Is an 8% withdrawal rate, like Dave Ramsey says, sustainable? Or is it 4%? We unpack one of the top questions retirees have: How Much Money Do I Need to Retire? We reviewed the research on replacement, spending, and withdrawal rates to understand what a sustainable portfolio withdrawal rate is.

Chapters:

00:00 Understanding How Much Money You Need to Retire – finding a better answer than “more”

04:13 Spending vs. Asset Retirement Targets 1,2,3,4 – two sides of the same coin when it comes to calculating how much you need to retire

07:44 How to Calculate Your Retirement Spending 5 – spending decreases but by how much depends on your previous income

14:42 Should the 4% Withdrawal Rule be the 2-3% Range? 6,7,8– we unpack the assumptions and research behind one of the most cited rules of thumbs in personal finance

27:10 Variable Spending Rates 7 – the answer to problems with the 4% Rule and why they are so hard to implement

30:21 The Role of Advisors in Navigating Market Downturns – how a good advisor helps keep investors on track

37:31 Asset Allocation Determines Withdrawal Rate Ability 8 – why taking more equity risk counterintuitively means less risk of running out of money

41:39 Using Withdrawal Rate to Guide Increasing or Decreasing Spending – low withdrawal rates might be a license to spend

Sources:

1 What is a Financial Plan?: https://www.youtube.com/watch?v=y_PX-HyRW-Q&t=267s

2 Retirement Replacement Rates: What and How (Briggs, 2015): https://www.researchgate.net/publication/345818788_Retirement_Replacement_Rates_What_and_How

3 The Retirement Income Equation (Lee, 2013): https://my.dimensional.com/asset/622/the-retirement-income-equation

4 (How Much Should I Save for Retirement (De Santis and Lee, 2013): https://www.dimensional.com/us-en/asset/556/how-much-should-i-save-for-retirement

5 Exploring the Retirement Consumption Puzzle (Blanchett, 2014): https://www.financialplanningassociation.org/article/journal/MAY14-exploring-retirement-consumption-puzzle

6 Determing Withdrawal Rates Using Historical Data (Bengen, 1994): https://www.financialplanningassociation.org/sites/default/files/2021-04/MAR04%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf?

7 20 Years of Safe Withdrawal Rate Research—A Literature Review & Practical Applications (Kitces, 2014): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4445517&utm_source=chatgpt.com

8 The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets (Cederburg, 2023): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.