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

Chapters:

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

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

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

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

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

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

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

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

Sources:

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

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

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

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

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

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

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

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

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

In this conversation, Marcus Schafer and Patrick Collins explore the complexities of real estate investment, discussing whether a home is an asset or a liability, the expected returns on real estate, the risks involved, and the tax implications of investing in property. They emphasize the importance of understanding market dynamics, leveraging unique skills, and conducting thorough analyses to make informed investment decisions. The discussion also includes a real-life case study to illustrate the practical application of these concepts.

Chapters

00:00 The Allure of Real Estate as an Investment¹– recapping the highlights from our last episode

02:46 What Returns Should We Expect? – And do we see these expectations realized?

04:34 Advantages of Real Estate Investment – leverage, tax benefits, and tangible investments

10:26 Investment Strategies in Real Estate – the two major strategies we see investors pursue

12:02 The Boom and Bust Cycle of Real Estate – as a result of the combination of illiquid assets, high transaction costs, and leverage

23:09 Opportunity Cost Analysis – how and when to evaluate opportunity costs the right way

26:27 Realistic Inputs Create Realist Outcomes – better to have conservative assumptions with upside than aggressive assumptions with downside

36:33 Profitability Metrics – cap rates and price appreciation as a hope strategy

41:42 Tax Advantages of Real Estate – depreciation, 1031 exchanges, and the important distinction of investors vs dealers

48:02 Applying Theory to Practice: A Real-Life Example – Marcus talks about his recent rent vs sell analysis on his old house

Sources

¹ American Dream: Is Your House Your Greatest Investment? | Greenstream #8 (https://www.youtube.com/watch?v=z-_Eg-hHaPA)

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