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Is My 5% Retirement Withdrawal Rate Dangerous???
Planning for retirement can be a daunting task. With so many financial uncertainties and variables at play, it’s only natural to question the sustainability of your retirement savings. One common concern amongst retirees is the withdrawal rate they should adopt from their retirement portfolio. Is a 5% withdrawal rate dangerous? Let’s delve deeper into this topic to gain a better understanding.
Firstly, it’s important to note that the 4% withdrawal rule has long been considered a benchmark for retirement planning. This rule suggests that withdrawing 4% of your retirement savings annually, adjusted for inflation, should be sustainable over a 30-year retirement period. However, given the changing economic environment and low-interest rates, many retirees are questioning whether a slightly higher withdrawal rate, such as 5%, can still be deemed safe.
It’s crucial to remember that every retiree’s situation is unique, and there isn’t a one-size-fits-all answer to this question. However, experts generally assert that a 5% withdrawal rate comes with an increased level of risk compared to the traditional 4% rule. The reason for this is that withdrawing a larger percentage of your portfolio can put a strain on its longevity, especially if you experience a market downturn early on in your retirement.
One factor to consider when deciding on a withdrawal rate is your investment allocation. If you have a well-diversified portfolio that includes a mix of stocks, bonds, and other assets, a 5% withdrawal rate may be more feasible. However, if your portfolio is heavily concentrated in risky assets such as stocks, it may be prudent to adopt a lower withdrawal rate to protect yourself from potential market volatility.
Another crucial element to take into account is your projected lifespan. If you have reason to believe you will live beyond the average life expectancy, you’ll need to be even more cautious about your withdrawal rate. Stretching your savings over a longer horizon can require a more conservative approach to withdrawals.
Additionally, your individual financial situation plays a significant role in determining a safe withdrawal rate. Do you have other sources of income or pensions? Are you carrying substantial debt or medical expenses? These factors can greatly impact the sustainability of a 5% withdrawal rate and may require you to adjust it accordingly.
Ultimately, it’s crucial to consult with a financial advisor to determine the withdrawal rate that works best for your specific circumstances. A financial professional can consider all the relevant factors, assess your risk tolerance, and help you develop a retirement plan that aligns with your goals.
In conclusion, while a 5% withdrawal rate may be feasible for some retirees depending on their unique circumstances, it does come with a higher level of risk compared to the traditional 4% rule. Market volatility, asset allocation, projected lifespan, and individual financial factors all play a role in determining the safety of your withdrawal rate. Seek professional guidance to ensure your retirement plan is well-suited to your needs and goals.
It wasn’t this Bruce my man! We love you over here and you always qualify your position. Not all roads work for all so we have to make our own choices. You are simply a knowledgeable opinion by very valued. Go Pablo.
I’m gonna take 5% of my $500K TSP L income fund starting at 62 and plan on it lasting 23 years. If I am still alive at 85 and it is gone, then so be it. No kids and no plans to leave any legacy. Two FERs pensions and SS at 70 means we never run out of money and live very comfortably until the end.
Insurance increases
Utilities increases
The 4% rule is not about burn rate in retirement. It’s about the annual spend one can have and still maintain principal (I.e investable assets) indefinitely under a set of assumptions. It’s merely a guideline for a thoughtful steward.
I wanna be like old Pablo. Sitting on someone’s lap, getting my belly rubbed, my eyes squinting at the camera, with not a care in the world….
Sounds like Bruce should take a portion of his portfolio and guarante himeself a 7.20% payout on the purchase of a spia.
Of cousre not many financial planners would suggest strategy, as this strategy would reduce the amount of the aum .
Plankton's wife is KAREN!!!
My thoughts are if you should use the 4% rule or use 3%, 5% or whatever number you use is very dependent on what you have (cash, investments, etc.,). I do think in the beginning of retirement when you are in your 60s you may spend more than in your 70s and 80s. Josh is right about spending. Keep that under control and you can plan and manage the rest much easier.
All about expenses. I've made low to mid 6 figures for the last 15 years, my yearly expenses are less than $60K including 3 weeks every year in the carribean
Get new glasses to hit the jump shots, helped me with that AND golf!
Pablo makes a very convincing argument.
Finally some beef, Thank you for getting back in your lane.
Karen is Planktons robot wife
hey josh remember this video – It's Going to Get Ugly Next Year? you and bruce have a lot in common
5% in your 60s, 4% in your 70's, 3% in your 80s, a revolver in your 90s
When I retire from a construction career, I'll SAVE $300. a month in gas money!
I've never heard pushing anything, except research, thought and analysis. It's the old "it depends". Spending, gurad rails. Adapting to changing conditions.
Always great to start the day with a Pablo sighting! 🙂 Common sense financial advice. Thx
Burpees?
The focus on spending is the most correct thing Josh does. If your kids are out on their own, and you own a home (even if you have a mortgage) your spending profile in retirement may surprise you (Josj is correct on the inflation thing). Do your retirement budget FIRST. You may find, as I did, that you already have the assets or cash flow to ensure a successful retirement. Why would you assume a 4% increase in spending? The Fed's target for inflation is 2.5% and you can take transportation and housing components of that inflation rate off the table. Josh, I'd love to see a study of Social Security COLA increase versus a realistic retirement inflation rate.
I have said this many times on your channel Josh. You will spend less in retirement, especially if you have zero debt. With zero debt you can adjust you spending accordingly. And the 4% rule doesn't take into account as you pointed many times out SS, nor the fact that in many cases you don't even touch the principle.
Great content
70% of people will need some form of long-term healthcare. I’m single and even if I wasn’t one spouse dies before the other one, so please do you need to safeguard against this tragedy at some percentage.
70% of people over 65 years old will need some type of long-term health I care. I see it every day and so yes it is important Josh.
Long-term health care HSA huge, and a lot of money to protect in case of doomsday
How about something like 5 or 6 % from age 62 to 70, then 2 or 3% when taking social security at 70?