflation of the 1970s
- The Cold War
- October 19, 1987 (look it up)
- The Asian Contagion
- The meltdown of long-term capital management
- The dot.com bubble and bust
- The Global Financial Crisis
- Several cryptocurrency winters
- The COVID pandemic
That's a lot of bad stuff. So, when people are saying that the future will be worse, wow, that's pretty pessimistic. Especially since economic history should be titled “The Triumph of the Optimists.” But pessimism is sexy. In his excellent book “The Psychology of Money,” Morgan Housel wrote:
“Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.”
“Pessimism just sounds smarter and more plausible than optimism.”
“Pessimism isn’t just more common than optimism. It also sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk.”
“It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent. Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together.”
“The intellectual allure of pessimism has been known for ages. John Stuart Mill wrote in the 1840s: ‘I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.'”
Get a bunch of engineers cranking numbers using past data and current yields, and, all of a sudden, they start competing to see who can be the most pessimistic. Some small percentage of them might even be neurotic, maybe even a little OCD. But all of a sudden, people are talking about 2% being the safe withdrawal rate. Maybe 1.5% if you retire early. It's bonkers. That's what that is.
The Silliness of Safe Withdrawal Rates
If you go down this rabbit hole too far (and you don't have to go very far to go too far), you will meet a lot of strange people who try to convince you otherwise. They are mistaken. That's God's honest truth about withdrawal rates. Go back to that chart. Take a look at the 75/25 30-year line. It's 100%. In all of recorded financial history, a 4% (adjusted for inflation) withdrawal rate NEVER ran out of money. In fact, on average after 30 years. the portfolio was 2.7X the original portfolio value. Even if you decide you're going to do 5% of the original portfolio value (again, adjusted upward each year with inflation), it worked more than four out of five times.
How Long Is Retirement?
The average American retires at 64. The average life expectancy of a 64-year-old is 17 (male) to 20 (female) years. What's the table look like for a 20-year retirement? The 75/25 20-year line shows that you can withdraw 9% a year and only run out of money half the time. Nine percent! And you've got these crackpot engineers running around telling people they can only take out 2% a year. By the way, if you're a financial advisor and you're telling your 92-year-old client she can only spend 4% a year, you're a jerk. You can have very aggressive withdrawal rates for short time periods without any problem. There's a reason the RMD for a 92-year-old (9.8% of portfolio) is more than twice as large as that of a 75-year-old (4%).
More information here:
The TIPS SWR
Financial advisor Allan Roth took a look at a portfolio that was 100% TIPS at our current yields and determined that one could take out 4.36% a year, adjusted to inflation, and your money would be guaranteed to last 30 years. You don't even have to take any risk, and you can get 30 years of 4%+ inflation-adjusted withdrawals. You're not immortal. It's OK to spend some principal. Now, maybe you're retiring at 45, and 30 years isn't quite enough to feel comfortable. Fine. The difference in withdrawal rate between a portfolio that will last 30 years and a portfolio that will last forever is pretty trivial. Besides, how many 45-year-old retirees do you know who NEVER earn another dollar? There are not very many of them. Even the most diehard physician FIRE dude I know left medicine at 43, and he is still earning a little income.
Larimore vs. Pfau and Big ERN on SWR
I have three friends. We'll call the first one Taylor Larimore. Let's say he's a 100-year-old World War II vet who retired in 1980 at 55 on $1 million, and he has been living on it ever since. His philosophy on spending money in retirement is to “adjust as you go.” You simply take a look at how much you have and adjust how much you spend based on that. In a year when you earn a lot, you spend more. After a bad year or two, maybe you spend and give a little less. He bought a couple of SPIAs in his ninth decade of life and mostly lives off those and Social Security these days.
Let's call my second friend Wade Pfau. Let's just say he's a “retirement researcher” who makes his living off publishing study after study about safe withdrawal rates. Boy, does he ever like to get into the weeds on this stuff! Publish or perish you know, and this area of research has been fertile ground over the years. He has argued that the SWR is 2.4%.
Let's call my third friend Big ERN. While not an engineer (he's an economist by training), he has published a long, detailed blog series about safe withdrawal rates that rivals Pfau's work. He has also argued for a sub-4 % withdrawal rate.
Who's right and who's wrong? People say Taylor was just lucky. He retired at the beginning of the longest bull market in history. He won't be the last person who retires at the beginning of a bull market. If Pfau likes 2.4%, he's going to love the 0% withdrawal rate many retirees are currently using. Big ERN says adjusting as you go might mean a 15- or 20-year adjustment in spending, and he calls that “failure.” Calling having to make an adjustment “a failure” seems overly harsh to me. That's just how life works, both in accumulation and decumulation.
More information here:
Let’s Celebrate Taylor Larimore’s 100th Birthday by Asking Him 4 Questions About Money
SPIAs
If you go down the rabbit hole and end up with something like a 2% withdrawal rate, you need to seriously reconsider your approach. If you are so worried about running out of money that you are only willing to spend 2% a year, you should do something to reduce that anxiety. Here are some great options:
- Delay Social Security to age 70. This is the best deal out there for an inflation-indexed annuity.
- Buy a SPIA or two. Use these together with Social Security and any pensions to put a floor under your retirement. Even if your portfolio totally fails, you won't be eating Alpo.
- Ladder some TIPS. It's 4.36% for 30 years at today's yields. Yes, you could live longer than 30 years, I suppose. Maybe cut it back to 4% instead of 4.36%.
A Real Retirement Spending Plan
Few who have looked at this problem seriously actually advocate for a systematic withdrawal plan based solely on the initial portfolio value that never changes over the following decades. Most recommend a variable withdrawal plan based on returns as you go along. Whether you want to formalize that or just eyeball it like Taylor is up to you. In essence, the risk is SORR, i.e., the idea that you get terrible returns in the first few years of retirement. If that happens, you stick with something like 4% or even less. If it doesn't happen, you can spend 5%, 6%, or even more and be fine.
But you don't have to stick with the same stupid withdrawal rate for 30 years if your first three years go terribly. Just like you adjusted your spending to your income during your working years, you can do the same during your retirement years. If your retirement spending is 100% fixed and predetermined, you probably retired too early with too little money. It's one thing if you were forced to do that, but if you did that voluntarily, that's on you.
My advice on retirement spending is this:
Start at something around 4% of the portfolio value and adjust as you go.
That's it. It's that simple. The more uncomfortable you are with that plan, the more you should put into SPIAs and TIPS ladders. The more comfortable you are, the more you can leave in stocks and bonds and the more you can likely spend in retirement and leave to heirs.
Reverse Engineering
Perhaps the biggest benefit of the 4% Rule Guideline is figuring out how much you need to retire. For example, consider a doctor who needs $120,000 a year in today's dollars to retire and who saves $50,000 a year in today's dollars for retirement and earns 5% real (after inflation) on the investments. How long does this doctor need to work and save? It depends on the withdrawal rate.
- 5%: 25 years =NPER(5%,-50000,0,120000/5%)
- 4%: 28 years =NPER(5%,-50000,0,120000/4%)
- 3.5%: 30 years =NPER(5%,-50000,0,120000/3.5%)
- 3.33%: 31 years =NPER(5%,-50000,0,120000/3.33%)
- 3%: 33 years =NPER(5%,-50000,0,120000/3%)
- 2.5%: 36 years =NPER(5%,-50000,0,120000/2.5%)
That's an 11-year difference between someone willing to “risk it” with a 5% withdrawal rate (which will probably work, especially if you're willing to be flexible) and someone who went down Wade Pfau's rabbit hole. Maybe 11 years doesn't seem that long to you. But think about it this way.
Retirement is often divided into the “go-go years,” the “slow-go years,” and the “no-go years.” Perhaps, on average, it stacks up like this:
- Go-go years: Age 65-75
- Slow-go years: Age 75-85
- No-go years: Age 85+
Let's say you're a doctor who started saving upon exiting residency at age 33. Age 33 plus 36 years equals age 69. That leaves you six go-go years. On the other hand, if you retired after 25 years, you retired at 58. That leaves you 17 go-go years. That's almost three times as many of the best years of retirement. Does it matter? Absolutely it does.
More information here:
Doesn't Matter for Many
For many white coat investors, however, the debate about safe withdrawal rates is purely academic. Because they enjoyed their work so much and were so talented at earning, saving, and investing, they hit FI long before they were actually ready to be done working. As you can see, it doesn't take that many years to go from a 4% withdrawal rate to a 2.5% withdrawal rate. Perhaps eight years. Maybe less with an inheritance or other windfall or a particularly high savings rate. If you were planning to retire at 55 but hit FI at 47, you now face an enviable dilemma. You can retire early. You can spend more money in retirement. You can give more money away during retirement. Or you can stress less about running out of money and probably give away more at death. I hope we all get to face THAT dilemma! You can whine about your RMD problem while you're at it.
Rich, Broke, or Dead
The SWR movement is composed of a lot of well-meaning but anxious people advocating for ridiculous less than ideal recommendations. Understand the concepts, but don't fall for their arguments. It's OK to spend your money. You're far more likely to end up dead with a huge portfolio than broke and wishing you had more. Don't forget the lessons of the Rich, Broke, or Dead graph. Green is rich. Red is broke. Black is dead. In the end, we're all dead, and most of us were rich right up until the end.
What do you think? Why do people get so pessimistic about withdrawal rates? What is your retirement spending plan?
IMHO, “go-go years” to age 75 is probably too high, at least for males.
The successful male early retirees I’ve known were all retired by age 55 but by age 70 they were mostly “slow-go” with some “no-go.”
I also remember one company I saw online that advises clients on choosing Medigap versus Medicare Advantage noted its clients developed serious medical conditions in their late 60s to early 70s.
No matter how healthy they felt at age 65.
So that company strongly favors Medigap over Medicare Advantage.
Lots of variability obviously. I definitely know lots of folks who are no longer go-go at 70.
Thanks for the mention, Dr. Jim! Though, being included with the silly crowd hurt a little bit. But in the days of SEO, there is no bad publicity, right? 😉
Here are a few words to clarify my position:
There is nothing wrong with specifying the SWR precisely after the decimal point. That’s because a rise from 3.0% to, say, 3.25% is not a 0.25% increase but an 8.33% increase in the withdrawal amount. And we all know how small changes in the withdrawal amount blow up to massive changes of the final portfolio value after 30, 40, and 50+ years. A mere 0.25 percentage point change might mean the difference between a successful retirement and running out of money.
In Part 46, I wrote a whole blog post about why uncertainty about the future necessitates rather than precludes precision. And I used a medical analogy that you’ll all appreciate here on this blog:
“Imagine a Medical Doctor, Dr. Wingit, MD, must inject medicine into a patient. He looks up the dosage information and finds that a patient of this age and size and with this specific condition calls for a 40ml dosage. But Dr. Wingit points out that there is a lot of uncertainty about the patient’s survival chances anyway, so who really cares about the exact amount. 30ml, 40ml, 50ml, it’s all the same, right? Uhm, no it’s not. You want to be precise to not add even more uncertainty to an already volatile situation.”
But I certainly understand the appeal of using this excellent applause line about the 3.67% vs. 3.74%. Of course, the joke is really on the people who don’t realize that a Percentage *point* change can vary greatly from a Percentage change!
Also, I’ve recommended 4% and even 5%+ initial withdrawal amounts to folks with supplemental flows later in retirement (Social Security, Pensions, etc.). I’ve also pointed out the great importance of asset valuations. For example, if the stock market is beaten down, you can withdraw more than 4% even before accounting for supplemental flows. See Part 54. I’ve also recommended SWRs far higher than 4% to people who plan to reduce spending in their slow-go and no-go years. Another reason to do the analysis carefully and precisely instead of winging it with the 4% Rule. I’ve also recommended flexible CAPE-based rules for withdrawals. But it’s not a panacea. You still want to be aware of how long and deep potential drawdowns in your real withdrawal amounts you might face. It’s OK for personal finance bloggers to ponder “yeah, 4% initial and then I’ll see how it goes.” But actual retirees want to have a bit more information about how badly and for how long a flexible rule could backfire.
Anyway, this is a great post. Thanks again for including me, and I recommend folks check out my site for more info!
It’s great to have you (and Wade Pfau) here commenting on this blog post and for those who are interested, you can hear more from Big ERN on the podcast here: https://www.whitecoatinvestor.com/early-retirement-now/
As I told Wade above, I feel ashamed that I wasn’t more complimentary toward you and your work in the post itself because you have both done a ton of awesome stuff in this space.
I love the doctor analogy, but the truth is that for many (most?) medications, there really is little difference between 30 ml and 50 ml. The therapeutic window (space between the lowest effective dose and the lowest toxic dose) can be surprisingly wide. The trick is knowing which medications have that wide therapeutic window (say, Penicillin) and which ones do not (say a beta blocker)
I stand corrected about your position about pessimistic/conservative SWRs.
I apparently disagree with you about the desire and need of most retirees to get into the weeds about the various withdrawal strategies. And I’m not advocating for “4% and we’ll see how it goes”, but for “4%ish and adjust as you go.” Big difference. I find it interesting to learn about the pros and cons of the various withdrawal strategies. But I’m not going to kid myself that most retirees want to read four blog posts about decumulation plans, much less 60 of them. They want “good enough”, not perfectly optimized, especially when perfect optimization is impossible a priori.
I also think this matters for a lot fewer people than one might think. I mean, most people don’t save enough for retirement. They’re going to run out (unless their life gives out first) not because they want a 5% withdrawal rate instead of a 3% withdrawal rate, but because they need a 20% withdrawal rate to sustain their lifestyle. Of those who did a good job in the accumulation phase, many of them, like me, don’t have any need to optimize this decision whatsoever. They’re spending 1% or 2% of their massive portfolios because that’s all they want to spend. If SORR shows up, well, they’ll live exactly the same and their heirs or favorite charities will get less when they die. Of the remaining small percentage of those who saved “just enough”, for a big chunk of them their chosen method doesn’t really matter anyway because they’ll be dead in less than 15 years and pretty much all methods and all reasonable withdrawal rates will work for that time period. We might be talking about less than 5% of retirees who really need to give this all that much thought.
I’ll leave you with another medical comparison, the difference between something between statistically significant and clinically significant. Yes, you can find statistical differences between outcomes in someone using an RMD method vs a guardrails method to drawn down their portfolio. I just don’t think it makes much difference in real life. And spending a lot of time studying it probably leads to higher anxiety and people spending less than they otherwise could due to worry.
“I’ll leave you with another medical comparison, the difference between something between statistically significant and clinically significant.“
OMG; you hit upon my worst pet peeve when I was in practice – breast cancer studies often have huge numbers of participants, so even tiny differences between treatments are statistically significantly, but often clinically meaningless, i. e. drug A has a survival of 10 months, but new drug B has a survival of 11 months, and gets approved by the FDA. Wahoo, a 10% increase ! But for that 1 months, its likely much more expensive, and likely much more toxic.
My favorite medical statistic is “Number Needed to Treat”. It’s amazing how high it is even for stuff we think is very effective.
Thanks, Dr. Jim! I will have to come up with a new analogy then. You’re the first to point out that this medical story doesn’t work very well. However, the message is still valid: One risk does not justify adding another risk because risks compound. I have some other analogies handy, so stay tuned.
Good discussion with Dr. Pfau. I’m puzzled that he conceded the issue of the decimal points, though. These are percentage decimal points of the portfolio value. The percentage changes in the retirement budget are higher by a factor of roughly 25x.
I suspect there is no material distinction between “4% and we’ll see how it goes” and “4%ish and adjust as you go.” For example, in response to a comment above, you wrote that the flexibility-induced cut to spending from 6% to 2% only lasts “a few years.” In Parts 9 and 10 of my series, I simulate Guyton-Klinger rails with a 6% initial rate. The cut in spending can last a few decades, not just years. Similar results in Part 58, which the other poster mentioned, where a 5.5% initial withdrawal rate will see many years and even decades of drastic spending cuts. This is precisely why we should perform a more careful analysis. Not everyone can accumulate 50x or 100x annual spending like you. I encounter a lot of folks who are at 25x and too afraid to withdraw more than the dividends and interest. They are too scared to retire and now target 50x. More analysis and less hand-waving make folks more confident to retire if I can show folks that their portfolio would have survived even the Great Depression.
We both agree that folks with generous defined benefits (e.g., Social Security plus military pension) can take a lot more risks with their investments.
We also agree on the “statistically significant” and “clinically significant.” We have the same issue in economics between “statistically significant” and “economically significant.” Example: I’ve simulated many different flexibility strategies, Guyton Klinger, VPW, etc., and they all suffer from the same drawback: deep and lengthy withdrawal cuts that last longer than the average bear market—sometimes decades. CAPE-based rules are slightly better than the rest because you account for equity valuations. That’s an economically significant difference.
So, we probably agree on almost everything. If you’re at 100x, you certainly don’t need my SWR analysis. But if I can push some burned-out high earners into retirement before they vastly over-accumulate past 25x or 30x, that’s a success.
I guess I viewed “see how it goes” as analogous to just gambling where you hope but don’t actually do anything.
I’ll have to spend more time with your posts about how long one would have to cut for, but I’m positive that if SORR shows up in your first 5 years, it’s basically a permanent reduction in how much you’ll be spending in your retirement.
Some additional great discussion about this post can be found here on the WCI forum:
https://forum.whitecoatinvestor.com/general-welcome/442007-discuss-latest-wci-blog-post-the-silliness-of-the-safe-withdrawal-rate-movement
and here on the Bogleheads forum:
https://www.bogleheads.org/forum/viewtopic.php?t=429052
just accumulate 25% more than your goal and you are on easy street and never touching principal
not rocket science
There’s actually a lot of wisdom to that.
Serious question: who are the engineers quoting SWRs out to two decimal points? Because I think most engineers are pretty familiar with the concept of significant figures.
It’s not really a dig on engineers, more on those who like running numbers, many of which happen to be engineers. But check out some of the discussions of withdrawal techniques on internet forums like bogleheads and you’ll see what I mean.
Jim,
Here’s the million dollar question for you as I’m sure many readers are curious. At this stage, obviously it’s subject to change but when would you consider retiring from both medicine plus or minus white coat investor (WCI). As you mentioned in order to maximize your go-go years do you think it’s better ton one, cut back to say three days a week earlier at say 50 and maximize vacation time to say 8 weeks a year as opposed to working to the traditional age of 65 where one would then stop working all together with zero work responsibilities? Financial independence allows both of these options but obviously one requires less upfront nest egg in the other.
In addition, variable as those who have kids in that it’s hard to envision the utility of quitting altogether prior to that last child being out of high school I was at that point in time they would probably need some stability.
Curious what you’re thinking at this juncture and obviously this is subject to change based on life and market conditions.
Duke
For sure kids are the limiting factor for us. So we end up doing a lot of trips without our spouse/kids. For example, this weekend I’m off to float the Escalante and canyoneer while Katie is home with the kids.
As far as when to quit working, if work isn’t keeping you from doing anything you want to do, why quit it? My 6 shifts a month (5 this month and last) aren’t exactly taking up all my time.
WCI is a bit of a special case in that it is more valuable with me than without me and transition out without years of preparation means walking away from a lot of value. Luckily I still enjoy most of what I do there.
Great post. Thanks.
I’m 56, have been retired for two years and haven’t been to this site nearly as often as I used to. Even though it’s only been two years, I’m happy with how easily I’m handling the withdrawal part of retirement and articles like this one are a very helpful reinforcement.
I read posts from Big ERN. Maybe I missed something, but I never understood when do you apply your start date of retirement in coordination with your sacred “to the hundredths place decimal point SWR”?
For example, 3.73%. You may solemnly swear to that rate on Day 1 of retirement, but by day 123 the market may be down greatly. Maybe, like me, the market was tanking at retirement, but cash comes in months after for work performed earlier and by this time the market was rebounding. I wasn’t working, but money was coming in essentially like a paycheck, so when did I “retire?” This two digits to the right of the decimal point seems rather over the top, to put it mildly.
Another great example of what this post is about can be found here:
https://www.bogleheads.org/forum/viewtopic.php?t=434980
Where posters are arguing for 1-2.5% withdrawal rates. You can’t make this stuff up. Here’s a quote:
2.5% might work, it might not. I used to be comfortable with that rate, at least theoretically. In practice though, we have historically been around a 1% rate or below (based on the last 4 years). I would be lying if I didn’t admit that sometimes even that rate feels unsustainably high.
Another good example of the insanity out there:
https://www.bogleheads.org/forum/viewtopic.php?p=8088768#p8088768
A guy with $5.2 million, college funded, house paid off, Social Security coming, and spending $190K a year is told he doesn’t have enough to retire.
Our retirement spending plan is currently as follows:
1. Stated receiving SS benefits last month at age 69 and three months
2. Wife will be receiving her spousal top off next month at a reduced rate since she began her SS benefits at age 62
3. Have a modest non-COLA pension currently earning 1% per month, with a 75% survivor benefit, which I will defer until 2026 so I have some room for Roth conversion in the 12% tax bracket
4. Worked through 03/2025, thus we can fully fund both Roth IRAs for 2025
5. Will use a flexible 4% withdrawal rate (e.g., 0.33% per month) from my rollover IRA account based on the total investments in the rollover IRA, Roth IRAs, and 401 k plan with no adjustments for inflation
6. I have to wait until 12/2025 to get my company match in the 401 k plan before rolling it over to my rollover IRA and Roth IRA
7. The combination of SS benefits, spousal benefits, and pension currently covers 77% of all expenses, thus my severity of failure is 23%
7. Have a detailed annual and monthly budget using personal finance software, which is updated monthly to adjust for inflation.
8. Have a 50/50 allocation of quality dividend-paying stocks and high-quality fixed income, which I conservatively estimate will provide a 4.6% nominal return. The dividends from the stocks in the aggregate increase at a rate higher than inflation.
9. I will reallocate the Roth IRAs from 50/50 to all stocks, which would provide me with a dividend income stream outpacing inflation and tax-free.
10. I will reallocate the Rollover IRA so the asset allocation is back to 50/50, with more assets with lower expected returns to reduce the nominal amounts of RMDs in the future.
One of the things I read on your website is the notion of how many quality years we have with good health and reaching for the final few hundred dollars in SS benefits, but having to give up eight of those months with good help is something I thought about when I chose to retire.