By coinnews 
00:00 Speaker A
A recent study by Allianz found nearly two in three Americans, or 64%, worry more about running out of money than death. And even with this fear, 62% say that they are not saving as much for retirement as they would like. So, we want to help you get retirement ready by talking about how much money you can spend in retirement without running out. One common method is known as the 4% rule. According to Schwab, the 4% rule says that you should add up all of your investments and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount to withdraw to account for inflation. By following this formula, you should have a very high probability of not outliving your money during a 30-year retirement. But our next guest says that this is not a one-size-fits-all plan. Here with more, we’ve got Rob Williams, managing director of financial planning at Schwab Center for Financial Research. Rob, good to have you here. So, let’s just start with this. Why is 4% a reasonable place to begin?
02:08 Rob Williams
Well, it’s a rule that’s been around for almost 30 years now, and it was a great place to start because, as you said, Brad, so many people worry about how much to spend in retirement and need a place to start. But a couple things that we’ve written about, and I think are important, it’s a rigid rule. So, it assumes that you increase that dollar amount. So, say, 4% times a million, that’s $40,000 each year with inflation for a 30-year retirement and never make any adjustments. It also assumes that you want a very high probability that your money’s not going to run out, which is makes sense, but what if you can remain flexible and make some adjustments? And most of all, it’s not personalized. It’s a fine place to start, but with technology, with modern planning, we can do a lot better if we know a little bit about your situation, and you can remain flexible.
03:44 Speaker A
So, how do you determine your own personalized spending rate?
04:00 Rob Williams
Well, the first is to determine what your time horizon is because a 30-year retirement, if you’re 65, which is what the 4% rule was designed for initially, 65 to 95, that’s a 30-year retirement. But let’s say you’re in your 70s. Well, perhaps you could spend a little bit more than that. The other is, how much confidence do you want to have that you’re not going to run out versus legacy goals, so leaving money behind. And if you want very high confidence, you spend less and potentially invest a little bit more conservatively as well. And the last, the one that I think is most important is, how flexible can you be? Can you divide your expenses into your essential expenses and then some discretionary expenses? And most investors and retirees naturally are going to cut back on some of their discretionary spending, say, in a down market. And if you do that, that can really help your savings last. So, how flexible can you be? Those are three questions to ask to help you get to a more personalized spending rate.
05:44 Speaker A
So, once you’ve asked yourself all these questions, just take us through the math here. Let’s assume 30-year time horizon and a conservative allocation here, then how do you make sure that that plays out correctly, and you don’t run out of money?
06:10 Rob Williams
Sure. And this is a simple chart that we’ve put together, and there’s more to it, but in different scenarios. But in this scenario, let’s take the conservative example. Conservative at the top means how aggressively you’ve invested your portfolio. And in this case, based on our research and our numbers, the conservative portfolio is 60 to 70% bonds and the rest in stocks, and the more aggressive portfolios includes more stocks. And what it says is, in this case, you spend 4.1% in the first year of a 30-year retirement, and then, based on our current projections of how we think different asset classes, stocks, bonds, et cetera, will perform, 4.1% would be the highest initial spending rate that first year, as you described, Brad, and then you increase it every year with inflation to have a very high, a 90% probability of lasting through retirement. So, that’s what the table means. It’s a fine place to start, but for all the reasons I suggested, you can do much better by personalizing it by staying flexible and using a modern retirement income plan.
08:11 Speaker A
Rob, good to have you here with us. Thanks so much.
08:17 Rob Williams
Good to be here. Thank you.