The Setup:

Is $8 million the new target for retirement? We found an article that points to that idea so we’ll share our thoughts about how this impacts planning on today’s podcast.

[spp-player url =https://mcdn.podbean.com/mf/web/ytfgyx/056_-_BEN_SCHROCK_-_8_MILLIONasqg3.mp3]

Click the timestamps below to skip to a specific topic in the episode.

The Combination and Key Points: 

On this episode of Unlocking Your Financial Future, we look at a claim by a blogger at The Financial Samurai. They laid out an argument for adjusting the 4% rule to the 0.5% rule. That would mean a retiree hoping to generate $40,000 of income would need $8 million in savings.

The old 4% rule said a retiree can take 4% off their portfolio each year, and that will last them a lifetime. It’s an old rule but not completely obsolete. The way we build a portfolio today utilizes dividends, and our dividends are falling right around that 4% number. We like to work between 3% and 4%.

A group of professors came up with the 4% rule in the late 90s when the 10-year bond yield was at 5%. The Financial Samurai says you can use the 0.5% rule as a safe withdrawal rate guide once you’ve reached retirement or financial independence.

In theory it does make sense, but he’s assuming we’re going to stay at 0.5% in the 10-year treasury for the next 30 to 40 years.

“It’s very interesting. It caught my attention,” said Ben. “When I first saw the headline, I thought, ‘Oh God, I hope my wife doesn’t read this, because I might be working a lot longer.’”

To hear more, you can listen to the full episode or use the timestamps below to find a specific segment.

1:51 – Financial Samurai blog

3:22 – Where did the 4% rule come from?

4:47 – Will you need $8 million?

6:32 – Balancing your portfolio

9:05 – Other ways to supplement income

11:11 – Let’s look at some positives

13:16 – Mailbag: Will I spend more money in the first few years of retirement?

15:02 – Can I overcome a divorce financially in my late 50s?

Thanks for listening to another episode of Unlocking Your Financial Future. We’ll talk to you again next week!


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October 22, 2020

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