6 Ways to Withdraw Money in Retirement (Can you withdraw More Than 4%?!)

Transcript:

On this episode of the personal finance podcast, six ways to withdraw money in retirement. And is it more than 4%?

What's up? Well, filters and welcome to the personal finance podcast. I'm your host, Andrew, founder of master money. co and today on the personal finance. Podcast, we're going to be talking about six different ways that you can withdraw money from your retirement accounts. If you guys have any questions, make sure to hit us up on Instagram, Tik TOK, Twitter at master money co and follow us on Spotify, Apple podcast, or whatever podcast player.

You love listening to this podcast on it. If you want to help out the show, consider leaving a five star rating and review on Apple podcasts, Spotify, or your favorite podcast player. Can I thank you guys enough for leaving this five star ratings and reviews? They truly, truly mean. The world to us. Now, today we're going to be diving into how much money can you actually withdraw on retirement?

Now, this is a big question that we get a lot. And a lot of times when I coach individuals through some of their financial situations, I will talk through this situation with them. And it's one of my favorite exercises to do because a lot of times people do not know what their retirement number is. And this is going to help you figure out what is my financial freedom number.

How amazing would it be is if you got to the end of this episode and you knew how to calculate your financial independence number. And from there, you could put a plan into place for your retirement. This is what we want to do with this episode. So I'm going to give you actually six different options.

And I want you to kind of wrestle through some of these. I want you to think through these and think which one might be the best option for me and my risk tolerance in my risk profile. Now, as I talk through these options, that is what the big goal here is today is for you to know these options even exist, because a lot of times we'll just talk about the 4 percent rule.

But I think for a lot of folks, the 4 percent rule is a nice little average right in the middle, but there are some other options that you have available that may allow you to have some flexibility when it comes to how much you can withdraw in retirement. Now, a big factor when it comes to how much you withdraw in retirement is going to be, you know, when are you retiring?

Are you retiring early in your thirties or your forties? We have a lot of fire movement people who listen to this podcast. And so if you're retiring early or your plan is to retire early, we're going to talk through those, some of those options today. And, or are you going to retire at traditional retirement age?

We also have a ton of folks who are planning on retiring at traditional retirement age. Either they are approaching that age. And, or they are folks who are love their job and they want to continue working and they just want to make sure they're saving enough money and they want to live life now as well.

And so this is something where you can do both. And I'm going to go through these options so that you know, what's out there. That's the power that you have today is that you can take advantage of knowing what is available to you, and maybe you can be more flexible than you. Ever thought you could before.

So we're going to go through these six different options so that, you know, what you can do. So without further ado, let's get into it. All right. So number one is the one we have talked about most on this podcast and it is called the 4 percent rule. Now, if you've never heard of the 4%. Rule, the simplistic way of stating how this works is that you can draw down 4 percent of your portfolio every single year in retirement to be able to preserve your wealth throughout retirement age.

Now there's a bunch of caveats to the 4 percent rule. One of which is when it was first originally created, the 4 percent rule was based on a 30 year retirement. Now this is really, really important to understand because a 30 year retirement is not what a lot of folks who listen to this podcast are looking to do.

You're not looking to retire. At the age of 60 and have that last you all the way to 90. A lot of people want to retire early, but traditionally the 4 percent rule was based on a 30 year retirement. So a lot of people came in to say, well, what do I do if I don't want to retire for 30 years? We're going to talk about that in a second.

So as we go through this, you could draw down. 4 percent of your portfolio with the 4 percent rule. This means that every million dollars that you build up, you can draw down 40, 000 per year. Now, one thing to note with the 4 percent rule, that is very, very important is that it adjusts with inflation.

Every single year. So a lot of people have misunderstood the concept and they think they just withdraw 4 percent every single year, but it actually adjusts to inflation. So say for example, we have an on average, about a 3 percent inflation rate, which on normal years, that's right around where inflation will typically land.

And so in year one. You retired the first year, you're going to withdraw 40, 000 per year. In year two, you're going to withdraw 41, 200 in year two and year three, you can withdraw down 42, 436 and so on and so forth. It keeps on going, but this allows you to make sure that you are pacing with inflation. And then in addition, you're allowed to preserve that wealth.

So you just don't run out of money. The goal is to not run out of money with the 4 percent rule. And that's what it set out to do. Now, the cool thing with the 4 percent rule is a lot of people are arguing they, the 4 percent rule is too conservative. Why? Because typically, studies have shown over two thirds of portfolios who only draw down 4 percent over the course of that 30 years end up with over double their initial balance by the time they either handed down to their children, they pass away or whatever else.

Double. So that means 66 percent of folks who actually follow the 4 percent rule actually double their money throughout their retirement, meaning they're preserving their wealth throughout that timeframe. So that is one big thing that you really want to understand is that the 4 percent rule may be a little too conservative.

A lot of people have come out now and done some research, trying to figure out, is this conservative and we'll talk through some of that, uh, today. Now let's look at some of the assumptions for the 4 percent rule. So you understand how this works. And a lot of times when it comes to the 4 percent rule, a lot of.

These studies are based on things like a 50 50 stock split or a 75 25 stock split. If you don't know what that means, that means 50 percent stocks, 50 percent bonds in that portfolio, or 75 percent stocks, 25 percent bonds in that portfolio, somewhere within that range. And this is also based on all historical market conditions.

We have no idea what's going to happen in the future. You got to understand that nobody out there has a crystal ball. Nobody knows what's going to happen with the market. And so we have to use historical data points in order to run the numbers on some of this stuff. Now. What does the 4 percent rule not assume?

Because I think this is very, very important to point out. It does not assume any additional income sources. If you're planning on taking social security, if you have a pension, all of those are not assumed within the 4 percent rule. So you could actually have more money than you thought you did beforehand.

It also does not assume things like changing investment strategies or those types of things. Tax consideration. It does not assume. Some very simple things as well. So it's a very simplistic way of thinking about your retirement, but it has worked over the test of time. Now, if you want to look and read more into the 4 percent rule, a great study to look at where it became popularized is the Trinity study.

And this Trinity study actually went through Bill Bangan's original research that he did on the 4 percent rule and kind of looked through that now. What a lot of people came out and said was, Hey, 4 percent is definitely a number that may be a great for folks who have a 30 year portfolio. But what about folks who retire in their 30s?

So you can look at folks who were early retirement movement, folks like Mr. Money Mustache, the folks who wrote your money or your life, people who were early on in that movement started to say, well, we can look at the 4 percent rule, but maybe we should be a little more conservative and dial that back a little bit to a 3.

5 percent or 3% Withdrawal rate, especially while we're younger so that we can preserve this portfolio. And that is another key point to kind of think through as you go through this is, do you need to dial it back somewhat? If you retire early, we're going to talk a little bit more about that as we go through this episode.

Now, if you're trying to decide for yourself. Am I going to be able to retire with the 4 percent rule? Here's the quick math to be able to do that, because it's very easy to figure out this math. Obviously, finding 4 percent of your portfolio is easy, but if you also want to find out, what does that number need to be?

And I want to follow this 4 percent rule, then you can just multiply the amount you want to see. Spending retirement every single year. So say for example, if you want to spend 80, 000 per year, then you multiply that by 25. So 80, 000 times 25 is 2 million. If you want to spend a hundred thousand dollars, then you multiply a hundred thousand dollars by 25.

That's 2. 5 million. Dollars. And so this math works to help you figure out what that retirement number is. And I love doing this with people and unlocking this for them because then they have that goal and they know at least where they want to be. Now, what we're going to look through is, can you actually spend more than 4%?

I think 4 percent is actually becoming a very conservative number. And it's one of those things that I'd much rather be conservative with these numbers than be overly aggressive. So I like to target for 4%. And then if you want to get more aggressive, as we talk through some of these other options, then you can go there, but I want to start with the 4 percent rule so that everybody listening to this podcast understands this is the number that has stood a long period of time historically.

And so I don't want you to waver off this when it comes to your planning, especially if you have long term planning ahead of you. The 4 percent rule is something that has stood the test of time. And like I just said, 66 percent of portfolios have actually doubled over that timeframe. So it's really, really important, uh, just to make sure that you understand that before we go into some of these next ones.

And then understanding the 4 percent rule first is the biggest caveat. Now let's dive into the next one, which is the ratcheting rule. Right after this break, all right. So the next one is called the ratcheting rule. And the ratcheting rule was made popular by Michael Kitsis, who I've talked about on this podcast a number of different times.

I got to get him on here. Um, but he's actually talked through the ratcheting rule, which has really one thing is that as your portfolio grows and as your portfolio hits specific milestones, then you can increase the amount that you spend. And so this is going to take into consideration, Hey, with the 4 percent rule.

A lot of folks had their portfolios double over that timeframe and they did not increase their spending. What if they started to increase their spending once they hit certain milestones? Well, this is going to be really, really important. And a lot of us want to increase our spending over time. We want to travel more.

We want to be able to give more to causes we believe in. We want to be able to buy more things. And so as your portfolio hits specific marks, what if you could increase your spending? And that is what the ratcheting rule is all about. And so this is a very straightforward way to design a plan for your portfolio so that as it hits this marks, you can spend more dollars, but it starts with one big thing, and that is the floor.

So figuring out what your spending floor is going to be is really, really important when it comes to the ratcheting rule. It's very hard to say that word. So when you start off with the ratcheting rule, you may start to think through, hey. Well, I need to at least spend 3. 5 percent of my portfolio so that I can make sure that I am paying my bills and I'm able to live a somewhat of a lifestyle that I want to live.

And so I want this to be my floor. And so you think through, well, if 3. 5 percent is my floor, that is going to be the lowest amount of spend I will ever, ever have. And so a lot of times what you do with your floor is you base it on your retirement time horizon. So this is great for early retirees, for example, say you have.

A really high income, you saved up a large portion of your income and you retire in your early thirties. A lot of people in the fire movement retired in the early thirties or you retired in your early forties. You built up a business, you sold that business and you had all this extra cash and you retired in your early forties, but you want to make sure that you preserve that wealth over time.

Well, your time horizon is going to come into play. If you only have 20 years left in retirement, you know, if you retire when you're 75, then you probably have 10, 20, 30 years in retirement. So you can ramp up. That floor, but if you retire when you're 30 or 40, then you have a lot longer to retire. So you need to ramp it down a little bit when you have that floor.

So 3. 5%, for example, if you're in your thirties is something that you can definitely think through. So you have that floor in place. It does not go down ever. Now let's talk about some of the increases because the increases are earned based on portfolio performance. So say for example, you want to increase your spending and you're waiting until your portfolio increases 50% value.

So this is one rule you can put into play. You can do whatever you want. You can do 30%, 40%, 50%. It's all based on what your risk tolerance is and what you're willing to kind of endure over time. And so if you start with a million dollar portfolio and that portfolio grows to say $1.5 million, so it increases 50%, and your rule is, once my portfolio increases 50%, then I'm gonna increase my spending.

Then. What you would do is you would increase it 10%, for example. So it hit that 1. 5 million mark. Then you increase your spending by 10%. And this helps you increase your spending with portfolio increases and creates a safer environment. A lot of times when it comes to increasing that spending. Now, a lot of times what happens is you may have a lot of growth year over year.

So some years when we're having boom in years, for example, you may have 30 percent growth one year, then another 25 percent growth the next year, then another 30 percent the next year and another 25 the next year. But then you have a decrease. Something happens in the world, COVID for example, the great recession, you have a decrease, and then that portfolio goes down to avoid.

Increasing your spending too rapidly. One of the rules that a lot of people put into place is you can only increase your spending after every three years. So if you increase it once, then you have to wait three more years before you increase it again. And so this just puts into play, Hey, I'm not going to increase it in three booming years.

And then there's a recession. And now I have this increased spend and I have to go backwards again. You don't want to go backwards. A lot of times it's much harder to go backwards. So this is just a very conservative way to ratchet up your spending, which is why it's called the ratcheting rule because you're ratcheting up your spending.

So a very simple way to think about this is you have the floor. Your portfolio does well. You set these milestones. They are predetermined by you. If you have a financial planner, whoever else, an accountant, they are predetermined by you and your team, your financial team, and then you can ratchet it up as time goes on.

So this is something that I think is a really cool way to. Think about it because as your portfolio increases, then you can ratchet it up in that way. Now let's jump into the next one, which is the flexible spending strategy. All right. So the next one is the flexible spending strategy, and I love this option.

And, uh, I first originally learned about this from Nick Majuli of dollars and data, which is a website that you should definitely be reading. If you're interested in personal finance, Nick has been on this podcast as well. And is a wealth of information. looking at financial data and he is just amazing at doing that.

So definitely check Nick out. I got to have Nick back on sometime soon. He's also the author of just keep buying, which is also a great personal finance book if you'd never checked that out, but the flexible spending strategy is a great way to think about your retirement spending because it actually breaks down your spending into two different categories.

And, you know, we talk about doing this a lot is breaking out your spending into these two different categories. So the first one, he calls it required spending. We call it your baseline expenses, but he calls it required spending. And so you're breaking out your required spending based on all your necessary expenses.

So these are things like housing, utilities, groceries, healthcare, any debt payments, all that stuff is required spending stuff that you need to make sure that you're spending money on. And this spending is fixed and only adjusts when it comes to inflation. So a lot of times groceries may go up over time.

So you adjust that for inflation. Or if you're renting, instead of owning a home, that's going to adjust your taxes on your house are going to adjust all of those things are going to adjust. And so that's when you increase that required spending, then we have discretionary spending and discretionary spending is what we talk about all the time in this podcast.

That is the spending where it is stuff that is not an absolute necessity. And it is stuff that you can cut back on if you absolutely had. to you. So this is things that enhance your lifestyle. Things like vacations or dining out or things like, you know, spending money on your hobbies. All of those different things are discretionary spending and these make life a lot more enjoyable, but they can be cut out if we absolutely had to cut them out.

We don't want to. And that's kind of the goal with building wealth is I don't want you to have to cut out on the things that you love. And so we want to spend more money on the things that we love, but we want to break it out into these two options that we can figure out. Hey, how much money can we spend here?

And so what you do. Is on this flexible spending, you actually keep your fixed costs the same. So the amount that you're going to be spending money on is going to be the same every single year for necessities. And then you just adjust for discretionary spending. So at the end of every single year, you're actually going to look at the S and P 500 performance relative to its all time highs to determine your discretionary spending for the upcoming year.

So it's a really cool way to kind of say, Hey, if last year you had a really good year in the S and P 500, let's see what happens here. And so in a normal market condition, if the S and P 500 is within 10 percent of its highs, you maintain your plan discretionary spending for the next year. So that's a normal market.

If there's a correction and the S and P 500 is 20 percent below its highs, you cut your discretionary spending by half. And if there's a bear market and the S and P 500 is more than 20 percent away from its highs, you suspend your discretionary spending for the next year. Now, when it comes to this, there are pros and cons to each side.

So there's a big pro here, which historically, uh, Nick went back and he looked at, uh, the historical rates of returns and this strategy could have supported a 5. 5%, which are all right. So for example, we talk about the 4 percent rule all the time. Historically, this strategy would have actually supported 5.

5 percent withdrawal rate. So every 1, 000, 000 you could withdraw 55, 000, which means you could have 2, 000, 000 portfolio and be withdrawing 110, 000 per year. That is a much more powerful way to be able to spend your money in retirement instead of the traditional 4 percent rule. Now it also offers flexibility, meaning that you can enjoy more.

Of your retirement in the years that you know the market performs well and it enhances your lifestyle without having to jeopardize your financial security, meaning that you kind of know what years you can spend more and so you can accelerate that spending based on what years actually have good performance.

Now, the downsides are there are going to be years where you're going to have to cut that variable spending. And I think that is not as fun as it would be to increase that variable spending year over year. Now you could save a portion of that variable spending when you have those up years, just for those down years, you can have like an emergency fund for your variable spending.

And so that's just another creative way to think about this. If you like this option, because that gives you some cushion in between where then you can figure out, Hey, how much can I spend every single year? But the second one is that there is no increase in total retirement spending, meaning that this strategy allows for potentially higher spending in most years, but it doesn't increase the total amount you can spend throughout retirement.

It's about timing and allocation rather than boosting your overall spending capacity. So that's an important thing to note as you go through this strategy. And so I do like this one a lot because flexible spending strategy does allow you to You know, enjoy retirement, especially in those good years more and more, but it may increase your stress.

And if you get stressed out from good years to bad years and the market really, really upsets you, that may be not the best option for you. Always. You may be wanting something more sustainable and stable over time. And so it depends on what your risk tolerance is when it comes to the psychology of money, your psychology really matters when it comes to this stuff.

And so making sure you understand your own personal finance and money psychology is really, really important. Now on the next one, we're going to dive into something called the guardrail strategy. All right. So the guardrail strategy almost gives you a range of spending that you can fall into. And so this is a really interesting way to kind of think about this because I think it is something that you have this range set up.

And so you know that maybe some years you're gonna be spending less than some years you're gonna be spending more. So it starts by setting up your guardrails. And so these are things like boundaries that are set around your withdrawal rate. So for instance, if you decide on a 4 percent initial withdrawal, like You decide you're going to use the 4 percent rule.

Then you may set your guardrails at 3 percent and 5%. And so the purpose of this is the guardrails will give you a plan in place so that you can adjust your spending accordingly. If your portfolio grows or shrinks significantly. And so what you can do is you can put in specific thresholds that will trigger, uh, based on where your portfolio lands and we'll tell you, Hey, this is how much you can now withdraw.

So having these guardrails in place is going to be something that really, really can help you over time. So here's an example of how this works. I'm going to use another million dollar portfolio. The reason why I'm using million dollar portfolios is because it is just easy math for me, and most people cannot retire on a million dollars and spend 40, 000 per year.

Uh, but for these examples, I'm gonna use a million dollars and you can do the math. Per million, what you want to do. And so imagine you have a million dollars in your portfolio and you decide you want to withdraw 4 percent every single year, which equals 40, 000. Then you're going to think through the adjustment triggers.

So if your portfolio grows and it grows, you know, another 30 percent or 33%. And what that's going to do is you have these triggers in place that are going to allow that to increase your spend by another 10%. So if you had a million dollar portfolio and it grows to 1. 333 million, this allows you to increase your spending from 40, 000 to 44, 000.

Now, conversely, if your portfolio shrinks. This indicates a downturn of your investments and suggests you need to reduce your spending diet by 10 percent to preserve your savings. So a couple of benefits and considerations with this one is that this does allow for flexibility and security, meaning that it allows you to enjoy more of your savings during good times and protect your finances during downtime.

So that's the number one piece is that allows you to have both sides of that coin. It also is. market conditions. So by adjusting those withdrawals based on real time portfolio performance, the guardrail strategy can help you mitigate risk of running out of money, which I think is another thing to think through.

And then you also have the potential for variable income. So this can actually help you manage spending and savings long term, but it also means that your annual income from withdrawals might fluctuate and require flexibility in your budgeting. So you got to just make sure that you are considering that as well before you dive into um, the guardrail.

strategy. So the guardrail strategy and the flexible spending strategy, both are very similar, but the guardrail strategy, you set up those two guardrails and you don't waiver from outside of those guardrails. Whereas the flexible spinning strategy is trying to maximize the additional amount that you can spend every single year, um, so that you can really maximize your retirement.

So there are two slightly different strategies there. And overall, they both have some great options available. Next, let's look at the bucket strategy. All right. So the next strategy is called the bucket strategy. And we talked about this on this podcast with Jesse Kramer as well, but the bucket strategy is an interesting approach where you actually design your entire retirement strategy into specific buckets.

So there are three different buckets there that you can design this into. The first one is a short term bucket. So the short term bucket is going to be funds that you'll need in the near future. So this is typically going to be one to three years. And because you'll need that money soon, it is kept in a very safe investment.

Something like a high yield savings account, for example, money that needs to be spent short term needs to go in a high yield savings account. So that's somewhere that you could put that or something like a short term treasury bill, things like that. And the goal here is accessibility and principal protection rather than growth.

So you're trying to protect your principal instead of growing your money really quickly. Then there's the medium term bucket. And so the medium term bucket is for your intermediate future, meaning four to 10 years, somewhere in that range. And it's usually invested in a mix of stocks and bonds. And it offers a balance between growth and preservation, meaning that you're trying to preserve some of this wealth, but you're also trying to get a little growth in there as well.

And so this way, you know, your money can grow some, but it's also protected against volatility in that medium term bucket. Then there's the long term bucket and the long term bucket. Are for needs more than 10 years away. So this is typically a total stock portfolio, or you're really trying to grow that portfolio over time.

And this is going to be, you know, high growth index funds, ETFs, those types of things can be the long term bucket. And since you won't need access to that money for a while, you can get a little more aggressive with this. Now let's give an example of what this might look like if you had a million bucks.

Just do the math easy. So your short term bucket, if you had a million dollars would be something like 120, 000 in a high yield savings count or short term T bills for the first three years of retirement. Okay. So 120, 000 divided by three is 40, 000 each. If you're basing this on the 4 percent rule, your medium term bucket is going to be 400, 000 in a balanced mix of stocks and bonds for years, four through 10, offering both growth potential and also some safety as well.

So medium term bucket is going to be preserved. Maybe it's a 50, 50 portfolio. Maybe you have a higher weight in bonds than you do in stocks, but that medium term bucket, you're going to try to get some growth in there. And then in addition, you're also having that safety available. Long term bucket is going to be the remaining 480, 000.

And that's going to be in stock funds or ETFs. And you're trying to grow that money over time. Now, what are some of the benefits or why would you even do this strategy is one, you could have peace of mind knowing where your money is going to be for the next three years. You don't really have to worry about that money.

You could have strategic investments, meaning that you're aligning your investments with your timelines, which for a lot of people, they like that idea of aligning their investments with timelines and you have flexibility for adjustments over time. So this gives you some Flexibility. It gives you some adjustments, but you're also not maximizing your growth potential because you're keeping three years in cash, essentially.

And so you really have this money where it's not maximized a large portion of your portfolio. In this case, it's about 12 percent of your portfolio, 120, 000 worth of a million dollars. And so you're losing out on that growth potential of that money. Now, this is one reason. Why? I absolutely love when people retire with a larger amount of cash.

In fact, my entire plan is when I fully am done working, I'm fully done earning an income. And I don't know if that will ever happen for me, but I want to have more cash on hand because I want to have a very, very large emergency fund. This is not like an emergency fund where it's just six months of expenses.

My goal personally, this is just me is I'm going to have years of cash on hand so that when there are down years, I can utilize that cash. And so we'll talk about this a little bit more and I'll talk through some of this, but this kind of protects you from these types of things. Meaning you have this cash on hand up front.

And so if you have a really bad year within your portfolio, you can actually take that cash on hand and you can ensure that you are mitigating the risk. So let's say for example, you had five years of cash on hand. All of a sudden your portfolio gets cut in half and you have a major, major recession on hand.

Okay. When that happens, you have five years of cash on hand. You can live off that cash for a couple of years until your portfolio recovers again. And so this is really a cool way to prep yourself because you're going to have bad years in retirement. There are going to be years where the market goes down.

The market always goes down. We just have no idea when. And so when that happens, you are really, really geared and prone to protecting yourself by having that cash on hand. This is just additional protection that you can have in place. So if you start saving up that cash over time and you just start to build up that emergency fund more and more, especially if you have a lot of time before you want to retire.

Then you can do that and really have a good amount of cash for your retirement day. So there's some cool stuff that you can do there as well. I love this idea of just having cash on hand, specifically when it comes to retirement, because cash is security, cash is safety, no matter what, you may not maximize that growth, but cash is always going to be the safest form to have available.

I'm not going to have, you know, 20 years of cash on hand. I'm just going to have enough to protect me for those down years. And that's part of my plan as well. So I'm doing it kind of a hybrid bucket strategy when it comes to this. I would not do the full. Bucket strategy for me personally, only because I'm not interested in having a really high bond allocation in a really low stock allocation in that middle portion, that medium term bucket.

So for me, that wouldn't work. But for some people, it may be perfect for you and your risk tolerance. I am not you. My risk tolerance is not the same as you. And so I want you to remember that as we move forward. Now, the last one is probably by far, uh, the safest one and number six, which is to live off the interest.

So you can do this in a number of different ways. This is essentially, for example, what dividend investing is, is where dividend investors typically only live off of the dividends that come in with portfolios. Well, you can do the same thing with an index fund portfolio. You can do it with a target date retirement fund portfolio.

You can do it even with specific ETF portfolios where you have this portfolio in place and let's say, for example, the fund spits off 2 percent every single year in dividends. Well, if you could live off those dividends every single year, that'd be a fantastic way to preserve and really, really grow your portfolio over time.

Now there were a lot of cons to this concept, meaning that if you only lived off dividends, dividends are going to be less than that 4 percent rule typically. And so a lot of times you're going to have to have a larger portfolio overall in order to live off those dividends. But if you had some big financial windfall or you just ended up saving a lot of money over your work and career, and you have more money than you 4 percent rule.

Maybe you can live off those dividends. And when you live off dividends, you're definitely preserving that portfolio. That portfolio is going to grow over time, and that's going to allow you to really protect yourself and preserve your capital. It's also very sustainable to live off dividends because you're not drawing down on that principle.

And so since you're not drawing down on that principle, it's really going to be able to grow. But you got to have a really high savings rate to get there, meaning that you're going to have to save double if your dividends are 2%, which is like on average, right around where index funds and ETFs will fall is if you have that 2 percent drawdown, it's going to be half your portfolio would be half in a 4 percent with drawdown instead of a 2 percent drawdown, meaning that if you followed the 4 percent rule.

And you wanted to spend 80, 000 per year, you would need to have 2 million. But if you only want to live off a 2 percent dividend, you would need to have 4 million in place. And so it is double the number, but if your savings rate is really, really high and you don't have as many needs as other other folks, or you retire really early and your spending is low in your early retirement, you could also live off those dividends and have that available as well.

So this works really well for things like bonds. It works well for dividend stocks. This works well for REITs. Those types of investments, it can really work well. It's a little harder with index funds or ETFs, unless you just have that higher savings rate and you are building up that wealth at a faster rate.

Uh, and so that is one thing that you just want to think through as you go through some of this stuff, especially when it comes to living off interest. So what am I going to do? What is kind of my goal overall when I go through this? So my thought process here for me personally, and I'm just telling you for me personally, if this helps you, great.

If it doesn't help you, then choose one of these that we're talking about here, or write me in and tell me some other ways that you think are thinking about this as well. Cause I love that, but I'm going to go with a hybrid strategy. So as a lot of, you know, I invest in real estate. I invest in businesses.

I invest. In a lot of money into index funds at ETFs. That's my primary place that I put money to. And so between all of these things, I'm going to have a lot of different options available to me. So we've been buying a lot of businesses up and we have also been, you know, investing in real estate a long time.

And so my goal here is I'm going to front load. I'm going to have cash on hand up front. Meaning that I want to have a couple of years at least of cash on hand for those down years. That's what it's for is for those down years. I'll still have that emergency fund, all that kind of stuff as well, but I'm going to have cash on hand for down years.

So that short term buck strategy, for example, I'm doing a hybrid approach there. So cash on hand is going to be three to five years available for my retirement. That's just what's comfortable for me. If you want that growth, go for it. More power to you. I completely understand, but this is just what feels right to me.

Okay, so I'm going to have that cash on hand up front and then I'm looking for additional income sources that are not just based on my portfolio. And there's nothing wrong with basing your entire portfolio as where you're going to draw money down. There's nothing wrong with that whatsoever, but we have other income sources.

And so making sure I preserve some of those and ensure that those are coming in, whether it's cashflow from real estate, whether it's cashflow from some of our businesses. Those are going to be really, really important. And I don't plan on ever just stopping any of those things. And so that is something definitely that I want to have involved as well.

Cause I love running businesses. I love being involved in them and maybe that will change down the line and maybe that over time, that'll be something I'm not interested in, but that's the second form of capital coming in. Obviously everybody's got social security. You got to factor that in as well. Um, and that will come into play at some point in time.

But between those two, those are the wealth accelerators. So I've got the wealth accelerators in place. And then three, I've got my retirement accounts, the stairway to wealth, retirement accounts, those types of things, which are your Roth IRA, your 401k, your HSA, all of those, your taxable brokerage, those are going to be spots where I am going to be willing to draw down some of that money as well.

And so the 4 percent rule is right on average in the middle. And like I said, a lot of studies that I read now, the 4 percent rule looks like it is actually a little bit low. And so I'm going to figure out, Hey, what is my spending ratio that I want to be spending? And does all of this stuff cover enough to get me to the 4 percent rule?

If it does, great, because 66 percent of portfolios doubled in retirement. And so that means I have more wealth to give away to my family. I have more wealth to give away to causes I believe in. And so there's a lot more money that I can give away. And so my hope overall. Is to potentially even have enough cash flow from some of my wealth accelerators that are going to allow me to take that portfolio and really be able to do some great and amazing things with it.

Um, and so that is why, you know, my initial goals, they change from just being a traditional lean fire, which is what it was in my twenties to going to fat fire. And the reason why I went to fat fire was because I am so interested in giving money back to causes. I believe in causes like the Tim Tebow foundation, which actually goes in and rescues human trafficking victims, specifically children.

So children who have been taken out of their homes and are now put into human trafficking, the Tim Tebow foundation will go in there and actually save those children. These are things that are world changing life changing for people. And so if I can give more money to these causes, if I can change more lives in this way, this is why I want to do this hybrid approach.

And so this is something where I'm really thinking about this stuff. Now, this is stuff that I really want to think about. We need to do an entire episode on giving back and giving, because this is something I think about a ton and it is a huge part of my financial strategy. We still have not done an entire episode on this yet, but this is something I want to talk about.

And so as we go through this, this is kind of how I'm approaching retirement as well is getting wealth accelerators to cover the lifestyle and then taking that portfolio and it's going to grow. It's going to, because I'm patient, I am letting that money grow over time and it's going to be something that over that timeframe.

I'm really excited to see what we can do with it. And if you want to join me in that ride, if you want to join me in giving back to causes we believe in, stay tuned, stay here. And we will be doing that over and over again because we want to change as many lives as possible with our wealth. And that is part of being a wealth builder.

If you are someone who listens to this podcast and you are working to build up wealth, you are a wealth builder. And one of the biggest things that you can do and one of the most joyful things that you can do is give back to things that you believe in. So that you can change, you can actually make a change with your dollars.

And that's, what's really, really cool about it. So anyways, overall, these are the six different ways that you can withdraw money in retirement. And these are the six ways that really, I want you to think through and kind of wrestle with some of these ideas, look into them more, research them more, see which one makes the most sense to you, ask the questions, ask me questions, and we can dive deeper into some of these as well.

We're going to wrestle through these ideas over the course. Of the next couple of decades, and so that is something where I really want a lot of folks to do as well, then start to put your plan in place, start to put a plan in place. Does it make sense for you and your lifestyle? Doesn't make sense for your risk tolerance and work through that plan.

Your plan can change. It is a okay for that goalpost to move, but just make sure that you have a plan in place and you're thinking through what is my plan? Do I even have a plan? If you don't have a financial plan, then make sure that you are thinking about putting one together. So Thank you so much for listening to this episode and investing in yourself because that's exactly what you're doing when you listen to this podcast episode.

If you guys have any questions, again, please reach out to us and we will see you on the next episode.