Inside The Plan

The Distribution Phase

On today's episode of the "Inside the Plan with the 401(k) Brothers", host Bill Bush and Andy Bush, advisors at Horizon Financial Group, will talk about the distribution phase of retirement. They talk about the 4% rule, i.e., the withdrawal rate that suggests you wouldn't outlive your funds once you retire.


Episode Highlights

  • 02:05: Bill and Andy talk about popularly known withdrawal rate strategies with different asset allocations and looked back at historic returns and came up with the idea that if you started your first year of retirement withdrawing 4% in most models your savings would last 50 years or more.
  • 02:35: You can't take a percent to the grocery store, so you got to do some of the math to say, well, if I had $100,000, what's 4% of that.
  • 03:48: Bill and Andy discuss about the rate of inflation. They suggest if you had a 2% inflation, you just add that on from the 4% you started within year 2.
  • 04:30: If there happens to be deflation, you could back out the 2%.
  • 05:20: There was a sweet spot in the percentage of stocks and bonds. So that sweet spot tended to be kind of a 60-40 portfolio.
  • 06:04: If you had a million dollars, 20% is $200,000 and if you saw your portfolio go from $1,000,000 down to 800,000 and you were entering retirement, it would be very uncomfortable.
  • 07:25: That is what folks have to get their arms around entering into retirement, they need to understand there is the day you retire, or you are not taking all the chips off the table and moving everything into the safest instrument.
  • 07:48: If you retire at 65 and you are married, there is a 50 % percent chance that one of you lives to 90 and that’s a decent chance.
  • 09:30: Bill and Andy talk about cash build-up that is available to get you through some of the tough times without having to tap into some of the equities while they have been depressed.
  • 10:35: In 2022, you had the stock market and the bond market both down double digits and you also had inflation raging. So, if you were retiring in 2022 and that was your first year of retirement, not only were your assets declining, but you also had to if you factor in the inflation part, you know your dollar didn't go as far.
  • 11:46: While the market did its horrible thing in the late 1920s and early 30s. It eventually would catch up, looking back historically, but the inflation side was a big wallop in the 70s.
  • 12:17: Bill explains how inflation is the silent killer. If you don't plan and prepare for It can just destroy your savings.
  • 13:47: If you are born after 1960, your RMD is now 75. So, if you are retiring in your 60s, mid 60s and you start drawing money from your savings, you are going to be whittling down that balance before 75.
  • 14:41: What it comes down to the government you were putting money in pretax all this time and it grew tax deferred all this time, and they want to make sure that the taxable revenue is coming back.
  • 15:38: What is inflation going to do? What is the market going to do in the next 30 years? When is the last day you are going to be on the planet?

Three Key Points

  1. Bill and Andy explain how you really must save a good amount of money if you utilize the 4% rule.
  2. Bill and Andy share how using the 4% rule, those that retired in or around 1929, their portfolio still survived the full 50 years.
  3. The purpose of this episode is to get you thinking about eventually, you are going to be pulling dollars out, and you got to get intentional about that.

Tweetable Quotes

  • "In retirement, you won't be earning anymore, but you need some source to be able to pay for lights and gas and food and all the other things that you pay spend money on." – Bill
  • "Even as a non-retired person, when I've seen My Portfolio go down like, hey man, this stinks, you know, and you start to go through the emotions, and you start to have the thoughts of maybe I am doing something wrong. Even as a financial advisor, it is great if you put some perspective on it." - Andy
  • "Market can fluctuate from time to time, but over long periods of time, there is an average annual return." - Bill

Resources Mentioned

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