Originally aired June 2024:
The 4% rule is the “golden rule” of retirement planning. Everyone is familiar with it and it’s easy to work out for some quick, back-of-the-napkin math.
Since it is so easy to calculate and implement, many use it as their retirement withdrawal rule. However, this approach may be overly conservative. While using a significantly higher withdrawal rate may go too far, the 4% rule may be too cautious.
Listen in to hear the limitations of sticking with this overly simplistic rule of thumb.
Oftentimes, people fail to take into account other income sources when calculating the 4% rule. Social Security and pensions may provide a base income floor which means you could use a higher withdrawal rate from your portfolio.
My biggest problem with the rigid 4% rule is that it isn’t flexible enough. The 4% rule doesn’t allow for spending flexibility and ignores spending adjustments that could be made on actual needs and circumstances.
Another reason to avoid this stringent rule is that it doesn’t fully evaluate outcomes. The probability of success should be viewed as a spectrum. This approach will help measure the total amount of the goal achieved each year providing a more nuanced understanding of retirement readiness.
Incorporating more realistic metrics, such as goal completion and spending flexibility can lead to higher optimal spending levels. Based on this updated perspective, a 5% withdrawal rate may be more appropriate for the average retiree over a 30-year retirement period.
However, the ideal rate depends on various factors, including the retiree’s specific circumstances and goals.
Recent research introduces guided spending rates, where the withdrawal rate adjusts based on an individual’s flexibility and retirement duration, ranging from 10 to 40 years. Increasing the withdrawal rate from 4% to 5% may seem modest, but it represents a 25% increase in potential income, offering retirees more discretionary funds earlier in retirement when they are more active.
Finding the right withdrawal rate is about balancing safety and practicality. A more dynamic approach that reflects individual circumstances and the ability to adjust spending is essential for effective retirement planning.
The 4% rule is a great rule of thumb based on a worst-case scenario, however, it isn’t comprehensive enough to create a fully-fledged retirement plan.
Your retirement income plan needs to be adjusted based on your spending level, market performance, and inflation. To simply set your income source one day at the beginning of retirement and never look back is a foolhardy endeavor. There is no way that you could accurately plan the next 30 years of your life. Flexibility is key for planning your spending in retirement.
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You’ve been accumulating your savings your entire life, but when the time comes to draw down your investments, there are new risks. In this episode, we’ll discuss four risks that come with the decumulation phase of retirement.
Press play to learn how to avoid these risks in retirement.
Are you looking for a new advisor? One of our listeners is looking for a checklist to help him hire a retirement advisor. While answering that question I went ahead and made my advisor checklist available to all of you to download here.
Outline of This Episode
[1:47] Understand effective strategies for the decumulation phase
[11:20] Do I have a checklist to use to hire a retirement advisor?
Resources Mentioned
Pre-order Benjamin's book by January 7, 2025:
Retirement Starts Today: Your Non-financial Guide to an Even Better Retirement
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Ready to learn how to make a lasting and meaningful legacy for your loved ones? I had an in-depth conversation with Myra Salzer from the Wealth Conservancy. Myra brings a unique perspective as a financial advisor who specializes in helping clients navigate life after inheriting significant wealth. We explore not just the financial implications but the deeply personal challenges that can come with inheriting a fortune.
Myra shows us how inheritors are similar to retirees in that both are financially independent, yet they differ significantly in their experiences. Unlike retirees who have worked, saved, and planned, many inheritors have never experienced earning and managing money themselves. This usually leads to a lack of control over their finances, emotional challenges, and pretty complex social relationships.
We also get into the importance of transparency and avoiding surprises when planning an inheritance. Myra shares invaluable advice on how wealthholders can communicate with beneficiaries to build trust and strengthen relationships. For those of us planning to leave a financial legacy, this conversation is a must-listen to ensure that our wealth becomes a true blessing for future generations.
Pre-order Benjamin's book by January 7th:
Retirement Starts Today: Your Non-financial Guide to an Even Better Retirement
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In this episode, we step away from our usual financial discussions to share personal stories from our military service. Why? To give listeners a glimpse of who we are beyond our roles as financial advisors—so we opened up about how our time in the service shaped our lives.
Bret shares his experience working in logistics and on the flight line in the Air Force, while I discuss my years as a combat engineer in the Army National Guard. We both reflect on how those experiences influenced our paths and continue to impact our work today.
Bret talks about his five years of active duty and four years in the reserves, highlighting memorable assignments from Korea, Guam, and Germany, and sharing humorous tales about managing logistics and hazardous materials.
I share stories of my time in Iraq, from conducting mine detection patrols to the lessons learned during long days in a tent. Our service stories illustrate how those years instilled lessons that we now apply to our roles as financial planners.
We close the episode with some actual advice on how to give financial gifts to loved ones in a tax-smart way. This special Veterans Day episode honors the holiday by sharing how our military experiences have shaped us and reminding listeners of the lasting impact service can have.
Pre-order Benjamin's book by January 7th:
Retirement Starts Today: Your Non-financial Guide to an Even Better Retirement
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Investing in health can lead to a more vibrant, enjoyable retirement. In this episode, I share the personal health investments I've made, like sleep tracking and working with a health coach, each designed to enhance well-being and longevity. Prioritizing health alongside wealth allows us to fully embrace retirement.
I detail four key health tools, each with its own costs and benefits. From the Whoop Strap for monitoring sleep quality to MyFitnessPal for tracking nutrition, these tools help create a healthier lifestyle. My biggest investment was a full-body MRI, providing peace of mind and preventive insights—sometimes, the best financial choice is a health choice.
To finish, Brett and I answer a listener's question on Roth conversions, covering the best timing to optimize tax efficiency and avoid penalties. This episode offers practical advice for a health-focused, financially savvy retirement.
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Are you feeling rattled by Required Minimum Distributions (RMDs)? We’re here to help. Today we get deep into managing RMDs as we explore an article by Pam Krueger from Kiplinger’s. I outline the complexities of RMDs, share strategies to minimize tax impacts, and talk about how to craft a "perfect RMD" strategy. Plus, I’ll dig into why so many retirement podcasters, myself included, have no plans to retire themselves.
We kick things off by understanding the basics of RMDs, including when and how retirees must start withdrawing funds from tax-deferred accounts like IRAs and 401(k)s. I share exactly how the timing of RMDs, starting at age 73 (or potentially later under new laws), can have huge tax implications. I also detail strategies to minimize taxes through Qualified Charitable Distributions (QCDs) and preemptive withdrawals.
And of course, co-host Bret Mulvaney and I respond to a listener's intriguing question: why don’t retirement podcasters retire?
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Are you sure you're making the right call when deciding between Roth and traditional retirement accounts? A recent article on the Michael Kitsis blog started a debate into why, during your peak earning years, contributing to traditional pre-tax accounts might actually make more sense—even if tax rates rise in the future.
I’m going to break down why high-income earners can often benefit more from deferring taxes now and paying them later in retirement when they have more control over their income.
I’ll explain how using tax deductions at your highest earning years and withdrawing funds at lower tax rates in retirement can save you a significant amount in taxes over time. It’s all about maximizing your flexibility and finding opportunities to lower your tax burden down the road.
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What could happen to our taxes if the 2017 Tax Cuts and Jobs Act (TCJA) expires in 2025? This week, we explore a Wall Street Journal article analyzing the TCJA’s potential expiration and its varied impacts across the U.S. from coast to coast.
These tax cuts, enacted under President Trump, included reductions across multiple income brackets, increased standard deductions, and expanded child tax credits. However, when they’re set to expire, the shift could mean substantial tax hikes for many households.
The discussion centers on the unique impact of these changes in different regions, showing how factors like income levels and state taxes could influence the extent of the increase.
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Are you actually prepared for how upcoming tax law changes could impact your retirement? I analyze insights featured on the Nerd’s Eye View blog, focusing on key tax strategies for retirees. With the potential 2025 sunset of the Tax Cuts and Jobs Act approaching, potential changes in marginal tax rates, personal exemptions, and deductions could significantly affect tax planning, especially for higher-income earners.
Flexibility is super important when preparing for uncertain legislative changes. Roth conversions and gains harvesting are explored as ways to mitigate the potential impact of rising tax rates. By taking action now, retirees can strategically time income recognition and navigate these upcoming shifts in tax policy.
We’re going to keep this conversation centered around forward-thinking tax planning based on Nerd’s Eye View insights, helping retirees and financial advisors remain adaptable and ready for the changes that may come. Understanding these strategies can help you out big time, and lead to smarter decisions as the future tax landscape unfolds.
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Are index funds really the "sure thing" in investing, or do our emotions get in the way? To help answer that question, we’re going to talk about a Wall Street Journal article by Jason Zweig, which demonstrates the simplicity and challenges that come with investing in index funds.
While these funds are designed to replicate the market at a low cost, actual investor behavior is what can lead to underperformance. We’ll talk about why sticking to this seemingly easy strategy is harder than it looks and explore how to avoid the "behavior gap" that keeps investors from reaching their full potential.
Next, Brett and I team up to tackle a listener question about estate planning. If you’ve already got a financial plan in place but need help with wills, trusts, and powers of attorney, this segment is for you.
We break down what estate planning tools you need to protect your family and your assets, and we’ll also get deep into when it's time to involve an attorney. Estate planning may not be fun, but having a plan in place can prevent huge headaches down the road.
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How can we better prepare for a successful retirement? We’re exploring the lessons from a recent article by Christine Benz of Morningstar, where she reflects on her six-week sabbatical and how "mini-retirements" can help us test the waters before we fully retire.
We talk about how the luxury of unscheduled time, balancing purpose, and the importance of finding joy in small moments can shape our ideal retirement experience.
I also have a listener-inspired segment on protecting personal data in the age of cyber threats and data breaches.
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Are you actually prepared to navigate the complexities of retirement? We’re exploring Fritz Gilbert’s Six Lessons From Six Years of Retirement, shared from his blog The Retirement Manifesto.
One by one, we’ll walk through these lessons, keeping in mind that retirement is an evolving journey, not a static experience. For those who still need to optimize their post-work life, these lessons will show you a roadmap.
We then talk about a listener question about portfolio management—whether to prioritize Roth conversions or refilling cash buckets when your investments outperform expectations. We get deep into the importance of tax diversification and flexibility in retirement, especially why having options—whether it’s a Roth, brokerage, or IRA—is absolutely crucial when facing financial uncertainties.
If you’re preparing for or already navigating retirement, today is an excellent lesson from the ‘upperclassmen’—those a few years ahead of us in the retirement game.
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Retirement is not just a transition from work to leisure. It’s a continuous journey of self-discovery. We explore the story of Tom, who reflects on the emotional and financial challenges he faced after leaving a successful career. From adjusting to a fixed income to finding new ways to matter outside of his career, Tom’s experiences give us valuable lessons for those nearing retirement.
In light of Tom’s story, we talk more about Roth conversions and the evolving rules surrounding Required Minimum Distributions (RMDs). We’ll tell you how to manage Roth conversions, even after reaching RMD age, and the importance of tax planning as part of a truly comprehensive retirement strategy.
Learn how to make smarter financial decisions as you prepare for (or continue through your continuous journey of) retirement.
You know inflation is something to consider in retirement, but how much should you worry about it?
On this episode of Retirement Starts Today, we’ll explore an article from Of Dollar and Data that dives into the nitty gritty of inflation by analyzing three hypothetical retirement scenarios.
Learn how to plan for any eventuality so that you can better prepare for rising costs as you age.
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In retirement, retirees make the big switch–drawing on savings rather than contributing to them. This is often when the trouble comes–the psychological hurdle comes when it’s time to start spending your hard-earned savings.
In this episode, you’ll learn how to understand the mental barrier that comes with the big switch and learn strategies to overcome it. Listen to learn how to use your retirement funds without guilt or fear of financial instability.
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Knowing when to retire is not just an economic decision; it’s highly personal. In an era where your work is with your identity, deciding when to retire can feel monumental. So how do you know when the time is right? That’s what we’ll explore in today’s episode.
In addition to discussing this retirement headline, Bret Mulvaney joins the show again to help me answer our listener question. Press play to listen.
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Do you feel pain when spending money? Or perhaps it’s the opposite, and you spend a little too freely without much thought, pain, or remorse?
In this episode of Retirement Starts Today, we’ll explore an article on how to make the most out of retirement by trying to land somewhere in the middle of the spending spectrum. Whether you find yourself to be a “tightwad” or a “spendthrift” you’ll find this episode to be a helpful exploration of gaining happiness from your retirement spending plan.
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It’s easy to make mistakes in your investment portfolio, but as you get closer to retirement, it becomes more important than ever to make sure you are maximizing your financial health so that you can achieve your long-term goals.
In this episode of Retirement Starts Today, we’ll take a look at an article written by Christine Benz which highlights several common errors that investors make. Listen in to avoid these mistakes and learn the actions you can take to rectify the problems.
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What would you say your retirement confidence level is? If you’re like many super-savers, it may be surprisingly low.
In this episode of Retirement Starts Today, we’ll explore an article from Investment News that dives into a phenomenon where wealthier Americans who are confident in their money management skills still feel shaky about retirement and transferring their wealth to their heirs.
Listen in to learn how to become more confident in your retirement plan and stick around for the listener question where we discuss just how safe annuities really are.
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We may think of many things when it comes to rising interest rates, but often we fail to understand how that could lead to rising IRS penalties.
In this episode of Retirement Starts Today, we’ll take a look at an informative article from the WSJ about how to avoid rising IRS penalties.
Make sure to stick around for the listener questions segment where I answer Jeff’s question on how to bridge the income gap between retirement and Social Security.
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When was the last time you checked your beneficiaries on your retirement account? After listening to today’s episode, I guarantee you’ll be logging in to verify.
In the retirement headlines segment, we’ll check out a Yahoo Finance article titled ”They Broke Up In 1989, But Now His Ex-Girlfriend Is Inheriting His $1 Million Retirement Account After Nearly 40 Years.” How’s that headline for clickbait? It certainly got me to click!
Make sure to stick around to hear how a reverse mortgage could play a part in your retirement planning.
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While, for some people, the transition to retirement goes perfectly smoothly, that’s not the case for everyone.
Most of us are counting the days until retirement. We’re excited by all the prospects this new stage in life will bring. However, some people struggle with the change. In this episode of Retirement Starts Today, we’ll look at a common issue with retirement from a psychological perspective with this article from Psychology Today.
In the listener question segment, I’ll touch on how to bridge the gap between the beginning of retirement and collecting Social Security and discuss how to invest for the short-term in retirement. It’s time to up your retirement game; press play to get started.
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It’s no secret that I want you to spend more money in retirement.
Why?
Because you’ve worked for it!
Retirement is about living the life that you have saved for all these years, so I’m looking for any way I can find to help you get out there and enjoy it.
One way that has been gaining popularity in recent years is semi-retirement. In this episode of Retirement Starts Today, we’ll look at an article that shows how partial retirement has been shown to lead to an increase in spending levels in retirement.
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We’ve all heard the saying, “Money can’t buy happiness.” However, research suggests that while money may not buy lasting joy, it can certainly enhance our lives if spent wisely. The key lies in how we spend our money.
On this episode of Retirement Starts Today, we’ll explore a recent article on spending money to maximize your happiness.
Stick around for the latest book update and sign up for the newsletter to learn how to preorder and stay up to date on book giveaways!
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By now, we’ve all heard of AI, but many people still have mixed feelings about this revolutionary tool. Since I’ve been using it in my life on a daily basis, I have been wanting to share how you all can use AI to help with retirement planning.
When I came across this article from Business Insider, I knew I found my opportunity. Even if you’ve never used AI before, you’ll want to listen in to hear how you can use this versatile tool to help you plan your retirement.
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