June 17, 2025 • 14 mins
The biggest question I hear from people planning for retirement is this: Am I going to run out of money before I run out of life? But here’s the thing, no matter how much you’ve saved, that fear doesn’t automatically go away. In this video, I walk through what the data actually says about your chances of running out of money, where the 4% rule comes from, and why many people end up being far too conservative with their spending.
I’ll also share a more flexible way to approach withdrawals so you can protect your future without missing out on the life you want to live right now. This isn’t about guessing or hoping for the best. It’s about building a plan that supports the kind of retirement you’re excited to wake up to.
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The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
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Speaker 1 (00:00):
What is everyone's number one concern with the
retirement?
It is am I gonna run out ofmoney before I run out of life?
And it doesn't matter whetheryou have $100,000 in your
portfolio, a million dollars inyour portfolio, $10 million in
your portfolio.
I have spoken with people atall these different asset levels
and that fear does notautomatically go away.
There's not a magic numberwhere you no longer have this
fear or this concern that youmight run out of money.
(00:21):
That's why, in today's video,what I'm going to do is I'm
going to tell you the actuallikelihood that you will run out
of money, based on variouswithdrawal rates, and then I'm
going to walk you through analternative approach that you
can take.
What are the actual thingswithin your control that you can
do to minimize the likelihoodthat you ever run out of money?
There was a study done byMichael Kitsis and in this study
, michael Kitsis looked at a60-40 portfolio, so a portfolio
(00:42):
that was invested 60% in USstocks, 40% in bonds, and he
looked at this going all the wayback to 1870.
And he said what if you were totake 4% per year out of this
portfolio and then, of course,increase that number with
inflation and what he wanted tounderstand was what is the
actual likelihood that you wouldrun out of money?
And, of course, this is goingto depend upon the time period.
(01:02):
If you retire and you have awonderful 30 years of market
environment, you're probablygoing to do well.
But what about those instanceswhere you don't have a great
market environment?
What about when inflation isspiraling out of control?
What about when there'shorrible growth in the market?
What about when there'sterrible crashes in the market?
What about those experiences?
What's the likelihood thatyou'd run out of money there?
Well, here's what that studyfound.
(01:23):
Not only did that study showthat almost never and again,
this is back-tested data, thisis historical data.
This is in no way a guaranteethat this will be the same going
forward but almost never didthe retiree actually run out of
money if they took that 4%withdrawal.
But what's even more surprisingis not just that you almost
never ran out of money, was thatit was also incredibly rare for
(01:46):
you to have less money in yourportfolio at the end of the
third of your retirement thanyou had at the beginning of your
retirement.
What he then went on to show isthat actually in two out of
every three events.
When you backtest this, you'regonna have more than double the
amount in your portfolio at theend of your retirement, at the
end of your life, than you hadgoing into your retirement, and
(02:10):
you are more likely to 5x yourmoney, to quintuple your
portfolio balance, than you areto have less money at the end of
retirement than you did goinginto retirement.
So what this showed was clearthe odds of you running out of
money, using data going all theway back to 1870 as our guide,
are incredibly low.
Now, keep in mind, thisincluded the Great Depression.
This included two world wars.
This included periods ofincredible inflation.
So this was not just 150 plusyears of really rosy markets.
(02:31):
This was terrible markets,great markets, everything in
between, and here's why that wasthe case.
When we look at the 4% rule, the4% rule is not like a median
rule of you should start withthis and you might be okay.
You might not be okay.
That 4% rule the decision totake 4% of your portfolio out at
the beginning of retirement andadjust it for inflation.
That was done based uponresearch by an individual named
(02:53):
Bill Bangen, and what BillBangen wanted to solve for is he
wanted to solve for just that,if you don't want to go into
retirement and think maybe I'llbe okay, but maybe I won't be
okay.
So he wanted to solve forwhat's the most you could take
from your portfolio using acertain set of assumptions, and
that, regardless of what marketenvironment you are retiring
into, you would not run out ofmoney for at least 30 years.
(03:14):
That's where that 4% came from,is it's almost the lowest
common denominator, it's theamount that you can take, and
you can't guarantee this, but,using history as a guide, you're
probably going to be okay overtime and not just probably, but
you're almost certainly when youlook at the statistical chances
of you increasing yourportfolio balance or at least
not running out of money overthe course of your retirement.
Here's what my bigger concern is, though.
(03:35):
Yes, on the one hand, we wantto ensure that we are not
over-withdrawing from ourportfolio such that we run out
of money before we run out oflife.
That is an objective definitionof failure in retirement.
If you run out of money, you'renot going to go back to work in
your 80s or 90s, so we need toensure that your portfolio is
going to be sustainable for youand meet your income needs as
long as you live.
However, I often see peopleover-indexing for that.
(03:58):
I often see peopleover-emphasizing that particular
risk and they miss out on anequally bigger risk or different
type of risk.
And that risk is what are youactually retiring to?
Of course, you can increase theodds of your portfolio lasting
forever if you keep spendinglower and lower amounts, but
what have you sacrificed indoing that?
I see so many people veryhealthy portfolio balances and
(04:18):
they don't allow themselves tospend those balances because of
this fear of running out.
And what they end up doing isthey end up doing, is they end
up waking up one day this couldbe 10 years into retirement, 15
years into retirement, 20 yearsinto retirement and they look
back and their portfolio balancehas continued growing the
entirety of their retirement.
Of course, there's been someups and downs along the way, but
they look back and say Iactually missed out on what this
(04:40):
portfolio was designed for.
Sure, I now know I'm not goingto run out of money, but what
was this portfolio good for if Ididn't actually use it to live
the life I wanted to live, if Ididn't actually use it to take
those trips with my family, if Ididn't actually use it to do
the things that I want to do, toactually feel like I'm living
the retirement that I'd be mostexcited for.
So let's go back to that 4% ruleresearch.
Here's where a lot of peopleare actually unaware of when it
(05:02):
comes to that research aroundthe four percent rule, that four
percent initial withdrawal rate, as I mentioned, that's the
most that you could spend andstill be okay in any of the
market environments that wereexplored in this research.
However, there were some yearsthat you could have spent up to
10% per year of your initialportfolio balance and still had
been okay for that 30-year timeperiod.
(05:23):
The challenge, of course, forpeople retiring is you don't
know what 30-year time periodyou're going to get.
If you're sitting here today,it's easy enough to look back on
the last 30 years.
You can perfectly solve forwhat's the most you could have
spent and not have run out ofmoney in the last 30 years.
We have no idea what the next30 years are going to bring, but
(05:44):
if you use 1975 as an example,if you go into 1975 and you
retire that year and you have amillion dollars which I know,
adjusted for inflation, is wortha whole lot more back in 1975,
but just use that for a simpleexample.
If you just spent that 4% peryear, you lived off $40,000 per
year from your portfolio,combined with whatever social
security or pension or otherincome sources you had, and you
did so for 30 years.
(06:05):
Well, here's the thing Inretrospect, you could have
actually spent seven and a halfpercent per year of that initial
portfolio balance and stillbeen fine for that 30 year time
period.
Now you might look at that andsay, well, that's no big deal.
I had more margin at the end.
I had something left at the endto pass on to children or
friends or whoever it's going tobe, and that's fine if that's
your goal.
But if your goal is not to leavea giant portfolio at the end of
(06:26):
the day, what that actuallymeans is that you spent a full
$35,000 fewer dollars everysingle year for that retiree
that retired in 1975 than youotherwise could have.
I mean, what could you havedone with an extra $35,000?
What trips could that havesupported?
Who could you have broughtalong in those trips?
What giving could you have done?
What could you have done toenhance life for you and those
(06:49):
around you with the extra$35,000 per year.
So, yes, it's a risk to run outof money, but so too is a risk
there's an opportunity cost tonot understand what you could
fully spend.
So how do we reconcile that thesense of wanting to be prepared
for the future, but also thesense that we're too
conservative?
We're going to end up withthese opportunity costs, with
these regrets at the end of theday, looking back saying I can
(07:11):
never get those experiences back.
I can never get back that timethat I could have had to spend
some of this on things that weremeaningful to me.
Well, there's a few things.
Number one is have a withdrawalstrategy that's tied to your
specific investment strategy,this 4% number.
This is not in any way a silverbullet.
This is not something thatevery single person should take
in their portfolio.
This is just kind of likefoundational research to say
(07:32):
where's a nice starting pointfor what you might be able to
spend from your portfolio, that4% rule.
It's based upon someone who hadhalf their money in US stocks
called the S&P 500, and half oftheir money in intermediate
treasury bonds.
There have been some revisionsto this paper to where now they
include small cap stocks, to nowthey actually withdraw more
from that portfolio can still besustainable for 30 plus years.
(07:53):
But that initial research thatlaunched this 4% rule.
It was based on investing justlike that.
What it was also based upon iswhatever that dollar amount that
you take out that first year,you adjust that for inflation.
Well, what if you did things alittle bit differently?
What if you weren't justinvested 50% in the S&P, 550% in
intermediate term governmentbonds, because my guess is most
(08:15):
of you aren't actually investedexactly that way?
What if you diversified alittle bit more?
What if you didn't just havelarge cap US stocks, you also
owned smaller companies?
What if you had some of yourmoney split between value and
growth investments?
What if you own some domesticcompanies but you also owned
international developedcompanies?
What if you also owned emergingmarkets and real estate?
This isn't just diversificationand spreading out your money
(08:36):
for no reason.
What this is doing is the moreplaces you have your money
invested, the greater yourflexibility assuming those
places are appropriate for youand your investment objectives
the more flexibility you havewhen it comes time to retiring,
where you can draw income fromthe 2000s, for example, from
2000 to 2010,.
Horrible time for the US stockmarket.
On average, the S&P 500 lost 1%per year over that decade.
(09:01):
So if that's where all yourmoney was and you were having to
sell your investments when theywere down on average, that's a
terrible thing for yourportfolio long-term.
Well, international investments, emerging market investments,
smaller companies they all did alot better in the 2000s.
So what if you had those assetsto draw from instead of just
drawing from US assets?
Well then, the oppositehappened.
(09:21):
In the 2010s, us investmentsperformed significantly better
than international investments.
So in those years, thosemight've been great years to
pull money from your USinvestments, more so than you
pulled money from internationaland emerging market investments.
So the principle here is, if youdon't just have all your money
invested in one specific placeor two specific places, it gives
you more flexibility to nothave to sell your investments
(09:43):
when they're down, which is keyto being able to take out more
from your portfolio withoutjeopardizing the long term
sustainability of your portfolio.
So that's concept number onecan you diversify a bit further
than what the initial 4% rolewas based upon?
But then there's a follow-upconcept that goes along with
that.
So, once you're diversified,can you apply more of a dynamic,
rules-based approach to whereyou're going to take income.
(10:04):
What if inflation is up or down?
What if your portfolio is up ordown?
Are you just blindly pullingmoney every single year,
adjusted for inflation, or areyou intentionally pulling money
from the parts of your portfolio, from the asset classes that
have the highest relativeperformance as compared to other
investments in your portfolio?
What if there is a major marketdownturn?
Are there rules for when youdon't give yourself an inflation
(10:27):
adjustment the next year?
Are there rules for when, maybe, you take a little bit of a
spending cut year to year whilethings are down?
Then, on the flip side, what ifthings have gone really well?
Do you continue to maintain thesame exact level of spending,
or are there thresholds at whichyou can give yourself a raise
to ensure that that success thatyou have in your portfolio is
leading to a higher quality oflife?
So, when you can do this type ofa thing, when you can apply a
(10:49):
more dynamic framework to theway that you approach
withdrawals, there is researchit's commonly referred to as
guidance guardrails that you canactually take out a higher
initial percentage of yourportfolio and still be
reasonably sure that thatportfolio is going to last for
30, 40 plus year time period.
So what doing that allows youto do is it allows you to go
into retirement and say, yes,we're going to be prudent, we're
going to plan for the future.
(11:10):
We have a framework to followto make sure that, if things
aren't going well, we'readjusting our spending strategy
to ensure we don't run out ofmoney, but on the flip side,
we're also making sure thatwe're going to fully enjoy this
portfolio that we've worked for.
We're going to fully translatethis financial success we've had
into the adventure, into thecomfort, into the things that we
want to do in retirement, andwe're not going to unnecessarily
(11:32):
sacrifice that because we'respending too little a portion of
our actual portfolio.
So that's what you can do inthe investment piece.
Then, what I like to encouragepeople to do on the other side,
the things that you can controlis what people get thrown off by
is they think, okay, I'm goingto spend X amount of dollars per
year and they factor that inand they say this translates to
a withdrawal rate of whateverthat might be, but they don't
(11:53):
take into account, maybe thosebig one-off expenses.
What happens if there's a majorhealth event?
What happens if there's a majorlong-term care event?
What happens if there's a majorexpense related to your house,
related to something that comesup?
What happens in those instances?
Are you prepared for that?
Because if you're fullyspending every bit of income
that your portfolio couldpossibly generate, you don't
have margin or you don't haveextra funds set aside to deal
(12:16):
with those one-off expenses thatmight put you in a difficult
position.
So how can you both understandwhat your portfolio can generate
for you so that you can spendeverything you want to spend
without running the risk ofrunning out of money, or at
least with dramatically reducingthe risk of running out of
money?
But how can you also plan forthose contingencies, those
what-ifs, the what happens whenlife comes at you fast?
You need to be in a position tobe prepared for that.
(12:37):
And then, finally, at the endof the day, the best thing that
you can do here is have anactual financial plan.
That financial plan starts withunderstanding what do you
actually want life to look like?
Then it moves to what's thatgoing to cost on a yearly basis
to be able to support that?
Then it moves to what incomesources do you have to meet
those expenses.
This could be social security,pension, real estate, etc.
Then it moves to.
What role does your portfolioplay in that, your portfolio
(13:00):
being that thing that's going tosupplement social security in
many cases, and that's the piecethat we're talking about today.
With that portfolio piece, withthat portfolio income, how do
you understand what a safewithdrawal rate is, and not just
safe from the standpoint thatyou're going to keep expenses as
low as possible to preservethat portfolio value, but safe
from the standpoint that we'regoing to take prudent amounts
(13:20):
out of our portfolio such thatit will be okay in the future,
but we're also going to fullysupport the lifestyle that we
want to live today.
Understanding some of theserules is key to doing that.
Some people think there'ssomething magical about the 4%
rule.
That's all you can ever do.
That's not the case.
It's a great place to start,but understand that if that's
all you're ever doing, you'reprobably not a guarantee, but
(13:41):
probably going to end up with alot more money at the end of
your lifetime than you actuallyeven have today.
Not the worst thing in theworld, but you have to ask
yourself the question and beintentional about this Is your
goal to end up with largeamounts of money at the end of
your life, or is your goal touse the money that you have to
live the retirement that youwant to live.
So that is it for today'sepisode.
Thank you, as always, forlistening.
(14:02):
If you're watching on YouTube,make sure that you subscribe.
If you're listening on ApplePodcasts or Spotify, make sure
that you're following along andsubscribing as well.
Thank you for listening andI'll see you all next time.
Once again, I'm James Canole,founder of Root Financial, and
(14:23):
if you're interested in seeinghow we help our clients at Root
Financial get the most out oflife with their money, be sure
to visit us atwwwrootfinancialpartnerscom.
What is everyone's number one concern with the
retirement?
It is am I gonna run out ofmoney before I run out of life?
And it doesn't matter whetheryou have $100,000 in your
portfolio, a million dollars inyour portfolio, $10 million in
your portfolio.
I have spoken with people atall these different asset levels
and that fear does notautomatically go away.
There's not a magic numberwhere you no longer have this
fear or this concern that youmight run out of money.
(00:21):
That's why, in today's video,what I'm going to do is I'm
going to tell you the actuallikelihood that you will run out
of money, based on variouswithdrawal rates, and then I'm
going to walk you through analternative approach that you
can take.
What are the actual thingswithin your control that you can
do to minimize the likelihoodthat you ever run out of money?
There was a study done byMichael Kitsis and in this study
, michael Kitsis looked at a60-40 portfolio, so a portfolio
(00:42):
that was invested 60% in USstocks, 40% in bonds, and he
looked at this going all the wayback to 1870.
And he said what if you were totake 4% per year out of this
portfolio and then, of course,increase that number with
inflation and what he wanted tounderstand was what is the
actual likelihood that you wouldrun out of money?
And, of course, this is goingto depend upon the time period.
(01:02):
If you retire and you have awonderful 30 years of market
environment, you're probablygoing to do well.
But what about those instanceswhere you don't have a great
market environment?
What about when inflation isspiraling out of control?
What about when there'shorrible growth in the market?
What about when there'sterrible crashes in the market?
What about those experiences?
What's the likelihood thatyou'd run out of money there?
Well, here's what that studyfound.
(01:23):
Not only did that study showthat almost never and again,
this is back-tested data, thisis historical data.
This is in no way a guaranteethat this will be the same going
forward but almost never didthe retiree actually run out of
money if they took that 4%withdrawal.
But what's even more surprisingis not just that you almost
never ran out of money, was thatit was also incredibly rare for
(01:46):
you to have less money in yourportfolio at the end of the
third of your retirement thanyou had at the beginning of your
retirement.
What he then went on to show isthat actually in two out of
every three events.
When you backtest this, you'regonna have more than double the
amount in your portfolio at theend of your retirement, at the
end of your life, than you hadgoing into your retirement, and
(02:10):
you are more likely to 5x yourmoney, to quintuple your
portfolio balance, than you areto have less money at the end of
retirement than you did goinginto retirement.
So what this showed was clearthe odds of you running out of
money, using data going all theway back to 1870 as our guide,
are incredibly low.
Now, keep in mind, thisincluded the Great Depression.
This included two world wars.
This included periods ofincredible inflation.
So this was not just 150 plusyears of really rosy markets.
(02:31):
This was terrible markets,great markets, everything in
between, and here's why that wasthe case.
When we look at the 4% rule, the4% rule is not like a median
rule of you should start withthis and you might be okay.
You might not be okay.
That 4% rule the decision totake 4% of your portfolio out at
the beginning of retirement andadjust it for inflation.
That was done based uponresearch by an individual named
(02:53):
Bill Bangen, and what BillBangen wanted to solve for is he
wanted to solve for just that,if you don't want to go into
retirement and think maybe I'llbe okay, but maybe I won't be
okay.
So he wanted to solve forwhat's the most you could take
from your portfolio using acertain set of assumptions, and
that, regardless of what marketenvironment you are retiring
into, you would not run out ofmoney for at least 30 years.
(03:14):
That's where that 4% came from,is it's almost the lowest
common denominator, it's theamount that you can take, and
you can't guarantee this, but,using history as a guide, you're
probably going to be okay overtime and not just probably, but
you're almost certainly when youlook at the statistical chances
of you increasing yourportfolio balance or at least
not running out of money overthe course of your retirement.
Here's what my bigger concern is, though.
(03:35):
Yes, on the one hand, we wantto ensure that we are not
over-withdrawing from ourportfolio such that we run out
of money before we run out oflife.
That is an objective definitionof failure in retirement.
If you run out of money, you'renot going to go back to work in
your 80s or 90s, so we need toensure that your portfolio is
going to be sustainable for youand meet your income needs as
long as you live.
However, I often see peopleover-indexing for that.
(03:58):
I often see peopleover-emphasizing that particular
risk and they miss out on anequally bigger risk or different
type of risk.
And that risk is what are youactually retiring to?
Of course, you can increase theodds of your portfolio lasting
forever if you keep spendinglower and lower amounts, but
what have you sacrificed indoing that?
I see so many people veryhealthy portfolio balances and
(04:18):
they don't allow themselves tospend those balances because of
this fear of running out.
And what they end up doing isthey end up doing, is they end
up waking up one day this couldbe 10 years into retirement, 15
years into retirement, 20 yearsinto retirement and they look
back and their portfolio balancehas continued growing the
entirety of their retirement.
Of course, there's been someups and downs along the way, but
they look back and say Iactually missed out on what this
(04:40):
portfolio was designed for.
Sure, I now know I'm not goingto run out of money, but what
was this portfolio good for if Ididn't actually use it to live
the life I wanted to live, if Ididn't actually use it to take
those trips with my family, if Ididn't actually use it to do
the things that I want to do, toactually feel like I'm living
the retirement that I'd be mostexcited for.
So let's go back to that 4% ruleresearch.
Here's where a lot of peopleare actually unaware of when it
(05:02):
comes to that research aroundthe four percent rule, that four
percent initial withdrawal rate, as I mentioned, that's the
most that you could spend andstill be okay in any of the
market environments that wereexplored in this research.
However, there were some yearsthat you could have spent up to
10% per year of your initialportfolio balance and still had
been okay for that 30-year timeperiod.
(05:23):
The challenge, of course, forpeople retiring is you don't
know what 30-year time periodyou're going to get.
If you're sitting here today,it's easy enough to look back on
the last 30 years.
You can perfectly solve forwhat's the most you could have
spent and not have run out ofmoney in the last 30 years.
We have no idea what the next30 years are going to bring, but
(05:44):
if you use 1975 as an example,if you go into 1975 and you
retire that year and you have amillion dollars which I know,
adjusted for inflation, is wortha whole lot more back in 1975,
but just use that for a simpleexample.
If you just spent that 4% peryear, you lived off $40,000 per
year from your portfolio,combined with whatever social
security or pension or otherincome sources you had, and you
did so for 30 years.
(06:05):
Well, here's the thing Inretrospect, you could have
actually spent seven and a halfpercent per year of that initial
portfolio balance and stillbeen fine for that 30 year time
period.
Now you might look at that andsay, well, that's no big deal.
I had more margin at the end.
I had something left at the endto pass on to children or
friends or whoever it's going tobe, and that's fine if that's
your goal.
But if your goal is not to leavea giant portfolio at the end of
(06:26):
the day, what that actuallymeans is that you spent a full
$35,000 fewer dollars everysingle year for that retiree
that retired in 1975 than youotherwise could have.
I mean, what could you havedone with an extra $35,000?
What trips could that havesupported?
Who could you have broughtalong in those trips?
What giving could you have done?
What could you have done toenhance life for you and those
(06:49):
around you with the extra$35,000 per year.
So, yes, it's a risk to run outof money, but so too is a risk
there's an opportunity cost tonot understand what you could
fully spend.
So how do we reconcile that thesense of wanting to be prepared
for the future, but also thesense that we're too
conservative?
We're going to end up withthese opportunity costs, with
these regrets at the end of theday, looking back saying I can
(07:11):
never get those experiences back.
I can never get back that timethat I could have had to spend
some of this on things that weremeaningful to me.
Well, there's a few things.
Number one is have a withdrawalstrategy that's tied to your
specific investment strategy,this 4% number.
This is not in any way a silverbullet.
This is not something thatevery single person should take
in their portfolio.
This is just kind of likefoundational research to say
(07:32):
where's a nice starting pointfor what you might be able to
spend from your portfolio, that4% rule.
It's based upon someone who hadhalf their money in US stocks
called the S&P 500, and half oftheir money in intermediate
treasury bonds.
There have been some revisionsto this paper to where now they
include small cap stocks, to nowthey actually withdraw more
from that portfolio can still besustainable for 30 plus years.
(07:53):
But that initial research thatlaunched this 4% rule.
It was based on investing justlike that.
What it was also based upon iswhatever that dollar amount that
you take out that first year,you adjust that for inflation.
Well, what if you did things alittle bit differently?
What if you weren't justinvested 50% in the S&P, 550% in
intermediate term governmentbonds, because my guess is most
(08:15):
of you aren't actually investedexactly that way?
What if you diversified alittle bit more?
What if you didn't just havelarge cap US stocks, you also
owned smaller companies?
What if you had some of yourmoney split between value and
growth investments?
What if you own some domesticcompanies but you also owned
international developedcompanies?
What if you also owned emergingmarkets and real estate?
This isn't just diversificationand spreading out your money
(08:36):
for no reason.
What this is doing is the moreplaces you have your money
invested, the greater yourflexibility assuming those
places are appropriate for youand your investment objectives
the more flexibility you havewhen it comes time to retiring,
where you can draw income fromthe 2000s, for example, from
2000 to 2010,.
Horrible time for the US stockmarket.
On average, the S&P 500 lost 1%per year over that decade.
(09:01):
So if that's where all yourmoney was and you were having to
sell your investments when theywere down on average, that's a
terrible thing for yourportfolio long-term.
Well, international investments, emerging market investments,
smaller companies they all did alot better in the 2000s.
So what if you had those assetsto draw from instead of just
drawing from US assets?
Well then, the oppositehappened.
(09:21):
In the 2010s, us investmentsperformed significantly better
than international investments.
So in those years, thosemight've been great years to
pull money from your USinvestments, more so than you
pulled money from internationaland emerging market investments.
So the principle here is, if youdon't just have all your money
invested in one specific placeor two specific places, it gives
you more flexibility to nothave to sell your investments
(09:43):
when they're down, which is keyto being able to take out more
from your portfolio withoutjeopardizing the long term
sustainability of your portfolio.
So that's concept number onecan you diversify a bit further
than what the initial 4% rolewas based upon?
But then there's a follow-upconcept that goes along with
that.
So, once you're diversified,can you apply more of a dynamic,
rules-based approach to whereyou're going to take income.
(10:04):
What if inflation is up or down?
What if your portfolio is up ordown?
Are you just blindly pullingmoney every single year,
adjusted for inflation, or areyou intentionally pulling money
from the parts of your portfolio, from the asset classes that
have the highest relativeperformance as compared to other
investments in your portfolio?
What if there is a major marketdownturn?
Are there rules for when youdon't give yourself an inflation
(10:27):
adjustment the next year?
Are there rules for when, maybe, you take a little bit of a
spending cut year to year whilethings are down?
Then, on the flip side, what ifthings have gone really well?
Do you continue to maintain thesame exact level of spending,
or are there thresholds at whichyou can give yourself a raise
to ensure that that success thatyou have in your portfolio is
leading to a higher quality oflife?
So, when you can do this type ofa thing, when you can apply a
(10:49):
more dynamic framework to theway that you approach
withdrawals, there is researchit's commonly referred to as
guidance guardrails that you canactually take out a higher
initial percentage of yourportfolio and still be
reasonably sure that thatportfolio is going to last for
30, 40 plus year time period.
So what doing that allows youto do is it allows you to go
into retirement and say, yes,we're going to be prudent, we're
going to plan for the future.
(11:10):
We have a framework to followto make sure that, if things
aren't going well, we'readjusting our spending strategy
to ensure we don't run out ofmoney, but on the flip side,
we're also making sure thatwe're going to fully enjoy this
portfolio that we've worked for.
We're going to fully translatethis financial success we've had
into the adventure, into thecomfort, into the things that we
want to do in retirement, andwe're not going to unnecessarily
(11:32):
sacrifice that because we'respending too little a portion of
our actual portfolio.
So that's what you can do inthe investment piece.
Then, what I like to encouragepeople to do on the other side,
the things that you can controlis what people get thrown off by
is they think, okay, I'm goingto spend X amount of dollars per
year and they factor that inand they say this translates to
a withdrawal rate of whateverthat might be, but they don't
(11:53):
take into account, maybe thosebig one-off expenses.
What happens if there's a majorhealth event?
What happens if there's a majorlong-term care event?
What happens if there's a majorexpense related to your house,
related to something that comesup?
What happens in those instances?
Are you prepared for that?
Because if you're fullyspending every bit of income
that your portfolio couldpossibly generate, you don't
have margin or you don't haveextra funds set aside to deal
(12:16):
with those one-off expenses thatmight put you in a difficult
position.
So how can you both understandwhat your portfolio can generate
for you so that you can spendeverything you want to spend
without running the risk ofrunning out of money, or at
least with dramatically reducingthe risk of running out of
money?
But how can you also plan forthose contingencies, those
what-ifs, the what happens whenlife comes at you fast?
You need to be in a position tobe prepared for that.
(12:37):
And then, finally, at the endof the day, the best thing that
you can do here is have anactual financial plan.
That financial plan starts withunderstanding what do you
actually want life to look like?
Then it moves to what's thatgoing to cost on a yearly basis
to be able to support that?
Then it moves to what incomesources do you have to meet
those expenses.
This could be social security,pension, real estate, etc.
Then it moves to.
What role does your portfolioplay in that, your portfolio
(13:00):
being that thing that's going tosupplement social security in
many cases, and that's the piecethat we're talking about today.
With that portfolio piece, withthat portfolio income, how do
you understand what a safewithdrawal rate is, and not just
safe from the standpoint thatyou're going to keep expenses as
low as possible to preservethat portfolio value, but safe
from the standpoint that we'regoing to take prudent amounts
(13:20):
out of our portfolio such thatit will be okay in the future,
but we're also going to fullysupport the lifestyle that we
want to live today.
Understanding some of theserules is key to doing that.
Some people think there'ssomething magical about the 4%
rule.
That's all you can ever do.
That's not the case.
It's a great place to start,but understand that if that's
all you're ever doing, you'reprobably not a guarantee, but
(13:41):
probably going to end up with alot more money at the end of
your lifetime than you actuallyeven have today.
Not the worst thing in theworld, but you have to ask
yourself the question and beintentional about this Is your
goal to end up with largeamounts of money at the end of
your life, or is your goal touse the money that you have to
live the retirement that youwant to live.
So that is it for today'sepisode.
Thank you, as always, forlistening.
(14:02):
If you're watching on YouTube,make sure that you subscribe.
If you're listening on ApplePodcasts or Spotify, make sure
that you're following along andsubscribing as well.
Thank you for listening andI'll see you all next time.
Once again, I'm James Canole,founder of Root Financial, and
(14:23):
if you're interested in seeinghow we help our clients at Root
Financial get the most out oflife with their money, be sure
to visit us atwwwrootfinancialpartnerscom.
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