In today’s conversation with Big Ern from Early Retirement Now we discuss safe withdrawal rates, sequence of returns risk and much more.
Podcast Episode Summary
A wide ranging discussion with Big ERN from Early Retirement Now on sequence of return risk and safe withdrawal rates
This is Big Ern’s first podcast! And a thank you to him for helping with Paul’s case study
Ern’s thoughts on social security
Ern’s origin story and his thoughts on early retirement
He had a student loan that he invested since he went to college for free. So he ended up with a positive net worth after graduation
Why do we need to be concerned with sequence of return risk?
Ern says that sequence of returns risk is the “reason why people run out of money in retirement” from getting unlucky with low returns in the first 5-10 years
What are “real returns”? Adjusted for inflation
The years to worry about having poor returns are the first 5 to 10 years and it has to be prolonged and significant
Hypothetical example of the 4% rule and what Ern thinks about it
Resources to game out your chances of success
Example of sequence of returns risk for an early retiree who is withdrawing money from the portfolio
How sequence of return risk impacts the saver and buy-and-hold investor
If you’re a saver during downturns, you benefit significantly
Buy and hold investors should not be impacted as long as they didn’t sell during the downturn
Talking through the ‘stubborn’ 4% withdrawals and the impact on success of early retirement.
Ern’s look at the real-world ramifications of a market drop and withdrawals
‘If you’re unlucky, you can get screwed twice by sequence of return risk’ example
How to alleviate sequence of return risk
Mortgaging your future contributions by buying on margin and front-loading
Spreading out your contributions to the equities market over years lowers your sequence of returns risk
Ern’s thoughts on front-loading and a description of his investments
Thoughts on Bogle’s prediction that 4% returns can be expected in the near future
The “4% rule of thumb”
What worries Ern about someone retiring early in the next 10 years?
What do you do if you inherit $100,000?
Ern’s thoughts on 30x expenses saved up and what his safest safe withdrawal rate would be
Hot Seat Questions
Benefits of geographic arbitrage
Ern feels he was complacent with his savings rate earlier in life
Becoming wealthy is a long-term process of small, regular investments and staying the course when the equity market is down
If your job offers a pension, then this book is a must-read. Easily learn how to calculate your pension’s objective value and weigh it against the subjective benefits of leaving for more fulfilling work.
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