7 Golden Rules of Retirement Withdrawal Strategies

Great topic for discussion! I would propose that while "best" might be impossible, that doesn't mean there aren't "better" ways to structure it, which really is the point of the 25 minute video. As mentioned "The bucket strategy doesn't eliminate the sequence of returns risk", this would imply that there are "better" options (Golden Rules).

So, I suspect that "best" depends on how you define it, but it seems to me that some are better than others. Following all 7 golden rules would clearly produce a "better" plan than would not following any of them.

All that to say... it's absolutely ridiculous that we have to either hire someone (for a large sum of money) or to all become experts in 50 different regulations and rules just to retire well!

I've never been a strict budgeter. I can't image most retirees operate that way. That is, I can't imagine most retirees calculate a number at the start of the year and give that to themselves as an "exact" budget to spend in the year (no more, no less), much like a government agency would operate. Instead, you just spend what you spend and "hope for the best". The improvement on that would probably be tracking what you spent for the year at the end of the year and then comparing that against some set of withdrawal strategies. Am I spending too much (and need to do better next year), or am I doing OK (or maybe even loosen up a big and have some more fun)?

I started planning for retirement at 18 years old in 1976. I didn't plan a strategy for withdrawals. Currently, our stock portfolio is returning 20% with dividends and market gains. Dividends are 32,000 dollars a year, rental income is 24,000 dollars a year. Pension and social security is 4,800 dollars a month. Withdrew 52,000 dollars last year from traditional IRA. And 50,000 dollars this year. We need 6,000 dollars a month for our normal way of life expenses. I guess we will just take the rmd method to empty the traditional IRA no roth conversion necessary only one million dollars in current value. Rent can increase to make up for some losses if that is necessary. Withdrawals can change depending on demand and tax implications. Social security and pension are fixed maybe? Your video will help me think through a strategy for drawing down. 5 years retired and IRA is growing far faster than withdrawals. Thanx Rob for the insights.😊

Reason I love dividends it does that for me when the time comes

I'm only 2 years into retirement, but I don't like these structured withdrawal strategies. Life isn't structured. Some years I may spend more and some years less. Why would you ever take out more than you need from a taxable IRA? I guess my strategy is similar to the end of the video where Rob talks about using combinations of bits from different strategies.

My strategy is the Wing It strategy. I just take everything into account year by year and take out what I need as I need it. I'm currently doing Roth conversions so I just max out my withdrawals/conversion to a certain tax bracket. Take out what I need during the year and then convert the rest. I have a stock/bond allocation (bonds include money market and CDs) that allows me to not have to sell stocks when they're down. I'm waiting until 70 for SS so that it will fund a minimal lifestyle all on it's own if it had to. (Assuming it's still a thing.)

So far this has been working great for me but I can make adjustments as I go along the way. Also, I'm more of a die with zero kind of guy than a 100% guarantee that I have money at the end type person. But it's still looking like, at least in these early stages, that my heirs will get a good chunk of money. But I am going to enjoy my money and travel and do things while I'm still relatively young.

Why withdraw? Acquire monies for spending in retirement by "using other peoples money". Do not draw down your nest egg to live as follows:

1 Social Security - COLA

2 State Pension - COLA

3 Qualified Dividends - source 10 stocks which have paid ever increasing dividends for 20 or more years including during the Dot-Com bust and 2008 (ex. P&G, J&J, Coca Cola, Phillip Morris, etc.) - COLA

4 Money Markets - Non-qualified dividends

5 Checking and Savings - Interest

The total of these monies - all are "other peoples money" as they do not decrease our net worth will generate much greater money than our current living needs. I have summed yearly our total expenditures for the past 6 years so know what we have spent - year to year. With this strategy (2/3 of 5 have built in COLA's - State Pension COLA is not been every year as it is controlled by legislative action, but is not state taxed) we will have monies well in excess of what we need to live. We will not have RMD's as we will by next year have withdrawn all of our monies out of our 401K's where we began withdraws up to the 22% tax rate when the Trump tax cuts went into effect in 2017 and withdraws modified again as we approached the medicare 2 year look back to keep withdraws below IRMMA level higher thresholds.

Comments welcome !

Ben used a 2 year cash bucket , which on a 30 year retirement means youre over 93% stocks , which is too risky for most ... most anyone using a cash bucket would use more like 3-10 years , probably 4-7 years average ... and its not actual "cash" , so youre not making zero on it , more like 4-5% ... people say cash but they mean CDS or MM usually ... and if you have 4-7 years cash , youre not panic selling this last week like half the people out there ... a 70/30 portfolio to me is no different than a 100% stock portfolio plus 9 years cash , because 9 years is 30% of 30 years

IMHO if you are withdrawing from a fully invested equities portfolio for money to live on for the current year, you might be DOING IT WRONG. A sounder approach may be to put 1-3 years of living funds into a principal protected instrument such as Treasuries or Treasury Money Market Funds. Similarly, bond funds could be your source of living funds when equity markets are down - then rebalance when equity markets recover (which they always do!). I believe you have mentioned in prior vids how best to protect your living funding for the short term outside of equities investments. Try modeling with the principal protected short term arrangement and see if you can still approach 99% in chance of success.

Thanks Rob. Do you know if there is an available amortization withdrawal strategy calculator?

Yes Rob, stayed with you through this comprehensive summation of sequence of return and withdrawal strategies
Thank you, I’m leaning toward the endowment strategy, at least this week.

Another vote for simple. 🙂 We have roughly a 50/50 allocation, where the non-equities portion is comprised of a 25-year TIPS ladder, treasury bills, CDs, and true "cash" accounts. All of our necessary expenses are covered by social security and a couple of very small pensions, with money to spare. An additional roughly 30% - 35% of this annual income figure is available each year from the TIPS ladder. "Normal" inflation protection is provided by SS COLA increases and the TIPS, and we have enough in this overall scenario to cover faster growing expenses such as healthcare, taxes, and insurance. Barring extraordinary circumstances (social security going to pot; hyperinflation; massive healthcare expense; etc.) , I don't expect to need to touch the equities for another 24 years, and should be able to weather extended bear markets (though not happily). Note that I don't consider the equities portion to be sacrosanct never to be withdrawn - we certainly will draw from them, but it will be a choice we make and not out of necessity.

This works for us for a few reasons: we're not necessarily frugal at this point in our lives, but we're certainly not extravagant spenders; we're very content with what we have; we have no kids and have no desire to leave a legacy (happy to "die with zero"), choosing to make our gifts and donations while we're still alive; and back to the first point, we have no need to keep up with or put on a show for anyone. We're not monetarily wealthy, but we know we're rich in the ways that matter.

I doubt this strategy would work well for people who want or need to build wealth in retirement, whether due to family situation, legacy desires, etc., or whose expenses aren't so well covered by retirement income sources, but it works for us.

I suspect many of your viewers have a case like mine. I am collecting social security and this year at 72 I had to start taking RMDs which dictates our withdrawal strategy. This covers living expenses plus just about any discretionary spending we’re likely to do. We also have a brokerage account that I could use for big flings but now with social security and Medicare are under serious threat, it might be prudent to keep that as a reserve.

Do it yourself investors need better tools available to them to create a custom plan. While these general rules are fine for the accumulation phase, most people do not start out with a consistent withdrawal process. They may take from their accounts before social security, they may have pensions available at certain times, they may have some planned large expenses or land retirement. Only a true plan and ongoing review of it will create the best result.

Hello from Pennsylvania Rob! Great video 👊 financial planning can be very heartfelt at times. It all depends on how you look at it. I’ve always enjoyed your content. Keep up the great work.

Rob, always appreciate your balanced views and intelligent insights. How do you feel about Karsten Jeske's models of safe withdrawal rates as it is missing in your list of models? It's certainly more complex than most, but I find his use of market valuation metrics and different bequest intentions (as they relate to ending values) very valuable. The metric of depleting all capital by the end of retirement in the 4% guideline and others lack consideration of the concern many retirees have to provide funds for heirs upon their passing...

Thanks for the on-screen notes. So much easier to follow.

Rob, I don't know your background, but you're a phenomenal teacher! Love the format with the bullet points, very helpful. Also shout out to Mr. Felix. That guy is a walking encyclopedia of financial knowledge.

Always great videos Rob, thank you. If you are using retirement software (Boldin for example) and it shows a reasonable success rate (90%+) wouldn’t you just follow the withdrawals amounts and source accounts it indicates. Assuming a detailed budget was input.

Another great episode Mr. Berger: in my first 3 years of retirement my plan was to take out what i need to live on plus a small splurge amount to keep my income low enough to facilitate roth conversions. Next years (4 to 5) i will take 4 to 5 % of deferred accounts which are currently in a 55/45 S/Bonds+treasuries. I will begin a rising glide path to 70/30 stk to bonds as i approach social security age. Between the CAPE level, and the ideocracy we are currently in, i feel more comfortable with a rising glide path that allows me to moderate as the market conditions change. Inflation is the only wildcard. In years of a down market i wont take inflation adjustments. in up years i will take an inflation adjustment (if needed) up to 5 % of previous years withdrawal. I have always happily lived within my means after my first 15 years of married life with a child with cancer and a sick wife, showed me how medical costs can devastate finances. you cannot plan that away, don't believe anyone who tells you otherwise.

I don't see a link to your notes. Will you be making them available? I know you probably don't think there's much to them, but I found them very helpful and would love to add them to my retirement folder.

Thanks for all the great videos Rob. I would like to see a video on what you think of the Galeno strategy mentioned in the Bogleheads Wiki for withdrawal strategies.

I think you misread the recommendation of amortization-based withdrawal (ABW) strategy. The idea is that you re-analyze the amortization every year, which is not the same as using the RMD rule, since the amortization calculation also requires you to look at the current expected return and it allows you to somewhat front load your expeditures. By the ABW calculation worksheet I downloaded, I ostensibly can spend 30% more than what the 4% rule would otherwise allow.

The only downside is that you have to be flexible enough to deal with higher volatility in withdrawal amounts compared to 4% or guardrails. Nevertheless, you could hypothetically glide into a zero, or non-zero, balance at the end of your life. If you re-amortize every year, there's little chance running out, and you won't wind up with a large balance at end of life, which is the likely outcome of the 4%, most of the time.

I'm retired, and pay almost no attention to withdrawal percentages, portfolio balance etc. I just take out what I need to live net of Social Security and a small nominal pension.

Great breakdown of retirement withdrawal strategies! I appreciate how you emphasize that there’s no one-size-fits-all approach. Mixing different strategies based on individual needs makes a lot of sense!

Depending on the Wall Street casino(stock market) for our retirement is a huge mistake. A bird in the hand is better than 2 in the bush. Have hard assets. No debt.

Any thoughts on this 3 bucket strategy.

4% w/r
3% cola

B1 (32%) will consist of 8 years of income in CD's and cash like liquid instruments

B2 (25%)will refill B1 and consist of 8 years of income invested in a semi safe balanced fund (VWINX)

B3 (43%)will be invested in equities and left untouched for the 15 year period ,while B1 and B 2 get exhausted.

This will follow a rising glide path and in the years that the market gives me less than 8% on B3 I will draw from my cash bucket to buy back into B3 to bring it back to an 8%growth(value average @ 8% on B3)

VIDEO on the GOLDEN WINDOW for Tax Planning to Target giving the IRS only what is required (Thus a yearly usage of Tax Planning Software or Planner’s. Please 😊

@rob_berger
should we include gold in our portfolio after all this buzz about it recently?

We need a nursing home and assisted living strategy. Have you seen the cost of them?

Is there a statistical way to get 100% chance of success? Forget the improbability of 100% chance of success in an unknown future, but even monte carlo generation cannot give you 100% chance of success can it? If so, then the only sure things in life has to be amended to death, taxes, and monte carlo.🤯

I'm very fortunate to have a pension even though it doesn't have COLA. It's not much but should cover my bare-bones. I'm planning to make ends meet by cutting down on every thing but the ABSOLUTE essentials until RMD in 7 years. I wasn't born in the US and was raised to live within my means. I've followed this philosophy for the last 47 years that I've lived in the US. I won't "punish" myself but won't spend on frivolous "stuff". Sometimes some people forget how blessed we're in the US.  I'm planning to spend any extra money that I MIGHT have on experiences (not matter how small they're) IF I'm lucky to have any leftover $. My father always told us "you can't it with you, so spend wisely and try to pass as much as possible to the next generation".

Rob, you're an amazing communicator and I always look forward to your videos. Thanks for clarifying money issues and feeding our brains!!!😀😀😀

Combining the strategies also has the con of complexity during a time when most are experiencing cognitive decline. The strategy needs to be simple enough that it can be followed. I think the variable strategy that Ben talked about is the best for both simplicity, effectiveness, and flexibility. If you can't handle the potential drop in withdrawals during a 75% drop in Global equity then adjust your asset allocation to what you can handle in your budget assuming that happens, then you won't have any issue besides behavioral ones. I was amazed how simple and flexible the simple payment function in excel is at solving this complex issue.

I think key question is the tax advantage of converting your rmd amount in your reg. IRA before you turn 73 and have to.

To me the 4% rule serves as a retirement readiness test. If my retirement spend is less than 4% of assets then I should be fine. After that, I pay the bills that come in every month. If I need a new roof or my property insurance bill goes up, I pay it. I don’t withdraw 4% because some rule says it’s ok. If I spend 6% this year and my portfolio is up 10% ; great. If my portfolio is down, I won’t take a vacation next year. Ideally I have a few years in cash to cover my normal expenses and if the market is doing great like the last couple, I pad my cash holdings, if not, I spend what I need and hope to ride out the down market until it recovers. The important thing is to keep track of your spending so you know how much you spend each year so you can estimate your need the next 1 or 2.

As the Bengen "4%" rule has "adjusted" over time - this because the term structure of rates has slowly fallen to lower and lower levels since the advent of the interest rate spike created by the "Great Inflation" of 1967 - 1982 ( and most likely having recently settled out in a historically normalized "rangebound" affair for the foreseeable future ) - the calculus of a SWR taken from a portfolio that has a typical "majority" allocation into bonds, as per the "glide path' formula, will reflect a lower returns contribution that bonds will provide compared to what they have provided in past decades ( i.e. a less reliable annual "4%" income withdrawal ) . Therefore, it can be constructive to reference or employ a "benchmark" portfolio - one that hasn't been affected by the interest rate environment, and one that may provide a more stable and higher SWR.
And an investor may consider a portfolio and withdrawal strategy that can provide immunity from the perceived threat of a "sequence of returns risk"

Research shows that a portfolio of "Berkshire Hathaway" and Large and Small cap "value" stocks ( via low expense ETFs ), combined with a simple withdrawal strategy, has sustained a "5.5 / 7%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested , with option of "taking" dividends ), accompanied by higher portfolio ending balance, over twenty rolling 20 year periods since 1986. The "value" stock universe is used because research also shows that a 50/50 portfolio of Large and Small cap value stocks, combined with the same withdrawal strategy, has sustained a "5.5%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested ), accompanied by higher portfolio ending balance, over seventy three rolling 20 year periods since 1931. And this income and portfolio growth being sustained over some of the most trying economic and geopolitical periods.

Also, since 1940, value stocks have also grown "in excess" of inflation during historical periods of high inflation .

The rationale for using Berkshire Hathaway as an income source is that, through an esoteric and unique mix of operations, subsidiaries, and stock portfolio carefully built up over decades within the conglomerate structure ( property and casualty insurance, BNSF railroad, energy, utilities, banking, technology, etc. ), BRK has evolved into a powerful cash flow generating entity with a fortress-like balance sheet while continuing to grow “book value” at a steady clip. The cash thrown off from these various operations ultimately finds its way into share price growth ( it pays no dividend so its returns are all derived via the share price. ).

Berkshire has also tended to hold a reasonably sized allocation of US Treasury securities within it's holdings ( it having "higher than average" holdings as recently indicated in the financial media ) which may help "counter" the effect of general market volatility or large market drawdowns ( Berkshire grew in value during the market declines of 2000-02 and 2022, and is up +9% year to date ! ). This helps supplant the need for a separate Treasury allocation through a bond ladder, bond fund, or "60/40" portfolio. And, as the bonds are held within under the Berkshire umbrella, it also eliminates the "tax events" generated by these separate entities.

The beauty of the withdrawal strategy is that, at the beginning of the year, the investor calculates the withdrawal amount on the return that the portfolio produced for the prior year. Then this withdrawal allotment is "locked in" for the upcoming year - this no matter what the stock market or the economy does over the course of the year. Therefore the investor is not held hostage to the rollercoaster gyrations of the stock market, changes in companies dividend payout policies, interest rate changes, etc. And by selling allotment shares from BRK, large cap value & small cap value ETFs ( and also receiving dividends if desired ), the investor takes only what they need for expenses. The rest can "stay invested" . In only a few rare years of it's history (3% of all years in the portfolio's history) was the withdrawal rate reduced to "4.0%", as per the strategy described below. Even if the investor has experienced one these rare years as the first of the withdrawal sequence ( a "bad" starting sequence of returns with the portfolio losing substantial value ), the portfolio has recovered over the ensuing years, albeit with a 5.5% annual income withdraw still being taken.

.
The income withdrawal strategy is as follows :

Step 1

At the very start of the retirement stage, the practitioner takes note of their portfolio (starting) balance amount. Then, over the course of the retirement / income withdrawal period, the practitioner monitors two items at the end of each:

- the annual return produced by an equal weighted portfolio of the Vanguard Small-Cap value fund, the Vanguard Value fund, and Berkshire Hathaway ( calculated on December 31 )
- their portfolio balance amount


A dynamic selection of a 5.5%, 4.0%, or 7.0% income withdrawal * is applied through a set of conditions.


Conditions:

Start with a baseline annual withdrawal rate of 5.5% *


The conditions warranting a decrease of the income withdrawal rate from 5.5% to 4.0% :

- if the portfolio has produced a "double-digit" loss for the year and the portfolio value resides below starting balance, then the income withdrawal is decreased to 4.0%

The income withdrawal rate is then increased back to 5.5% in the subsequent year following the negative double-digit return year

The condition warranting an increase of the income withdrawal rate to 7.0% :

- by year “10” ( or any year thereafter ) of the retirement sequence, if the portfolio starting balance has doubled in value, then an annual 7.0% withdrawal can be taken into perpetuity

* all withdrawals are adjusted for the annual inflation rate

This benchmark portfolio can be offered as an option for a client who may require a "higher" level of income, especially in these uncertain times, and especially with a meaningful cohort of retirees having not "accumulated enough" going into retirement.

In this video, is "withdrawal" ="spending"? Some funds from withdrawals can be reinvested into a Roth (converted) or deposited into a HYSA.

Retirement withdrawal strategies aren’t one-size-fits-all, and flexibility is key. The 4% rule, RMDs, or a mix of strategies all have pros and cons, it really comes down to individual goals and market conditions. Staying adaptable and planning ahead makes all the difference!

RMD plus SS is about the same as an endowment approach. This is what I am doing.

Rob, I’d love to see a video on early (before 59.5) retirement spending. I thought I had everything figured out only to find my Rule of 55 withdrawals were out of my full control. I have to withdraw from all of my existing 401k accounts proportionally, so I’m even having to withdraw some of my Roth 401k money. The obvious answer is to prepare better with more brokerage money but I know there are additional ideas out there for managing the holdings in the 401k differently, especially if there are other IRAs in play. Thanks!

From UK 🇬🇧 and Rob is one of the best u tubers in my opinion. My own strategy age 62 male retired is 4 years fixed income until state pension. Then 6040 for 5 years 8020 for another 5 years and then 100% stocks (which is 15 years away) . Could have a one fund VGuard MA say 7030 but psychologically this works for me .

@RobBerger I meant to ask you about that Ben Felix video. Thanks for this.

Hilarious line man — do you really want to buy your investments where you buy your mayonnaise and pickles?

Excellent summary and comparison of the options. Thank you.

One can get too complicated and hung up on theory of strategies so I prefer to find a simple set of rules based on commonsense that works for my needs and means I can sleep at night! Great video though.

Hi Rob. It might be useful for many people to also consider the possibility of large long term care costs later in life, especially if they are self-insured. In my case, my wife and I are self-insured. We have, therefore, settled on a withdrawal rate that is relatively lower.

My problem with the “Bogleheads” variable method is if you look on the forums, all the posts are by one user called longinvest. Who is he and why should I trust him? Why do no serious financial planners talk about or publish papers on this method? It seems to be something some random guy cooked up and posted on the Bogkeheads forum

Thank you, Rob.

In my opinion simple is better. Each month I simply add up my retirement accounts, take 4.5% and divide by 12. That with SS is my monthly allowance

Another great video Rob. Thanks. Here'a a question as I plan for retirement within the next 10 years.... Are RMD calculations at 73 the same if I started to withdraw a small amount, say, at 60? ie. Do the earlier distributions offset the amount I must withdraw at 73? thx.

I would echo Rob’s comment, watch Ben’s video. The recap here does not do it justice and the depth that Ben goes into provides a clear and straightforward picture of what rob is trying to articulate.