Ep: 94: Exploring the 4% Withdrawal Rule
The X's and O's
On this episode of The Retirement Plan Playbook hosts, Brent Pasqua, Matthew Theal, and Joshua Winterswyk of Evermont Wealth discuss the 4% withdrawal rule, a guideline that helps to craft a sustainable retirement plan. The rule suggests that retirees can withdraw 4% of their portfolio every year during retirement, adjusting for inflation subsequently, and the portfolio should, theoretically, last for 30 years.
However, the participants emphasize the complexity of the rule and the dynamic nature of the planning based on lifestyle, market conditions, taxes, and unforeseen needs. They also debate the rule’s limitations and potential misapplications, presenting a case for a personalized approach to financial management.
00:02 Introduction to the Retirement Plan Playbook
00:55 Discussion on the 4% Withdrawal Rate
01:41 Super Bowl Excitement and Predictions
04:06 Exploring the New Apple Vision Pro
08:53 Netflix's Entry into Live Sports
12:12 Understanding the 4% Rule for Retirement
21:58 The Bowling Alley Analogy: Guardrails in Financial Planning
22:31 The Importance of Flexibility in Retirement Income Planning
26:34 The Challenge of Conservative Investment and Income Approaches
28:09 The Art of Retirement Planning: Individualizing the Approach
30:33 The Impact of Taxes on Retirement Withdrawals
32:01 The Importance of Regular Financial Review and Planning
35:16 Final Thoughts on the 4% Rule and Retirement Planning
Connect With Evermont Wealth:
Transcript
4 Percent Rule
Welcome to the Retirement Plan Playbook, hosted by Brent Pasqua Pasqua, Matthew Theal Thiel, and Joshua Winterswyk Winterswick of Evermont Wealth. This podcast dives deep into investment strategies, retirement planning, and current events, equipping you with the insights needed to craft a robust retirement playbook adaptable to any political or economic climate.
Join Brent Pasqua, Matthew Theal and Joshua Winterswyk as they guide you through the complexities of retirement planning, offering expert advice to tackle challenges in the later stages of your journey. It's time to build your optimal retirement playbook. Now let's dive into today's episode.
Brent Pasqua: Welcome into the retirement plan playbook. I'm Brent Pasqua Pasqua, host and founder of Evermont wealth. I'm here with Matthew Theal Theal, CFP and Joshua Winterswyk, CFP. Hey Matt, what do we have in store on the show today?
Matthew Theal: Hey Brent, I'm super excited for today's show. We're going to be talking about one of my favorite rules.
Matthew Theal: The 4 percent [00:01:00] withdrawal rate. I think this is going to be a great show today.
Brent Pasqua: What are your thoughts, Joshua, on the show?
Joshua Winterswyk: Yeah, I love, I love this role. I don't know if it's my favorite like mass, but I'm excited to talk about it today. You know, I've been waiting to talk about this for a long time. I think we've had this kind of queued up as one of the topics that we're going to go over.
Brent Pasqua: And it is something that's such a widely big conversation that we have with so many clients that I think it is. I think it's a good time for us to have it. It's the beginning of the year. People think about their transition to retirement. And their withdrawals during the year. I think this is a good time for it.
Joshua Winterswyk: Also for anyone that's, you know, Uncertain about retirement and how they're going to get income. It's a perfect place to start
Brent Pasqua: as we get started I mean, what's your thoughts on the super bowl?
Matthew Theal: Oh, I’m super excited.
Brent Pasqua: Are you excited about the super bowl or who's playing?
Matthew Theal: Well, so I used to be a 49er fan as a big niner fan.
Matthew Theal: So I always think it's funny and all my friends are Niner fans, like you know, five or six of them, they all love the Niners, [00:02:00] but I think it's cool. Like Patrick Mahomes is really good. He's the quarterback for the Kansas city chiefs for those of you who don't know. And I think greatness is special and it's pretty cool to watch him just lead a team with like pretty much nobody on it.
Matthew Theal: Like Travis Kelce, like he should probably be in a retirement home, the tight end on the team. Yeah. Who's dating Taylor Swift. And then it's just a bunch of. You know, late round draft picks that he's making good. That's pretty cool.
Joshua Winterswyk: So 49ers and Chiefs. What do you got Brent Pasqua?
Brent Pasqua: I want neither of them to win. That's how I feel I would have done.
Brent Pasqua: I would have felt better with either of the other two teams playing in the Super Bowl But now we have this so I'm not interested You know, it's another two weeks of having to listen to about Kelce and Taylor Swift and all that stuff, which I mean great for them But I just does everyone need to for two weeks.
Brent Pasqua: I like their story. It's great. I like that too. Like the common football guy won, you know, he's like winning. [00:03:00]
Brent Pasqua: this just leads into the hands of all the people that say that the NFL is rigged though, because the chiefs are back in the Superbowl with like America's new couple.
Matthew Theal: What's crazy though is so I guess.
Matthew Theal: And yeah, obviously the NFL rigged it to get the Chiefs in the Super Bowl. There are some questionable calls in the game the other day, but I guess she's actually has a concert in Japan. Like the day before
Matthew Theal: something, huh? Yeah, so they're going to have to fly her, get her on like the fastest jet possible to make the game in time.
Brent Pasqua: See, and the thing too, for me is like, I'm watching the game yesterday and my wife's rooting for the Chiefs and then my son's rooting for the Chiefs. I'm like, why? Why are you rooting for them? Oh, no wonder you're angry. Yeah. I'm just like, why? Why are we rooting for
Joshua Winterswyk: the Chiefs? I think though for kids though, again, you know, Mahomes is that new Brady.
Joshua Winterswyk: He's that new greatness. So the kids gravitate to whoever's the best. And I think it's pretty clear now though, if you weren't already certain. Patrick Mahomes is, you know, the best quarterback in this NFL. [00:04:00] I agree.
Matthew Theal: He's so good.
Brent Pasqua: I'll take headlines. Yeah. Why don't you tell us what we have?
Joshua Winterswyk: All right. So our first
Matthew Theal: headline, we're going to talk about the apple vision pro comes out this Friday.
Matthew Theal: Been some mixed reports on it from a pre order perspective. They've sold up to 180, 000 so far. What are your guys thoughts on this Apple vision pro? And for those that don't know what that is, it's the new virtual reality headset from Apple. You put it on, it looks like
Joshua Winterswyk: ski goggles. I'm out.
Joshua Winterswyk: It's too expensive for me. You guys can go ahead. Oh yeah. It's expensive. Tell people
Brent Pasqua: what it does though. I don't know what it does. It's like you put it on and it's like a computer in your eyes, right?
Brent Pasqua: Yeah, it's like you're working on your computer. You're working on your phone Inside of your goggle set and you're seeing it all around you versus You in your normal setting where you're able to see this like you're building your setting where you're doing this work But you could also watch TV on it and watch movies the
Matthew Theal: the video they showed of it looked really cool But like I would I question like, [00:05:00] you know, you put it on Are you really gonna like it or is it gonna feel like kind of weird and then like you have to move your hands all Around to get it to do things.
Brent Pasqua: I don't know You're now, when you have something like that on, you're now immersed inside of the situation that you're in, whether it's the apps that you're working on or the computer system that you're working on, whatever you're doing, you're now immersed in it. So I could see, let's say, for example, you go onto an airplane, you don't want to be immersed with all the people around you, you put your goggle headset on, you put your movie on.
Brent Pasqua: And you're not, you're not distracted by things that are on you. You're just in your little reality bubble.
Matthew Theal: Like Brent Pasqua sounds like someone who's maybe tried one of these before
Brent Pasqua: and we haven't. I have not tried one. The only thing I have tried is my son has a MetaQuest, which is the new, like, virtual reality video game system, and it is very, very neat.
Brent Pasqua: It's, it's completely different than I would have thought. But this is the
Matthew Theal: competitor to Apple,
Joshua Winterswyk: right? Correct. He [00:06:00] has use case to it, though, but I'm, I'm not, I'm out right now. First generation seems like there's a lot of bugs, issues, very expensive. But I am also very, very bullish long term that, like, this is, you could potentially say it replaces, like, the iPad, right?
Joshua Winterswyk: You see everyone take iPads on, like, even the airplane, or you go on a trip, you're in the car, and now you don't need that anymore. You just put on these goggles and it's doing everything even better than even an iPad or a screen could ever do for you.
Matthew Theal: So I read on my iPad at night and I could just see Haley my wife getting so mad at me when I smack her in the face because I have Apple vision pro on, and I'm trying to like the flip the apps or however you control the thing with my hands.
Brent Pasqua: Yeah. I could see that being a problem. You know, you see, you Extend your hand out. Whack, boom, right in the face. Yeah, I, I don't, you know, I think it does potentially replace the iPad and it could you know what the difference in that setting is, is that when you have those goggles on, [00:07:00] you're now operating in that system solely, you're not operating on your iPad with people around you.
Brent Pasqua: When you have the goggles on like you're just in that reality because you don't even need an additional headphones Correct. So, you know, you're eliminating even headphones and a screen. It's now just on your head, right? So
Brent Pasqua: you have this strap around your head with the goggles on and I guess the sound comes from I don't know if it's either the strap or the goggles, but supposedly You don't obviously need even need ear pods, air pods on.
Brent Pasqua: You just need, you're hearing it straight from the goggles.
Matthew Theal: So if I'm on the airplane, I'm going to have to listen to some guy's movie.
Joshua Winterswyk: No, no, I don't think so. I think there's a way that it can go direct or you put in some sort of air pod
Brent Pasqua: or earbud. Yeah, no, you're not. I don't think you're hearing the sound.
Brent Pasqua: I think sound now is being built so that you could be sitting probably right next to one person with the same system on and they're not hearing it. Have you guys
Matthew Theal: seen the movie Her? Yes. I feel like we're going to be at full Her [00:08:00] by 2030. It's
Joshua Winterswyk: coming. I think this is completely changing computing now.
Joshua Winterswyk: Yeah, this is gonna be a killer product for have you seen Minority Report? No, I should watch that though Tom Cruise like futuristic movie and he has the screens and he's like moving them around and that's how They like compute like it's happening. It's pretty cool.
Brent Pasqua: My take on this is is the same as yours though This price point is extremely high I mean, I I don't know how they did so many cells like how can somebody afford something like this?
Brent Pasqua: It's Very expensive. And number two, the first version is generally not the best version. So price comes down, make improvements, work out the kinks. Then I could see myself getting one.
Joshua Winterswyk: Yeah, I think it's going to be here for a long time and let's first see these other people use it, but I don't know, I'm jumping out to go spend 3, 500 on some goggles.
Joshua Winterswyk: Yeah. That's a big price
Brent Pasqua: tag. Matt, what's the other headline? Alright, did you guys hear that Netflix jumped into live sports after saying they would never do it? And they agreed to [00:09:00] pay 5 billion dollars for the rights to WWE's Raw. Any takes?
Joshua Winterswyk: You still like wrestling? I haven't watched wrestling in 20 years, but I think it's pretty cool.
Joshua Winterswyk: Like 7th and 8th grade was probably the peak of me watching wrestling. Stone Cold, The Rock. Yeah, that was
Matthew Theal: it. That was cool, right?
Joshua Winterswyk: Yeah.
Brent Pasqua: I think this is a good move. If you look in the stands of WE events there's, it's all middle aged men and middle aged people.
Joshua Winterswyk: They still like it. They still like it.
Matthew Theal: Don't kids like it? Oh, they love it. Is your son into it? No. Do you think he's going to get into it?
Brent Pasqua: Maybe. I feel like my son's nine, so I don't, I don't think at that age I was into it, but I don't remember. It was just a very short span when I was young.
Matthew Theal: I remember I used to come over to your parents house and we'd watch it with your brothers.
Brent Pasqua: I think the thing that, the thing that strikes me about this deal though, is that the big companies always seem to find a way, at least the good ones. And this is another way for Netflix to get ahead. Of everybody else, but [00:10:00] you, you know, there was the, who was the one that had the NFL game the other day where they had all those extra peacock, right?
Brent Pasqua: So there are, you would consider them a competitor of Netflix, right? They had all those subscribers. All those subscribers are most likely going to cancel, or a lot of them will probably cancel, but people are coming to Netflix to stay.
Joshua Winterswyk: Yeah, I think it's an interesting move and because. They've kind of slowly dabbled into sports, right?
Joshua Winterswyk: F one now they're into golf and then they're adding WWE. So it's kind of like these, not like the mainstream sports that they're, you know, putting onto their platform, which is kind of unique, kind of making it an itch for these like groups of people. I think it's pretty cool. I don't know how it's all going to go down cause I know WWE is also going through a bunch of lawsuits.
Joshua Winterswyk: So I don't know the timing on this is great, but didn't
he
Brent Pasqua: just step down again?
Joshua Winterswyk: Yeah, I think so. So I don't know how that's going to all work out, but it seems like their parent company stock price has done pretty well and it stayed pretty high after the announcement. So, [00:11:00]
Matthew Theal: and I think to go on your point, Brent Pasqua on the NBC comparison, I think it's smart because the WWE is recurring.
Matthew Theal: I think it happens like once a week. Right. And it's a live show. So boom, they throw it on. But also. You could go back and watch it. It's not quite like, you know, if you missed that dolphins chiefs game, you saw the score, you're like, Oh, well I missed the game. I'm not going to go back and watch it. But you know, people get really into these wrestling storylines and they'll go back and watch it a couple of days later, most likely.
Joshua Winterswyk: it on Monday? It's Monday night raw. Yeah, that's what it was when we were kids. Is it still the same?
Matthew Theal: I don't know. I'm going to assume so. On the headline, it just says WWE Raw.
Joshua Winterswyk: Now that we're talking about this, when it does air, I'll have to watch at
Brent Pasqua: least one. Oh, I'm going to watch the first one for sure.
Brent Pasqua: But isn't this just another step in the direction of the traditional cable TV is fading out quickly? Yes.
Matthew Theal: Yeah, it's done. I canceled DirecTV this year. I saved 2, 000. Wow.
Brent Pasqua: That's big. Yeah.
Matthew Theal: That's huge. I'm proud of you. Thanks. Final [00:12:00] thought. I hope they bring the rock back. That'd be cool. And stone. Cool.
Matthew Theal: Yeah. Stone. Yeah. That'd be cool
Brent Pasqua: too. Yeah. Netflix will have to open their, their checkbook for that one. Yeah. I
Joshua Winterswyk: like that. If they bring all the old guys back, I'm definitely watching. All right, Matt, why don't
Brent Pasqua: you introduce us to the 4 percent rule and what do you have for us?
Matthew Theal: All right. So the 4 percent rule was started by this man named, I'm going to butcher his last name, William.
Matthew Theal: Ben again. Bengan and he was a researcher. He did it in 1994. And what he did is he analyzed historical stock and bond market pricing going from 1926 to 1976, looking all different market conditions. If you know your history well, this would, you would know this dates include the Great Depression. So stock market data sets the, they start around 1926.
Matthew Theal: That's when people decided, hey, it's probably a good idea to keep data on stock prices. So that's when the best data set starts. We use it here at our firm and he tested a portfolio based on about 50 to [00:13:00] 75 percent stocks. If you're a client of our firm, you know, we usually recommend somewhere between 40 to 60 percent of your money being stocks.
Matthew Theal: And his whole goal was just to test the withdrawal rate, the time horizon for a 30 year period. So 30 years meaning the course of your retirement. And what he found, his takeaway was he did all this, did this back test and found out that 4 percent is the ideal withdrawal rate. For you to spend down your portfolio and not run out of money when you're retired for 30 years,
Brent Pasqua: right?
Brent Pasqua: So what the rule suggests is that retirees can withdraw 4 percent of their retirement portfolio starting in the first year of retirement, and then adjusting for subsequent inflation year over year. And with that withdrawal rate, your portfolio should last you 30 years. But is that a perfect rule rule?
Joshua Winterswyk: I think it's.
Joshua Winterswyk: More of a guideline, a starting [00:14:00] guideline of how to turn your retirement portfolio. Into income at a safe withdrawal percentage. And I think it's just a start.
Brent Pasqua: I think that there is some really good benefits to it or some pros to it. Number one, like you're saying, it gives you a really good baseline to say, okay, if you're retiring with, let's call it a million dollars in your portfolio and you want to figure out what you should take out that first year, what you can take out, you could establish that 4%.
Brent Pasqua: So you're taking out 40, 000 a year from your portfolio. And at that rate, at that moment, your money should and could last you based on historical data, 30 years. But that also leaves out and puts a lot of questions into, you know, the scenario of based on this, are you Matt adjusting? Each year to a new 4%.
Brent Pasqua: So if the market goes down, you have 900, 000, are you now taking out and adjusting your income?
Matthew Theal: What I found is most [00:15:00] people don't do that because nobody wants to adjust their income lower when their portfolio drops, but also at the same time, you can make the argument when a client's portfolio goes up, you usually don't adjust it either.
Matthew Theal: So it's typically a rule you start with right at retirement. The whole catch to this though is once a client hits required minimum distribution age, Or the required beginning date to use kind of the technical term. Usually the amount they're getting from that is larger than the 4 percent withdrawal rate anyways.
Brent Pasqua: Well, that depends on how much they have in pre taxed assets though, or post tax assets. Post tax, yeah. So, I mean, it, it's, it may not be based on their total asset
Matthew Theal: value. No, it's not, but it's a, you know, a pretty large amount they're pulling out of their retirement
Joshua Winterswyk: funds. But at the same time with RMD age being pushed back, I mean, a lot of people are wanting to retire earlier, like we talked about on the other one.
Joshua Winterswyk: So, you know, you're in retirement now for 10 years before you even start collecting your RMD.
Brent Pasqua: I think the big sort of potential con to this, and I [00:16:00] love the rule. I love it as a baseline, but the downside to it that I see is when will you see a lot of clients retire their initially, let's just call it in their younger to middle sixties, sometimes a little bit older, and they plan on doing a lot of the things that they want to do in that first chapter of their retirement.
Brent Pasqua: They may plan to spend more money in the first half of retirement than the second half. We see that all time and time again. And the second half, they're not wanting to travel as much. So they may need 4 percent for them to take out for their monthly expenses, but that might not account for the trips that they want to take that are going to cost them 30, 000 a year additionally.
Matthew Theal: Yeah. I think the biggest question though, going along that lines is that what percent then is too high where you're putting yourself at risk. Right. And if I was the end client, I'm like, okay, great. Well, I'm going to spend more than 4%, like you're saying, but what's that magic number where is it nine?
Matthew Theal: Is it 10? Is it
Brent Pasqua: 15? Well, I don't think you could set it and forget about it. [00:17:00]
Matthew Theal: Oh, good. Well, you're going to run out of money. It's a math problem. A hundred percent. If you're taking 20 percent of your money out per year, you're going to run out of money in four to six years, right? Depending on market.
Joshua Winterswyk: And that's where, you know, we talk about assumptions, but.
Joshua Winterswyk: It lacks multiple variables in someone's life, right? We don't know about longevity or when you're going to pass. And then also like, do you want to even leave any money to your heirs at the end of retirement? So that like kind of changes that calculation too. So you're saying I'm solving for 30 years, but let's say that, you know, I only expect to be here for 20.
Joshua Winterswyk: I don't have good longevity and I don't care about my heirs inheriting any money. That withdrawal percentage could be higher for that person compared to somebody
Brent Pasqua: else. I think what you can do and we've done this a lot is where you establish, Hey, here's your 4 percent and they know they're going to need more than 4%.
Brent Pasqua: You build in that extra travel budget or that extra luxury budget in there for five years. You say, here's what the five year projection looks like. Let's reassess in five [00:18:00] years about how that looks. Although we'll be looking at it year over year, because if you have a down year, you may not be wanting to take that type of withdrawal out.
Brent Pasqua: But if you look, reassess in five years, they're now 72, 73 years old. You'd say, okay, well maybe I was traveling XYZ this many times, but I may not want to travel that much now.
Matthew Theal: How often have you had a client come to you during down year and say, Hey, I'm not going to take money out, portfolios down. Never.
Matthew Theal: Yeah. Same here.
Joshua Winterswyk: I will like play a little bit of devil's advocate on there. I think that like, maybe not even down market, but like down economy. People are like, I'm going to wait a little longer to take more money out. I've had clients do that. Yeah, I've seen that. You know, it's like, and it's not even necessarily, to be honest, it's not like when the portfolio is down, it's more of like when the sediment of like, Hey, the market economy, this country, things aren't going well, collectively, I'm going to hold off on my house remodel or taking that trip.
Joshua Winterswyk: Cause I just don't feel good about [00:19:00] everything that's going on. Yeah. Like
Matthew Theal: 2022 or 2023. Exactly. Yeah.
Brent Pasqua: I think when I retire, I will probably adjust if I can my income to, I think what is the appropriate year over year withdrawal rate from my portfolios. But I'm, I'm not sure that I would follow exactly just the 4 percent rule.
Brent Pasqua: I think I'd gauge it year by year and based on needs. I think that's harder for a lot of people because they would have to adjust their lifestyle sometimes.
Matthew Theal: I would be curious too on how the 4 percent withdrawal rule works over a longer time frame. So would it work for 40 years? Would it work for 50 years?
Matthew Theal: I'm not sure if you tested this or not. Maybe you guys know But you know, let's say you're in your early 40s early 50s You sell your business and you get a big chunk of change 5 10 million and you withdraw 4 percent per year. [00:20:00] Is your money gonna last for 50 years until you're 90? Would it work? I don't know
Joshua Winterswyk: well I mean if you just take the Assumption behind the 4 percent rule, right?
Joshua Winterswyk: You're going to earn, you know, more than what you're taking out. Just a general concept. If you're like 60 percent stock. Yeah. I'm going to earn six or 7 percent and I'm going to take out for like, just generally you would hope that the portfolio would last forever, right? Yeah. So it's going to
Matthew Theal: work over a longer period
Joshua Winterswyk: of time.
Joshua Winterswyk: Potentially. Yes. But again, we don't know. You can't assume for all market assumptions going over those 40 years that you're going to get six or seven percent on average for 40 years. I mean, the historical evidence would suggest that yes, you could, but I mean, that's a variable that we. But
Brent Pasqua: if you look at the 4 percent rule over the last, let's call it six, seven years, and you were only taking out 4 percent of your money, you're, you've seen at a 60, 40 portfolio, you've seen [00:21:00] tremendous growth with your withdrawals at that rate.
Brent Pasqua: Absolutely. And so you could go back to historical data and say, you've seen the same thing. If you're assuming 4 percent and you see that you're making seven or 8%, let's just call it on a 60, 40 portfolio. Then you're seeing along with that growth, you're taking out this money. You have flexibility to take out more or you have more for the future.
Brent Pasqua: You're not running out of money at that rate. You're not spending down. No, you're not. So then are you adjusting? Are you taking out more?
Matthew Theal: I think that is probably client personality driven, but like when you look at it, especially if you look at a client you know, with a couple of million dollars in pre tax retirement funds, can't you make the argument like you saved all this money, like you should go enjoy it.
Matthew Theal: I don't even worry about the rule. You should go enjoy your retirement. It's pretty hard to spend that amount of
Joshua Winterswyk: funds. I mean, I know people who could spend that money. [00:22:00] But I think it's more putting, you know, think of a bowling alley. It's with bumpers or it's guardrails. At least you would have an idea to like stay in the right lane, but I, I, I somewhat agree with you.
Joshua Winterswyk: Like, yes, go enjoy it and spend more. You don't have to live by the 4 percent rule is what I'm hearing from you. Are you talking about cosmic
Matthew Theal: bowling?
Joshua Winterswyk: Sure. Is that what it's called? But I'm, I'm just saying, you know, you're putting bumpers on there to keep you in the lane. Right. And, and I think that that's what this does more.
Joshua Winterswyk: And it's just a very good entry point into like. Retirement income planning. It's a used a rule that I use too. When people just ask me like, how much should I have for retirement or how do I get income in retirement? And I use this rule for anyone I meet, just meet generally. That's asking me questions about finance.
Brent Pasqua: I think if you stick to the 4 percent rule, I don't think you're going to probably run out of money. If you're on a 60 40 portfolio ever, like you're going to live a very, you could live a very long time. You take out 4%, [00:23:00] leave your 4 percent the way it is. I think you'll live very comfortably if that amount of money makes you comfortable.
Brent Pasqua: Your portfolio value is going to be comfortable for you the rest of your retirement. Yeah. As long
Matthew Theal: as you don't panic during bear markets and you know, you stick to whatever investment philosophy you created. Yeah, it's a very good, simple benchmark, but I think the key takeaway too, that a lot of people forget.
Matthew Theal: It's when he tested this, he did it between 55 to 70 something percent in stock. Not 20, not 35, not zero. You have to be willing to take the stock and take the lumps for this plan to work correct. If you're all in bonds or, or more conservative investment investor, maybe. You know, you have all annuities or something, you're probably not going to keep up
Brent Pasqua: with this.
Brent Pasqua: Correct. Cause you can make the argument that if you had that allocation in your portfolio where you had, let's call it 70 percent stocks in 2008, [00:24:00] you probably didn't want to take out any more if you even took out 4 percent because it would be hard to sell off that many shares to create that amount of money of a withdrawal.
Brent Pasqua: Yeah, because
Matthew Theal: you're probably down like 30 percent in a way, depending on what funds you're in. The other thing too, is I guess if I was a conservative investor, there's nothing wrong with being a conservative investor, but if I was in annuities or bonds and that was my only investment because I didn't want to own stock for whatever reason, maybe I couldn't sleep at night or Bad experience.
Matthew Theal: What would you guys do for income? I, I don't think I'd follow 4%. I think, you know, that's obviously would be a losing proposition. I mean, would you take the dividends off your bonds? Like the, just whatever the rate it's paying
Joshua Winterswyk: interest or dividends for the bonds and just say, I'm going to live off of what, you know, feeds me from this product.
Matthew Theal: And how would you even take your annuity? I guess.
Brent Pasqua: And that the challenge with that too, is you're not really accounting for [00:25:00] inflation because we've seen a lot of inflation over the last few years. And cost of living has gone up and your, your bonds generally aren't readjusting for inflation necessarily, depending so it, it does make it hard, but if you're probably doing that and let's say you have a 4 percent rate on your bonds, you probably need to be taking a little bit less of a withdrawal rate out in
Matthew Theal: 2022, the inflation rate at the peak was 11 percent and bonds were down 15 percent that year.
Matthew Theal: That's like a 30 percent loss, right?
Joshua Winterswyk: But that's the sacrifice because you're saying you want to be more conservative. It
Matthew Theal: wasn't conservative that year
Joshua Winterswyk: Or just lock in a 30 year bond and live off the four percent interest. Yes,
Matthew Theal: I guess maybe that's more what i'm getting on That's probably what I do. I do a long term So this is different than our short term bond ladder.
Matthew Theal: We've been talking about you could do a long term bond ladder You do like a 10 year a 20 year and a 30 year bond ladder
Brent Pasqua: But then you have to live off of that's all you have to live off of because you can't withdraw from those [00:26:00] portfolios During that time frame or your income is going to drop
Joshua Winterswyk: that's correct because there's risks to doing that Correct if you had to withdraw more than Just what you're living off from the interest because you don't know where Braun price is gonna be at Yeah, the time you have you need that money that was
Brent Pasqua: unexpected So if cost of your living expenses go up due to inflation or just you have unexpected events now You're not able to pull from that money anymore.
Joshua Winterswyk: I’m almost thinking of it like Your income's always then going to go down, right? Because of inflation, long term. So you're fine with 4%, but just know that your income's always slightly going to be going down every year.
Brent Pasqua: Correct. But is that conservative?
Joshua Winterswyk: To the, to the eye, because your money's not going to be fluctuating
Brent Pasqua: up and down.
Brent Pasqua: It's a conservative investment approach. But it's not a conservative income approach.
Matthew Theal: What would be a good example of a conservative income approach?
Brent Pasqua: I don't, there's, there's probably not a perfect income approach that's conservative because you have to take into consideration a lot of things. Annuity?
Brent Pasqua: No, because With the income rider? No, because then again, you're setting [00:27:00] your income at a fixed amount and you're not factoring in for adjustments and increases. I guess a conservative What about with an income
Joshua Winterswyk: rider though? I mean an inflation rider.
Brent Pasqua: Yeah, it could, but then those are also contingent on the contracts that's writing the rider and the details of those riders are, you and I all know those are written by insurance companies and you're not getting a perfect cost of living adjustment.
Brent Pasqua: Of course. It sounds,
Joshua Winterswyk: it sounds great when you first talk about it, but diving
Brent Pasqua: in, you know, used car salesman.
Matthew Theal: No, I think I got the answer. The conservative income approach is to never take any income until you're forced to take income by the IRS, which would be your requirement of distribution.
Brent Pasqua: Yeah, but that's not always
Matthew Theal: reality.
Matthew Theal: It's not, but we said it was a conservative approach. I mean, that would be the most conservative thing you could do. I mean,
Brent Pasqua: the best type of fixed income is getting a pension, you know, from the state with a cost of living adjustment, you know.
Joshua Winterswyk: Cause they're taking the risk. You're not. That's why it's the most conservative.
Brent Pasqua: Correct. Yeah, that's true. Some could say that social security as well, but we know there's, you know, a lot of [00:28:00] scrutiny in terms of like the
Matthew Theal: longevity of that asset. I knew a guy who once said social security is the best annuity money can buy. Yep. I do
Joshua Winterswyk: too. I know that guy. He works in this office. So
Matthew Theal: So I think what you're saying is it's, this is such a simple rule in this podcast, but this is really more of an art.
Matthew Theal: And especially in the sixties and seventies, before the required beginning date starts, when you have to take money out you know, if you're, if you let's look at someone who's retiring before social security. You know, before their FRA kicks in. So this would be someone who's retiring before 67 or 68, but they actually want to retire at like 62.
Matthew Theal: You know, are you, are you turning on social security at 62 or are you withdrawing more from the portfolio? Very good question.
Joshua Winterswyk: Very good question. That's a common question. We have a lot of clients that
Brent Pasqua: have that question and there's not a one perfect answer to that. You have to solve that scenario by
Matthew Theal: scenario.
Matthew Theal: You got to do that. You got to do planning, right? Yes.
Joshua Winterswyk: And that's the problem with all of these rules, though, because life's different for everybody and needs different for everybody. And then you have the [00:29:00] unexpected, which we see all the time in this office of clients needing their funds because of something that they couldn't foresee.
Joshua Winterswyk: And that throws off that whole rule for this year. Correct.
Matthew Theal: So essentially, if you were a person who's listening to this podcast and you don't want to take the time to put a plan and you don't want to pay for a plan, you don't want to hire a professional. Your financial plan is to work until 70. And then you collect social security because that's the last time that you could collect social security, right?
Matthew Theal: And then you don't touch your retirement savings until age 73 when you have to start taking retirement savings. And that's the most conservative retirement plan possible. And you work from basically 20 until
Joshua Winterswyk: 70. Without not even really talking about the investments. But yeah, for income planning, that would be the most conservative.
Joshua Winterswyk: But full disclosure, this is not financial advice.
Matthew Theal: No, that sounds awful.
Joshua Winterswyk: That
Brent Pasqua: sounds awful. You know, and, and what you're saying by the required minimum distribution. So let's clarify that. So when you put your saving, when you're putting [00:30:00] money into your 401k or into your IRA, and you built that up to your retirement plan, there's a point at 73.
Brent Pasqua: 74 or now 75, depending on what year you're born, that you're forced to start taking out of your pre taxed investments. What we're saying here is that you're not taking out of any of your other investments until the IRS forces you to begin taking out those distributions and that's all that you take out.
Brent Pasqua: Now, if half of your money is an after tax money and half of your money is in pre tax money, you may be only withdrawing 2 percent of your money. We don't know. Scenario based. But there is a point where the IRS does require you to take out of your retirement accounts And that does come into factor when we're talking about the four percent rule But one other big factor that we haven't talked about yet That is taxes taxes because if you're taking out 4 percent of your money, let's not forget.
Brent Pasqua: You're probably not getting 4 percent of your money unless your income is very low.
Matthew Theal: That's a great point. Yep. Yeah. Cause
Brent Pasqua: you got to pay taxes on it. Correct. So if we use the [00:31:00] same scenario that we talked about in the beginning, you have a million dollars in your portfolio. You take out 4%, you're getting 40, 000.
Brent Pasqua: You may only be getting 34, 000 or 32, 000 after all the taxes have been paid.
Matthew Theal: Yeah. And so if you want 4 percent net, you're probably taking out at least five and a half percent
Brent Pasqua: is what you're saying. Correct. And that's not what we're testing here as a successful
Joshua Winterswyk: withdrawal strategy. No, it's not taking it higher than the guideline higher
Matthew Theal: percentage.
Matthew Theal: This sounds complex.
Brent Pasqua: So if you need 40, 000, you probably need one, two or one, three in your portfolio to net out the 40, 000.
Matthew Theal: Yeah. And when you say one, two, you mean 1, 200, 000, not 1 million. Correct. Yeah. That's a good point.
Brent Pasqua: Correct. So it's, it's not a perfect world. It is based on every person is individually based.
Brent Pasqua: And everybody has different puzzle pieces that make up their picture. And I think the only way to create a withdrawal strategy that works for somebody is to individualize it and do it with them directly. [00:32:00]
Joshua Winterswyk: I agree. And continue to update it, like you said, you know, cause anyone who's not creating a plan or not reviewing this.
Joshua Winterswyk: Do they even know where they fall on that percentage withdrawal spectrum? Like, you know, how many people will even meet and you're like, how much are you taking out of your portfolios? And they don't even know that percentage, right? Well, they don't even know what the total asset total is. Cause they're coming to us to help organize and put that all together.
Matthew Theal: And I'm, I'm in this camp as well. So I'm just going to come out and say it before, but most people don't even know how much they make on a monthly basis. They're like, well, you'll ask them like, well, how much is your net check? Like what goes into your checking account? And they're like, I don't know, maybe it's like.
Matthew Theal: You know, 4, 000, maybe it's, maybe it's 3, 000. Well, what about your wife? I don't know what goes in for her.
Brent Pasqua: Yeah. And then they're scrolling their phone, logging into their bank to figure out what that net
Matthew Theal: check is. Yeah. And that's like the most important number you can
Brent Pasqua: get. I think the other thing about the 4 percent rule that brings up another challenge is we talked about market [00:33:00] conditions and we talked about market movement.
Brent Pasqua: But I think the other area about that is what, when you're in a down market or potentially in an up market, not just your average market, what are you selling off to get the 4%? Because last year when the marker 2022, when the market was down, we were very specific about what portfolio assets, what shares we were selling to get the 4 percent for people's income out or whatever income they needed because you can't just be loosely selling across the board all the shares if markets down, are you selling bonds?
Brent Pasqua: Are you selling stock? If stocks and bonds are down, like it was in 2022, how are you picking what you're selling?
Matthew Theal: You have to look at the portfolio and you know, what you're trying to do is keep a certain percentage of stocks and bonds. So you're, you're trying to navigate that to make sure that you. Keep that percentage of stocks, right?
Matthew Theal: And the percentage of bonds, right? So for every client, it might be different. The idea though, is
Joshua Winterswyk: you want to keep the balance, right? So you, and that's why the [00:34:00] whole rule works is because you are keeping that balance, but traditionally it would be fixed income. Yeah. You know, I think that over the last few years there've been some.
Joshua Winterswyk: Kind of unique situations like stocks and bonds, both being down in 2022. But generally you're probably taking from fixed income first.
Brent Pasqua: There's, there's a lot of detail to figuring out how you're going to sell or figure out what those allocations are, right? Like you don't know exactly if you're 62 percent stock and 35 percent bonds because you have some money in cash and then you're navigating on what to sell off and what to change.
Brent Pasqua: I mean, there's, there's so much that goes into that. There's
Joshua Winterswyk: another layer to that. Also just behavior, right? Meaning, or, you know, you like this stock or you like this mutual fund and you don't want to sell it. Like there's just so many layers to making that decision than just, which is even doing good or
Brent Pasqua: bad.
Brent Pasqua: Yeah. And another complexity we had too is, is people that have long term gains in their portfolio and that you may have no other option, but to sell those and now you're paying [00:35:00] capital gains tax. And then again, now you're potentially selling off more than what you need. Because you have to pay taxes.
Matthew Theal: Yeah, that's a tough one too. I mean, and that's where you might want to start this capital gains before you start pulling out of your IRA to get those down first. That's what the research says. Anyways kind of wrapping up thoughts for me. You know, basic rule, but a complex topic. What about you, Brent Pasqua?
Matthew Theal: Any parting
Brent Pasqua: thoughts? I, I very much like the rule. I love the rule as a basic conversation starter when we're thinking about our retirement plan. It's a basic guideline to go off of. It gives you somewhere to start when thinking about your withdrawals, but there go, there is so much more that goes into it that you can't say that that's concrete, but it is a great starter for sure.
Joshua Winterswyk: I agree with that. I think that I endorsed the rule. Absolutely. As a starting point, good benchmark, but I think real retirement planning is [00:36:00] more dynamic than that. But again, a great way to start.
Matthew Theal: Perfect. Let's jump in. RPA recommends who wants to go first. I'll go
Brent Pasqua: first. I don't have a product to recommend.
Brent Pasqua: What I am recommending though, is we are at the beginning of the year. I think in, in our modern generation that we're in today, and I guess anytime you're in the generation you're in, it's more modern subscriptions are all over. And a lot of us can have subscriptions that we're not using. What I'm doing now is going back through my budget and looking at what subscriptions I have that I'm not using.
Brent Pasqua: I don't need eight TV subscriptions and I'm getting rid of things that I don't need or don't use because I can always go start them again if I want them in the future. But monthly auto transactions add up very, very quickly. I'd recommend everybody going through their bank statements for two months, credit card and both their, their checking or saving statements that they have expenses coming out of [00:37:00] and make sure that the, any autos that they have coming out that they're using, because if you don't need them.
Matthew Theal: Your iPhone has an app. If you search subscriptions, you could see what you paid through through iPhone. Yeah. And
Brent Pasqua: what I also had done, cause I had that I would, I was able to bundle some of them that my kids used and it actually saved me money every month because it bundled like TV and some of their other apps that they were using that they need for school.
Brent Pasqua: So. It was just another way to save money. Just team up with a
Joshua Winterswyk: buddy. You know, share subscriptions all over the place.
Brent Pasqua: Yeah. I mean, I know a lot of people do that.
Matthew Theal: Joshua Winterswyk, do you have a recommender? You want me to go first?
Joshua Winterswyk: I, I do. I didn't actually think of a great one today. So apologize for that. But it's something that we just got for one for the office too.
Joshua Winterswyk: But I got at home that I'm using every time. You guys might've already recommended this, but it's a power washer. Yes, so, put mine together got one for christmas and I love mine It is so useful around the house Like even the rain happened and we had a bunch of like those little dried worms on our driveway [00:38:00] bang I got one right off But really good if you are a homeowner or just like your stuff cleaned, especially around the house, front, backyard, my power washer is definitely recommended.
Joshua Winterswyk: Do you
Brent Pasqua: have the brand or the one we bought for the office?
Joshua Winterswyk: I don't, but we could probably add it to the show notes, but we got one for the office too, so we can make sure this place is looking real nice.
Matthew Theal: Alright, for my recommend it's just kind of more me rambling, it's not really a recommend. Oscar season going on right now, Joshua Winterswyk, I know you're a movie guy.
Matthew Theal: Watched Killers of Flower Moon on Apple. That was a long one. It took me like four days to watch that thing. It took us two days. Yeah, three and a half hours. This isn't a year for movies. Like, if you like movies, this wasn't the year for it.
Joshua Winterswyk: Yeah, I haven't been really impressed with any of the ones. I mean, Killers of a Flower Moon, did you like it?
Joshua Winterswyk: It was
Matthew Theal: all right. I like it. It wasn't the best Leo [00:39:00] experience
Joshua Winterswyk: and Scorsese experience either. Yeah. I watched Barbie. Not to go off your, your recommends,
Matthew Theal: but, well, Barbie's probably the best one I've seen. At least. You leave the Barbie movie kind of feeling happy. You like the
Joshua Winterswyk: song? I'm just Ken. Yeah.
Joshua Winterswyk: Who doesn't? Yeah, I watched it. It was actually pretty good entertaining. At least it was entertaining it. It was entertaining. Yeah. Yeah, I don't know. I watched maestro. I fell asleep. I don't know if you've watched that one. The Bradley Cooper flick. No, I'm going to
Matthew Theal: attempt that one. That one was,
Joshua Winterswyk: it's kind of a snoozer.
Joshua Winterswyk: So yeah, I'm almost agreeing with you. There's not. So anyone else any other movies that you're recommending from the Oscar list?
Matthew Theal: No, I'm just one to give my take more than recommend anything. It's not the year, huh? Yeah, not the
Brent Pasqua: year. So the power wash we bought was a Powrite P O W R Y T E Amazon, right? Yep on Amazon.
Brent Pasqua: It was 160 and I'm excited to get it started
Joshua Winterswyk: out here I know and even for car washes. Yep. So that's a good tool Have you watched any of the
Brent Pasqua: Oscar films? No. [00:40:00] I don't even think I've watched a movie in like a year or two. So he's not a movie
Matthew Theal: guy. I'm not. He doesn't
Joshua Winterswyk: like cinematic adventures. I just can't sit there
Brent Pasqua: long.
Joshua Winterswyk: Did you watch the new, did you watch Top Gun the new Top Gun last year?
Matthew Theal: All right, let's end the show. All right. Thanks for joining us on the retirement plan playbook. I'm Matt. I'm Brent Pasqua. Joshua Winterswyk. Have a great day. Thank you.
Joshua Winterswyk: Thank you.
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