“Stocks didn’t appreciate for 15 years but stock were giving dividend yields of 6-7%”. Michael: So you got it to the level of, “This is how many clients I’m comfortable with. As with many of these rules, the ratcheting rule could be implemented in numerous ways. Love the breakdown on P/E in a simple to understand way! And if you cut back your income 50%, you don’t even have to keep doing your current job. In a 2008 paper, Kitces … Great interview! I’m estimating 10-15% going to Uncle Sam. But what I found was that when you look historically in all the time periods where you had to use the safe withdrawal rates number where you can only take out like 4% to 4.5% of your initial account balance adjusting subsequently for inflation, that initial withdrawal rate was really only set by like three or four different starting points for retirement in history, all of which were time periods where you retired when valuations were really, really high. And so, when you view it that way, a little bit of side gig, side hustle, part-time, fun work, but you get paid, whatever you want to call it, actually has a dramatic impact on making that early retirement even more easily sustainable, including, for a lot of people, we point out like, “Hey, I know you’re trying to work another seven more years to hit your number for extreme early retirement, but you realize if you just cut your work back to 50%, you have enough today.”. Sometimes, we see people split. So I just basically reviewed with my clients every year indicated…I compared the balance that they had in their account with the balance we thought they should have based on the 4.5% rule. Michael: Right. Great perspective from Michael and tons of great information to digest. So my options were limited. Find many great new & used options and get the best deals for ANNUITY ADVISOR By Michael E. Kitces & John L. Olsen *Excellent Condition* at the best online prices at eBay! What do you view as the next frontier in the research or the next area that you want to add to it? Mad Fientist: And I think a lot of people who are thinking about early retirement, they want to be super conservative. And we had a lot of clients that pulled the trigger on early retirement basically as soon as the health insurance exchanges showed up because their only gap they couldn’t effectively solve was what to do with health insurance. But if you just don’t introduce it in the first place, it’s amazing how quickly the saving start to accumulate. Michael: Yes. So of course, I have a an affinity for laboratories and all things science and research. So when did you move from 4% to 4.15% to 4.5%? Bill: Yes, I don’t think I ever used the term 4% rule, I don’t believe so. I’m not concerned about safety. And he ended up being a bartender. And frankly, there’s a wide range there. It’s been a long time since they’ve had to worry about the other problem. I think our profession needs to be open-minded and look at alternative means of managing money and not just assume that buy and hold is the correct way to do it. I usually end all my interviews with just what one piece of advice you’d give to somebody who’s hoping to retire earlier or reach financial independence early in life. And sometimes, the methods they used were very underhanded and unsavory. Michael Kitces: Yeah. Also great tip about Lifestyle Creep and so true. We know there have been long periods of time, like after the 2009 crash or in the ’60s and ’70s with stocks went nowhere, where it didn’t get back to the earlier levels for a long, long time. But that is just a matter of time. But wont the current CAPE Shilling have 2007,08,09 in the equation as it looks back 10 years? (and as always, thanks for the transcript, which is how I ingested the information!). Bill: Well, it was a combination of things. They were literally in tears. Bill: 2010 I was starting to move back in but I never put them into a full allocation, which was a mistake. Although just last month i hired a lawn care service….. working 60 hours a week i think it is worth the saved time :). And stocks really mechanically function the same way. So, there are still a lot of things to look at. Michael: So to you, it sounds like the 4% rule wasn’t necessarily an alternative to, or in lieu of, planning software. Once you move away from that to something else, it’s so hard to go backwards or to feel like going backwards. Derek Tharp, Meghaan Lurtz, Kate Mielitz, Michael Kitces and D. Allen Ammerman. Speaking of simple here’s my FI withdrawal strategy: 1. So I said, “I guess I’m going to have to do it.” So I just got out my computer and my spreadsheet, got a copy of the Ibbotson data based on…and started cranking numbers. I think the only other time it’s been higher is leading up to the big crash in the 2000s. Michael Kitces: Certainly, XY Planning Network is a great resource. And so it was my job to kind of take in the research and figure out how we’re going to analyze and evaluate retirement situations. Does the 4% Rule Still Work? So, it’s kind of this tie-in valuation, inflation, more diversification, different asset classes, and some kind of system about how you actually mix all of those together in practice to come up with particular client recommendations? I’ve written about 600 of them and nobody’s responded. Tech stocks have crashed. You’re going to have a lot more money than you even started with. So, just figuring out what that is. Back then, no one was talking about it. I’m assuming that the people who are issuing these warnings – grim warnings about 3% rates and 3.5% – are using Monte Carlo software to generate their predictions. We looked at how the entire financial system was going to burst worldwide. Once you do that, you suddenly find that things that you never had in your life, you suddenly can’t live without. So it’s hard for me to comment on it since I haven’t worked with it that much. You built up these expectations and, yes, they’re going to rely on you for that to happen. Michael: Again, it strikes me, some of the irony of how all these things evolved, where you put out a 4% rule in a world where your balanced portfolios were doing 7.5% plus people were saying take 6% and 7% in and you’ll be fine in the early 1990s. They used components of the financial system. Too much happy energy to avoid. Great podcast as always. We’re getting into really high territory. So, when you think of any investment like a bond, a bond pays 5%—or a bond pays 3%.So, if a bond pays 3%, that simply means, for every dollar that you put in, you’re going to get ¢3 back as a yield. A $5 coffee at Starbucks (clearly a sugar laden drink with other health related costs, as their coffee is much less) isn’t a “one-off” and does become one of those “recurring costs”. Michael: So how did you look at or think about things like Monte Carlo software as it came forth? And that may be a good investment. Michael: And so, as you look at it today, you’ve now done literally decades of this research, you’ve lived it, you’ve lived with multiple market cycles, so I guess I’m wondering two things. So I haven’t seen how that happens. Have a drink and either a. try to convince my amazing ex gf to take my sorry ass back or b. start the horrible and delightful process of dating all over again. Awesome podcast and perfect timing for me! Most of the time, I’ve lived in housing that’s less than 10% of my income. At the front end, specify what the withdrawals would be, monitor the process during our clients’ lifetime, and then have some sort of a system in place that if they need to make changes and that their withdrawal plan is failing, how do you do that? what do you suggest I add?”. They’re like, “I don’t even need to be done. Thanks for all the work you have done pulling information together across podcasts, calculators, travel tools, blog posts and more, it is some of the best FI stuff out there and helps a lot. Michael Kitces: You still have something left, some moderate amount left, so that when the good returns finally show up, you can work through to the end. There’s a lot of common sense spoken here that is, as they say, “not so common”. Michael: So what would you have liked to see or want to see now in planning software that you think would fit this even better? So a lot of questions that I get are: “Well, yeah. You know, as bad as it can get when you get these bad sequences, what we still ultimately found is it still doesn’t seem to get any worse than about 4%. Right, this was 400 employees. Yeah, I’m actually looking, and it’s 0.79 actually too. Mad Fientist: And that’s the best place to reach you? No one had any definitive analysis that I could find. Bill: No, it’s really, to me, it’s beautiful profession. Mad Fientist: Hmmm… so the biggest tip I’d give to people that are trying to reach financial independence early in life is watch out for that thing called lifestyle creep. The market became difficult. That’s baked into the historical numbers, and that’s not there in the Monte Carlo analysis – or at least it’s not there unless you create some separate assumptions to put it there, which most people don’t. Someone please give me a sanity check on this plan: The year you retire (Year 0) you use the SWR based on CAPE10 and withdraw that amount. In some years there are as much as 25%. One of the best things I’ve ever listened to. I really appreciate you taking the time to chat with me. It sounds like we’ll just pull up data numbers and see how they’re running relative to the original projection and just make sure, “Is our current year withdrawal rate still reasonable?”. We find a way to do it. Michael Kitces: Yup! Sorry, your blog cannot share posts by email. Bill: Yes. And so we kind of came at investing with this view and philosophy that valuation matters. And when we look at the people that are most successful in early retirement, every now and then, it’s just like, “Hey, I made a company, and I sold it for $10 million. One nerd’s perspective on the financial planning world… CFP, #LifelongLearner, Entrepreneur-In-Denial, Advisor #FinTech, & … Because if you buy something at the right price, you’re good for many years. And I think they missed the point, the fact that if they have a really bad initial five years or ten years— It was a good idea at the time. Primarily, because stock market rallies tend to bear/bull markets had occurred in four, five, six years, or longer periods of time. Michael: So talk to us about the shift then. And now, all of a sudden, they’re a big player. But I am perplexed about one thing. Well, Michael, thank you so much. And that’s important to me. That was kind of a creation of the media. Michael: Interesting because I guess, as noted at that time, particularly being a fee-only financial planner in a world where I think, literally, like 98% to 99% of financial advisors were at brokerage firms or insurance agencies, being there as a financial planner without anything to sell them and just giving advice effectively was this very narrow niche, at the time, that they didn’t see from anyone else. Would love to see a part 2 with Mr Kitces!!! I’m just going to go crazy because I didn’t expect to have this salary. I just completed a CFP course within the last year, 18 months. 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