Kitces Discusses Safe Withdrawal Rate on Mad Fientist Podcast

[Mo Money]

Michael Kitces just did an hour-long podcast interview with the Mad Fientist. No new revelations, but a useful overview/refresher of the 4% withdrawal rate and the reasoning behind it, as well as some good insights for those planning ER -- the most highlighted one being: "Avoid lifestyle creep." Again, it was not anything new but a good survey that was worth the hour's listen.

Here's the link:

Michael Kitces – The 4% Rule and Financial Planning for Early Retirement | Mad Fientist

 

[Rianne]

Michael Kitces just did an hour-long podcast interview with the Mad Fientist. No new revelations, but a useful overview/refresher of the 4% withdrawal rate and the reasoning behind it, as well as some good insights for those planning ER -- the most highlighted one being: "Avoid lifestyle creep." Again, it was not anything new but a good survey that was worth the hour's listen.

Here's the link:

Michael Kitces – The 4% Rule and Financial Planning for Early Retirement | Mad Fientist

Good analysis, but I fast forwarded to 30 minutes and got the info I wanted. He did not address bad health. He did address keeping busy in retirement and the opportunities that could come up. Good discussion.

 

[ncbill]

I did appreciate he noted "one-off stuff" (buying a latte!) doesn't matter when the major discretionary, especially major recurring discretionary expenses are properly addressed.

 

[CRLLS]

I wish these places would date their articles so we know when they were written.posted. I realize this is a new interview. Nowhere on the site or in the interview was there a relative date mentioned. Only by reading the comments is there any reference to dates. One never knows when they read something on the internet, when it was written/posted.

Maybe I should post this in the pet peeves thread.

 

[Mo Money]

I wish these places would date their articles so we know when they were written.posted. I realize this is a new interview. Nowhere on the site or in the interview was there a relative date mentioned. Only by reading the comments is there any reference to dates. One never knows when they read something on the internet, when it was written/posted.

Maybe I should post this in the pet peeves thread.

Good point. All I can volunteer is that it was listed as a new podcast by Mad Fientist in an email he sent out this morning.

 

[walkinwood]

An amazing podcast! I'm a big Kitces fan.

If you're just starting out on this journey and find the Safe Withdrawal papers too dry, this would be a good starting point. He covers a lot in an hour and is an engaging speaker.

 

[Scrapr]

I just downloaded to my phone to isten in the car. I'm looking forward to it

 

[mathjak107]

listening to it now . very very good . i like michael a lot as a researcher . i like him better than pfau who seems to have a biased interest in using annuities .

 

[pb4uski]

+1. Glad we found something that we can agree on for a change.

 

[RobLJ]

Thanks for the post, OP. This was a very interesting interview, particularly on Kitces research on the SWD. It confirms my sense that many are probably too conservative (on this site, not most), unless their intent is to leave a legacy for heirs or charities or their kitties.

 

[bmcgonig]

listening to it now . very very good . i like michael a lot as a researcher . i like him better than pfau who seems to have a biased interest in using annuities .

Kitces is partner in a 1% AUM firm. He's great, but I'm sure he's been accused of being as biased in his direction as Pfau is in his.

 

[Mo Money]

Kitces is partner in a 1% AUM firm. He's great, but I'm sure he's been accused of being as biased in his direction as Pfau is in his.

Fair point; I think Kitces might be gently criticized for not making it extremely clear that if someone pays a 1% fee to an adviser, their SWR goes from 4% to 3%. But I think you could almost hear that in his tone, in the gingerly way he talked about the advisor trade group he belongs to, and the type of advisors that might or might not be a good fit for some people. But that's the worst bias I can find. Is that the bias you think he might be accused of, or am I missing some other bias?

BTW, the Bogleheads have a 40-million page thread going regarding this podcast. They are a great bunch, but somehow I think ER.org handles issues like this a bit more succinctly! Lots of mega-micro-analysis over there...

 

[pb4uski]

Fair point; I think Kitces might be gently criticized for not making it extremely clear that if someone pays a 1% fee to an adviser, their SWR goes from 4% to 3%. ...

Not really... perhaps a popular misception. You can prove it is false using Firecalc.

40k spending, $1m portfolio, 30 years.... 94.9% success rate
On Portfolio tab, change expenses from 0.18% to 1.18%... success rate declines to 82.9%
Use Investigate tab solve for spending to achieve 94.9% success rate...

Looking for a spending level that will result in 94.9% success rate . . . . . . . . . . . . . . . [done]

A spending level of $35,850 provided a success rate of 95.7% (117 total cycles, of which 5 failed). This spending level is 3.58% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

So all else being equal, that 1% AUM fee reduces SWR from 4% to ~3.5%.

 

[W2R]

The podcast was fun to listen to; thanks.

Interestingly Kitces seems to think that just about everyone who retires early is just dying to work part time at a lesser job, such as being a bartender, after they quit their career job. That is true for some, though not all retirees. From what he said, I got the idea that most of his clients go back to work in something like that.

I have been retired for 8 years. Let me be brutally honest: there has not been one single moment all this time, in which I thought, "gee, I wish I was working at a low paying part time job where I wasn't getting paid what I feel my time is worth". Not one. For those who think like me, it makes more sense to stick with the high income job a little bit longer so that we aren't stuck with the much lower income job for years and years.

People like me need to be completely sure that planned portfolio withdrawals are sufficient, when we set our retirement income goals. We are not planning to just retire for a few years, and then say, "oh well, didn't work, who knew? Guess I'll get a job as a waitress".

 

[pb4uski]

....Let me be brutally honest: there has not been one single moment all this time, in which I thought, "gee, I wish I was working at a low paying part time job where I wasn't getting paid what I feel my time is worth". Not one. For those who think like me, it makes more sense to stick with the high income job a little bit longer so that we aren't stuck with the much lower income job for years and years. ...

Amen. You are wise beyond your years.

 

[W2R]

Amen. You are wise beyond your years.

Yes, I am such a young thing, y'know (age 69 already, eek! Where did the time go )

 

[audreyh1]

Not really... perhaps a popular misception. You can prove it is false using Firecalc.

40k spending, $1m portfolio, 30 years.... 94.9% success rate
On Portfolio tab, change expenses from 0.18% to 1.18%... success rate declines to 82.9%
Use Investigate tab solve for spending to achieve 94.9% success rate...



So all else being equal, that 1% AUM fee reduces SWR from 4% to ~3.5%.

Thanks for pointing that out and showing one way to calculate it.

I knew the answer was not 1%, and quite a bit less, but I'd forgotten what the approximate "cut" in the withdrawal rate was.

 

[audreyh1]

I find Kitces quite straightforward and his work with other financial gurus, like Pfau, has actually challenged them, pointed out some of the flaws in their approach, and if he turns around and co-publishes the improved version, that's cool.

Kitces can think outside the box.

Pfau often seems to have blinders on.

Kitces is so much smarter AND more practical than Pfau.

 

[audreyh1]

The podcast was fun to listen to; thanks.

Interestingly Kitces seems to think that just about everyone who retires early is just dying to work part time at a lesser job, such as being a bartender, after they quit their career job. That is true for some, though not all retirees. From what he said, I got the idea that most of his clients go back to work in something like that.

I have been retired for 8 years. Let me be brutally honest: there has not been one single moment all this time, in which I thought, "gee, I wish I was working at a low paying part time job where I wasn't getting paid what I feel my time is worth". Not one. For those who think like me, it makes more sense to stick with the high income job a little bit longer so that we aren't stuck with the much lower income job for years and years.

People like me need to be completely sure that planned portfolio withdrawals are sufficient, when we set our retirement income goals. We are not planning to just retire for a few years, and then say, "oh well, didn't work, who knew? Guess I'll get a job as a waitress".

I think you're right in that Kitces does seem to have a bit of a blind spot in that it's hard to imagine someone not working at something. Ironically that blind spot is not unusual — even among those who do retirement planning!

 

[Sunset]

...... Let me be brutally honest: there has not been one single moment all this time, in which I thought, "gee, I wish I was working at a low paying part time job where I wasn't getting paid what I feel my time is worth". Not one. For those who think like me, it makes more sense to stick with the high income job a little bit longer so that we aren't stuck with the much lower income job for years and years.
.....

+1
Exactly how I see it as well.

Now, I'm trying to learn the value of hiring folks to do stuff instead of doing it myself, if the money saved is less than $15-20/hr.

 

[bmcgonig]

I find Kitces quite straightforward and his work with other financial gurus, like Pfau, has actually challenged them, pointed out some of the flaws in their approach, and if he turns around and co-publishes the improved version, that's cool.

Kitces can think outside the box.

Pfau often seems to have blinders on.

Kitces is so much smarter AND more practical than Pfau.

I think both are invaluable. Kitces basically says that 4% has always worked and implies that it therefore will always work. Pfau is just more conservative and looks at present bond rates and stock prices and tries to determine what the future might look like. Also Pfau is "the safety first" school, Kitces is "probability based" school of thought. Pfau wants a guaranteed floor, that's why he goes for SPIAs to get that floor, Kitces isn't against them but feel that they're not needed.

Neither are wrong, just different approaches.

 

[walkinwood]

Not really... perhaps a popular misception. You can prove it is false using Firecalc.

40k spending, $1m portfolio, 30 years.... 94.9% success rate
On Portfolio tab, change expenses from 0.18% to 1.18%... success rate declines to 82.9%
Use Investigate tab solve for spending to achieve 94.9% success rate...



So all else being equal, that 1% AUM fee reduces SWR from 4% to ~3.5%.

Thanks pb4uski. Instinctively, I would have thought it lowered SWR to 3%, but since the traditional SWR is % of initial portfolio adjusted for inflation irrespective of the portfolio value; and since the portfolio goes to 0 in the worst case, SWR doesn't drop the full 1% of the advisor fee.

I've got find the time to see what happens to the terminal value of the portfolio for the median and best case scenario. Its just that I'm so damn busy in ER

 

[pb4uski]

Thanks pb4uski. Instinctively, I would have thought it lowered SWR to 3%, but since the traditional SWR is % of initial portfolio adjusted for inflation irrespective of the portfolio value; and since the portfolio goes to 0 in the worst case, SWR doesn't drop the full 1% of the advisor fee.

I've got find the time to see what happens to the terminal value of the portfolio for the median and best case scenario. Its just that I'm so damn busy in ER

Not quite sure what you mean by the last part but I'm pretty sure that the median and best case portfolio terminal values would be about the same for 0.18% ER/4% WR and 1.18% ER/3.5% WR if that is what you are asking since the beginning portfolio value is the same ($ 1 million) and success rate are about the same.

 

[walkinwood]

Not quite sure what you mean by the last part but I'm pretty sure that the median and best case portfolio terminal values would be about the same for 0.18% ER/4% WR and 1.18% ER/3.5% WR if that is what you are asking since the beginning portfolio value is the same ($ 1 million) and success rate are about the same.

There is a difference. Here are my Firecalc results.

With 1,000,000 and 4% SWR, .18% expense ratio, 30 years
FIRECalc looked at the 117 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 117 cycles. The lowest and highest portfolio balance at the end of your retirement was $-400,986 to $5,679,475, with an average at the end of $1,849,457. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 6 cycles failed, for a success rate of 94.9%.


With 1,000,000, and 3.58% SWR, 1.18% expense ratio, 30 years

FIRECalc looked at the 117 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 117 cycles. The lowest and highest portfolio balance at the end of your retirement was $-314,266 to $4,273,503, with an average at the end of $1,386,229. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 5 cycles failed, for a success rate of 95.7%. (I asked FireCalc to investigate 94.9, but this is what it gave me).

 

[pb4uski]

I had the same issue and could not find any way to get it closer to 94.9%.

Spending = 35,800... success rate = 95.7%
Spending = 35,900.... success rate = 94.0%