The Rule of 4% Was ALWAYS Made To Be BROKEN

00:00 4% Rule
00:56 The History
02:23 Bengen & The 4%
03:43 The Push Back
05:48 Deviating from 4%
06:38 Inflation
08:00 Very Conservative
08:40 Withdrawal Rates
09:51 Example
11:03 The Ideal Rate

Disclaimer: Please note that this video is made for entertainment purposes only and not to be taken as financial advice. Always make sure to do your own research.

Thanks for watching, I appreciate you!

[andrewdiamond]

HERE is where the rule of 4% is AWESOME! Say, you're 35, and have maybe $100k or $200k in your 401k after being in the workforce for 13 years. You have no clue if you are on track? behind? ahead? what does this mean? The rule of 4% can create FOCUS for the person just entering middle age / their real "earning years".

You can quickly get to: "I think I need $8k a month, Social Security will be $3k, so I need $5k, so that's $60k a year....I need $1.5 million in my 401k" It's math you can do in your head EARLY ON to figure out what your savings/investment profile needs to be.

[Retired-jrqs]

I am 61 and retired. I use 4% withdrawal rate.

[davidblack]

Another splendid video, Erin. You've really grown as a financial educator on the channel, and are a natural on camera.

The 4% rule achieved the visibility and attracted the debate it has because it codified, even against William Bengen's wishes, an answer to one of the most anxious questions in retirement finance: can I afford to retire? The fear of running out of money before you run out of time is real, and 4% offers a clear and conservative metric for what is, allowing for the amount of our savings, our need for cash, inflation and longevity, a complex calculation.

My one concern with the rule is that, in favouring capital preservation as it does, you can end up dying at 100 with a million in retirement savings. I like the idea of a higher rate earlier in retirement, when you are more likely to be healthy and open to travel or larger discretionary purchases, then decreasing the rate as you become less active, this tracking that "smile"-shaped pattern you noted we follow.

[shawnbrennan]

I planned for 4% when I first started planning in my 20s, because I also assumed that SS would be irrelevant and that I would not have a pension.

Now in early retirement on a decent pension and zero debts, we only pull from our nest egg for vacations/etc. Eventually, SS will add to the nest egg. We are very lucky.

But this brings me to my question:
If SS and/or a pension are covering 50% of your needs, then the investment mix and safe withdrawal rate would be significantly different that if “guaranteed” income is only covering 10% of your needs.

[michaelswami]

As Bill Murray said in Ghostbusters, it’s more of a guideline than a rule.

[Allegan]

Being retired we just use the RMD withdrawal only which actually works out to be in the same area as 4% guide post. This seems to allow steady growth while providing additional income to social security and allows for additional withdrawal if needed. Great commentary on withdrawal concepts.

[glensmith]

I've always seen those types of rules which I call ROTs (rule of thumbs) are only for getting me a starting input value or a ballpark for an expected but needed outcome. Also sometimes useful for generic guestimatting. I actually first wrote a Monte Carlo simulation algorithm for analysis of construction projects back decades ago but the custom nature and the compute requirements at that time made it useless for fast computations on most consumer grade computers. Now, a person who has access to Google can set one up that will do over a million simulations on their spreadsheet in no time.

[TimIsThankful]

In planning for retirement, I'm envisioning a 4 to 5% withdrawal rate, coupled with a three-bucket system. I believe a three-bucket system is a great way to manage the market swings over time.

[jdollar]

My wife and I both retired at 58. Im 62, and she's now 60.
We have used the 4% rule to guide our budgeting.
We use our invested assets to determine the 4% we withdraw and we have a diverse portfolio so we can adjust the "buckets" based on market conditions. We currently have about 20% in cash investments because we are getting over 5% on that money.
We DO NOT include real estate in our
We have our farm where we live.
We have one rental house.
We have a farm where we play.
The value of these investments is certainly a part of our net worth, but we don't count them in our 4% withdrawals.
Everyone will be totally different in their retirement, so using a number as a "rule" simplynmakes no sense, and it was never meant to be a strict number. It's a guideline that helps simplify the planning process.
Your income needs, assuming you have no debt, can ebb and flow based on a lot of factors. Some, you control, like travel and new cars. Some you can't control, like health issues and major home repair. On down market years, don't take the Alaska cruise. On up market years, take the Africa safari you always dreamed of.

[supermills]

The thing about the rule is it's not actually a rule and you can do whatever you like with your money, but it's a good figure to keep in mind when planning, and a good jumping off point when starting retirement.

[jdgolf]

I don't like the Rule of 4%, because it's simply a tool that says how much youu can withdraw, but has nothing to do with actual expenses! I know too many people that use the 4% rule as their retirement plan, without knowing do they really need more or less, based on expenses. Having retired in June, I will need to withraw about 6% for 4 years, until SS kicks in, then I will need about 1.5%. Once my wife collects SS 3 years lated, our SS and a small annuity we have, will more than cover everything. KNOW YOUR EXPENSES, and that is your withdraw rate!

[lovethomassowell]

Another brilliant video, Erin. Thank you! One point you have covered in many other videos: Once you know how much you need/want to spend annually in retirement, first remove what Social Security will already cover before applying the "4%" rule to see how much savings you need. If your retirement budget is $50, 000 a year, subtract your Social Security of $20, 000, leaving you with $30, 000 that you will need to draw from your portfolio. At 4%, that indicates that you may need non-home equity savings of $750, 000. If one is pessimistic on Social Secuity, then you are back to savings of $1.25M. For me, domestic GDP is highly reliant on consumer spending and Social Security is funding (via consumer spending) a significant portion of GDP right now. I can't imagine the politicians not preserving Social Secuirty as it will anger both voters and corporations - and the amount of adjustment needed to preserve full benefits is far from radical.

[thehomeless_trucker]

4.1% was the original number. Every portfolio has its own unique safe withdrawal rate. The creator retired way too late and only withdraws sub 2% from his portfolio as his desired life in his late years costs very little.

IMO, it's a great planning tool, that's all.

[ron]

10:42 'The target is what your income needs are...' This is a good starting point for figuring it all out when you have SS income and a pension, then you should have a leg up towards figuring the amount needed to fill the gap.

[livingunashamed]

Yeah I'm aiming for a 5% withdrawal rate :).

[TheFirstRealChewy]

My portfolio will be 100% stocks.😊

I tend to use 3% as my estimate. I'll go as low as 2% and as high as 4%. The reality though is that when I get to retirement age I'll have the historical returns to look at, plus will watch my spending. If I need more money I'll try and work longer or get a part time job is possible.

Today I will just enjoy life and save whatever I can.

[ClickBeetleTV]

The original study that the 4% rule derives from actually said that pulling 4% would let you last thirty years before the money ran out, but the latter bit has been almost completely forgotten

[mikeconnell]

I have been following your advice for some months now and it is really helping myself and wife plan for retirement.
9 years ago at 44 years old my net worth was around 160k now it’s 1.1million.
I achieved this by cutting back and placing additional money in my 401k from 8% to 18%.
Also by investing in the s&p with a mixture of tech stocks MSFT, AMZN etc and an ETF called QQQM.
I wish I started much earlier however things look on track now.
It would be great if more financial education was given in elementary and high school.
I certainly had no idea of the power of compounding until I started witnessing it in action.

[robertnicholson]

I retired at 61 about 2 years ago. My plan was 4% withdrawal, but the stock market plunged, so we withdrew only what we needed on months the market was up. We weathered that just fine. I think most people would do the same.

[rarelycares]

I am retiring this year at 55, I will be using 3% as a rough guideline to start. There will be times where I need more and years where it will be less but as a rough conservative guide it's an easy calculation to make in your head. One of the things that are rarely said about the 4% rule is the expected time horizon, if you're 50 3% is safer, if you're 70 6% is conservative.