Q&A: Spend $500k at a 4% Rate (And Much More) Example
If you have $500k saved for retirement, the so-called “4% Rule” says you can spend $20,000 per year. A viewer asks the following: Over 30 years, that adds up to a total of $600,000. So, how do you get $600k out of $500k?
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We’ll address that question, and more importantly, fiddle around with some numbers to illustrate some essential concepts for retirement income planning.
We’ll look at how earnings on your retirement savings can help stretch your assets. Plus, we’ll see how inflation, market crashes, and adjustments to your spending might look in a simplified model.
The amount you withdraw from savings can supplement income from Social Security and other sources. But it’s important for that money to last for the rest of your life. The amount you spend affects how long your money will last, but investment returns and inflation are also important.
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CHAPTERS:
0:38 Question on Spending 4% of $500,000
1:56 Add Some Earnings
4:28 Market Losses and Spending Adjustments
7:04 Spending Patterns (Go-Go, Slow-Go, No-Go & Spending Smile)
Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.
IMPORTANT:
It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
Пікірлер: 41
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As always, clear, concise and relatable content. Thank you Justin for the time and effort in making these videos. Sincerely, A Grateful Viewer
Really good financial teaching !! Thanks!
Outstanding vid, Justin; thank you!
Excellent demonstration. Time to pull out the spreadsheet and make something similar. Looks like a fun way to predict potential outcomes. Thank you.
Very clear explanations - Thanks!
Thanks as always for your content.
Great Job, Justin! Thank you for using Average Joe amounts!
Thank you valuable information
love love love your videos
Now I understand . Thank You
Wonder how many folks are on the 'pile under the mattress' plan , not earning any interest or gains anywhere . i heard someone ask that if their tokens were 'in cold storage if would stay at that price , right?' . thanks for doing 500k while most vids are talking 7 digits which is scary far away
My 401k stands at 500k this week. Very intuitive explanation. It shows factors to be considered easily.
@johnnow1
23 күн бұрын
Congrats! My is at 460k!
@irwinsaltzman979
23 күн бұрын
Please remember when withdrawing 401k funds one needs to pay taxes, so donot have the full 4% to spend.
@johnnow1
22 күн бұрын
@@irwinsaltzman979 Probably helps if one moves to a state without income tax?
Wait a minute. My understanding of the 4% rule is totally different. I thought the idea was to NOT to take a fixed amount based on 4% in year one, but rather to take 4% of the principle, whatever that is, each year. When the market is up, you take more, when it's down, you take less.
@johngill2853
28 күн бұрын
Your understanding is wrong if you are talking about things like the Trinity study or original study The historical data shows that a starting point of 4% and adding an inflation adjustment should last 30 years
@bigtoeknee11
11 күн бұрын
Based on a 50/50 portfolio
How can I get my hands on that excel spreadsheet?
@ApproachFinancial
19 күн бұрын
This video has a link in the description to download a spreadsheet with the model shown here (it's on the second tab): kzread.info/dash/bejne/o4F2rdKfms2TYtI.html
What software do you use which allows you to test future tax returns?
@whatsup3270
Ай бұрын
A lot of them use New Retirement at about $150/yr. It is cheaper than a financial Advisor. If you already have a financial advisor, they have it or a very similar version, so they can show you their file on you.
@ApproachFinancial
Ай бұрын
The mock 1040 in this video is from RightCapital.
i'm in my mid 50s - retired at 44, I don't plan on living another 30 years. living until mid 80s isn't realistic for most people. from what i've seen over the last 20 years, I have seen most people die either in their mid 60s or late 70s. I know what statistics say and all, but the reality is that most die well before 80.
$20k a year and 3% inflation??
I want to keep my money where there is zero risk and is immediately available.
@johngill2853
28 күн бұрын
All investments have risk. It sounds like your risk will be inflation
at 5% return on $500,000 wouldnt you get $25,000 return not $24,000 the first year?
@ApproachFinancial
Ай бұрын
In this case, we're assuming you pull the $20k out at the beginning of the year, so you really only have $480k invested for the year. The subsequent years use the same assumption (it keeps things simple and is a bit more conservative that way).
@theacase8738
Ай бұрын
After spending?
@jeffpratt605
Ай бұрын
@@theacase8738 Ok got it thanks
If You have $500K and even average a 5-6% return which is kinda low, you will have money left over a 30yr return. A rate of a 8% return average you would be rallying good cause your taking out 4-5%, plus inflation could be 2% on average you definitely have money left over
@johngill2853
28 күн бұрын
Google "Sequence of return risk" That is the part you've missing
What software do you use?
@ApproachFinancial
Ай бұрын
Most of this video is showing Google Sheets, and I use RightCapital and IncomeLab for more detailed work.
The thing that always puzzles me about these types of videos is this: anyone who was disciplined enough to earn a good living, spend less than they make, and build up a sizable retirement nest egg, is very well-acquainted with living on a BUDGET. Investment advisors never want to talk about budgets, because it undermines their efforts to encourage you to put more "Assets Under Management", or AUM, which is how they make money off your money. This video/channel isn't as bad about it as most of them are, but there still wasn't one mention of the word "budget". He did say something about tightening the belt, but then immediately mentioned how they want you to spend as much as possible in retirement, which is the antithesis of following a budget. He then goes on to make the process more complicated than it needs to be, hopefully encouraging folks to enlist his services to sort it all out for them.
@donaldlyons17
29 күн бұрын
20 does not seem like too much to assume people will need each year. I used to live on about 13K to 14K years ago!!!! So nope pulling the same amount of money each year while somehow not getting high enough returns could cause issue. Well but if we assume people can just live on less well then anything is possible.
@billibarou
26 күн бұрын
You don’t have to live on a budget. While it might help some people I always found it boring and tedious. I am 49 years old, have never lived on a budget, and I have enough money saved now to pay off our home, and live securely at a modest rate for the rest of my life. I want to live more than just modestly though. So I will work a few more years. The key is to not have debt, and to keep big expenses like a house, and a car reasonable. I drive a $6k car. Not a typo six thousand. I have one that’s older with low miles. Our house will be paid off in less than 5 years, and I have enough money in the bank to pay it off now. It doesn’t make financial sense to do that though.
Inflation is high is far higher than four percent.
@johngill2853
28 күн бұрын
Your inflation may be. We all feel inflation differently