When Your Retirement Number Loses Relevance

Christine Benz Tweeted out the following.

What message do you take from the implication that if you dial back from a 4% withdrawal rate you'll be safer? What action is being suggested here? There are couple of different ways to go with this. 

It is worth repeating that having some number in mind for portfolio size for when you retire based on some realistic work involving how much you make and how much you spend certainly makes sense but that number is no longer relevant once you retire. What is relevant is how much you end up with. Four percent of an $800,000 goal is $32,000 but if you end up with $600,000 then taking $32,000 becomes very risky, odds of running out early go way up. I realize this is obvious but there is value in reiterating basic building blocks of understanding. 

Sticking with an $800,000 goal and 4% or $32,000, great, you're about to retire and you're exactly on target with those numbers. The 4% rule equates to something like a 93% chance for success, not outliving your money. Pretty good but things like a stagnant decade for stocks as some are calling for could be an obstacle. Whatever is going on in the bond market could also be an obstacle depending on how it plays out. 

I don't want to take Bernstein's comment to mean make sacrifices and take less from your portfolio, that shouldn't be Plan A if you've adequately saved. That might be the outcome but I don't want to build that as my plan. 

It is far more robust to devise a retirement plan that is less reliant on just two income streams, portfolio and social security. We've been writing about this for years. If you're lucky enough to do work that you love then why would you be in a hurry to give up that income stream entirely? My wife and I added the one rental house to our equation a little over five years ago which is obviously a very common type of hands on investment and there are other vehicles that generate passive income that are maybe less hands on but watch out for fees on those. And of course we've talked countless times about monetizing hobbies. 

The bigger point is that retirement as we used to think about it is evolving. Very few people get pensions anymore. There's a looming threat that Social Security payouts will be reduced and what if stocks do have a dead decade? Overcoming those challenges requires figuring out your own unique solution and the sooner we all start working our our own solution, the better.