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
The Golden Albatross
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.
Links from the show:
- Early Retirement Now
- Big Ern’s series: The Ultimate Guide to safe withdrawal rates
- Mr. Money Mustache
- Go Curry Cracker
- Google file embedded in Part 7 of Ern’s series which allows you to enter your personal data
- cFireSim
- Bogleheads calculators
- Bogle interview with 4% prediction
- Ern’s blog post on Investing a Windfall
- Physician on Fire
- The Retirement Manifesto
