Retirement Breaking News: The 4% Rule Gets a Makeover Podcast By cover art

Retirement Breaking News: The 4% Rule Gets a Makeover

Retirement Breaking News: The 4% Rule Gets a Makeover

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 The 4% rule gets talked about like gospel in retirement planning. But let’s be honest, it’s always been more of a rough guess than a golden rule. Now, its original creator is revising it to 4.7%. So, does that mean your retirement paycheck just got a raise, or is this just another headline that oversimplifies a complex decision? Important Links: Website: http://www.yourplanningpros.com Call: 844-707-7381 ----more---- Transcript: Marc: The 4% rule gets a makeover. Let's talk this week here on Plan With The Tax Man about the change in the 4% rule by the guy who created it. It's pretty much the gospel in retirement planning, so what does that mean for us? Let's get into it with Tony. Hey everybody, welcome to the podcast. Thanks for hanging out with Tony Mauro and myself as we talk investing, finance, retirement, and the 4% rule getting a makeover is the big topic this week, Tony. I want to dive into this conversation just a little bit, but first, how are you, my friend? Tony Mauro: I'm doing very good, how are you? Marc: I'm doing very well. Have you seen this? I'm sure you have- Tony Mauro: I have seen it. Marc: About the move to 4.7%. Doesn't have the same ring as the 4% rule, but it's being bumped up to 4.7%. And so I want to talk about this a little bit because this thing really, truly has... The guy who made this, and I'll let you give us a little back story here in a second, I wonder if he thought that this thing was going to be like the golden rule gospel of retirement planning when he made this thing 30 some odd years ago, right? Tony Mauro: Yeah. Well, I don't know if he did and it's been around for what, since the '90s I believe? Marc: Yeah, early '90s. Tony Mauro: Basically what he came out with, and there's been books written about it and everything else, and so it's very popular that what he came out with was retirees should basically, if you're going to live off of the income, you should take out 4% or right around there just for inflation. So for basically over your retirement lifetime, which at then was 20, 30 years, you wouldn't run out of money. Marc: Yeah, and it was like a 50/50 split too, right? I think it was instead of the 60/40, it was 50/50. And to make it easy, Tony, I guess we can say, look, you got $1 million, and it feels like everybody, even people who aren't in the financial industry have heard of this 4% rule. If you're getting close to retirement, you've probably heard it. And so it's like, okay, you got $1 million, take out 4%, it's $40,000 a year. Nice and easy, right? Tony Mauro: Right. And then it would continue to grow, you could continue to do that and you wouldn't run out of money. Marc: That's your safe withdrawal rate, right? Tony Mauro: Yeah, safe withdrawal rate. Now, in a person's overall financial plan, I like to go against the grain on this a little bit. I think when we talk about this at the distribution stage, I try to get them to buy into the fact that we want to do a hybrid type of take on this. Number one, we want to start out, because I think in today's, depending on their appetite for volatility, I think you can get closer to 5% easy. You have to cut back your bonds a little bit. Marc: Interesting. Well, and that's kind of what Bill's saying. And by the way, his name was Bill Bingen for folks who were- Tony Mauro: Yep, Bill Bingen. Marc: Who are listening. He's saying 4.7%, so you're saying maybe even 5%. Tony Mauro: I like to suggest 5% and I've been doing it with my own father for years and several others that like that. Now, if their propensity, they don't want to see any of their portfolio when they look at a statement or something and see it bouncing around, I try to get them, "Let's not worry about that, it's going to go up and down." But the income, we can get 5% easy, but I try to get them to buy into the fact, is let's say that we base it on 5%. Yeah, if we have a bad market, let's bump our distribution rate down a little bit to 4% or 4.5%. And if we have a good market, well, then let's bump it up a little bit in that year. So we kind of get a little more activity, because I think the one thing I don't like about this rule is a lot of people think, "Well, I've got to leave all my money to whomever," and whatnot. I think the number one thing that we need to think about is, the first thing is you need to make sure that the rest of your life is stable and you have enough money. Then if there's money left, you can leave it to heirs. But I think too many of us get wrapped up in, "I don't want to take any money out." And I think it depends again, what you want to do in life, but they kind of shortchange a good retirement when they have money that they could do it with. Marc: Yeah. Okay, so looking at what Bill has done here, he's changed a couple of things. His 2025 update, Tony, is now 55% stock and 45% on the bond side. So he's kind of acknowledged that over the last couple of ...
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